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Stealth tax cuts

Wednesday, 20th February 2008

The Spectator on whether the Conservatives have room for tax cuts

Within and beyond the Tory party there are many who wish he would go further. The shadow Chancellor and Mr Cameron are both instinctive tax-cutters, rather than the covert social democrats of caricature. As Mr Osborne said in a speech to Policy Exchange on 15 February: ‘I think the state consumes too much of the nation’s income, and then spends too much of what it takes badly.’ And lest we forget: he is already committed to cuts in inheritance tax, stamp duty and corporation tax, and to the hypothecation of green tax revenues to tax cuts for families.

But the Cameroons are also veterans of three successive general election defeats in which Labour — mendaciously, but effectively — alleged that Tory tax cuts would lead to the demolition of schools and hospitals. The veracity of these claims is neither here nor there. They did the electoral trick.

The internal Tory debate on tax — reassurance versus radicalism — will continue to rage. But the bigger picture is practical rather than ideological. An incoming Tory government is likely to inherit dire public finances in which the scope for sweeping tax cuts is uncertain to say the least. Much has been made of Mr Osborne’s commitment to match Labour’s spending plans for three years. But the crucial rider — little noticed, but repeated emphatically in his Policy Exchange speech — is that the Tories would ‘review the final year when we know the state of the public finances’. In other words: watch this space.

If Mr Brown plays it long and does not go to the country until 2010, Mr Osborne’s pledge would in any case be on the verge of expiry. This means, in practice, that the tax-and-spend policy which a Conservative government would actually implement is very far from decided.

Messrs Cameron and Osborne might be inheriting an economic basket case, as Margaret Thatcher and Geoffrey Howe did in 1979. Only then will it be possible for them to set out detailed fiscal policy. For now, the direction of travel is what counts: electoral reassurance underpinned by the promise of eventual policy radicalism. Mr Osborne’s message seems to be: I am on the side of the angels, but don’t expect me to help Gordon with his election campaign slogans, or to make outlandish promises that the books will prevent me from delivering in office.

The shadow chancellor is right that the politics of taxation is more subtle and hazardous than it has ever been. How to wean the voters off the bloated postwar state without scaring them into perpetual bondage to Labour? This will require a long process of political education, relentless emphasis upon value for money, and meticulously crafted Tory policies that are as resistant as possible to Labour misrepresentation. After 11 years of stealth taxes, it is time for some stealth tax cuts.