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Simplify taxes, shift the burden, reward marriage: this is Osbornomics

Simplify taxes, shift the burden, reward marriage: this is Osbornomics

21 March 2007

5:11 PM

21 March 2007

5:11 PM

Even when she slips into a room half an hour late, The Lady can still inspire a standing ovation. ‘Can I welcome Baroness Thatcher who has just joined us,’ said Lord Lamont halfway through the Keith Joseph memorial lecture last Tuesday. He had just started explaining that Sir Keith would have accepted today’s Conservative slogan of ‘stability before tax cuts’, because he agreed with the principle of balanced budgets and ‘sound money’. On that basis, Sir Keith, the intellectual architect of Thatcherism, would have been a fan of George Osborne.

It’s a welcome endorsement for a shadow chancellor who has been trying to make the same argument for months. ‘I am a traditional Conservative,’ he says when he feels he is about to be accused of being a Labour-appeasing, gimmick-peddling sell-out. ‘And traditional Conservatives used to win elections.’ He can trace his new policies, even green taxes, to old Tories. And he is a shameless throwback to the 1980s, he can now argue, in the sense that the polls once again (more than 14 years after Black Wednesday) show the Tories more trusted than Labour over the economy.

For a man who started out 22 points behind Mr Brown in the economic competence ratings, it seems little short of a miracle. Mr Osborne’s aides believe that three quarters of this is down to the Chancellor himself, and to the growing dismay of a nation whose disposable income is not keeping pace with re-awoken inflation. Still haunted by the trauma of sterling’s exit from the ERM, the Tories are being careful to promise nothing too radical. Mr Osborne’s strategy has been to restore the credibility he believes was incinerated on that day.

As if to atone for this, Mr Osborne has so far forsworn sweeping upfront promises of tax cuts. But within these confines, he has been assembling an economic strategy of which we have been getting glimpses in the last few weeks. Some aspects of the strategy have been trashed, like the aviation tax proposals that would involve a capped carbon-free allowance and, therefore, tracking the air journeys of every British citizen. Others, like the plan for a 3p cut in corporation tax (costed, of course) have been better received. Piece together the hits and misses, and there is now enough material to sketch a broad outline of Osbornomics.


Climate change has been a useful allegory for Tory change, and will be deployed in economic policy as elsewhere. But green taxes, Mr Osborne explains, reflect a broader principle: the intention to shift the tax burden towards consumption and away from income. The money he would raise from green taxes, the shadow chancellor believes, would be spent cutting income taxes, which he says was precisely the principle behind Geoffrey Howe’s 1979 budget. Lord Lamont (who argued the same in his 1992 budget) said in his lecture that Sir Keith would also have approved of Mr Osborne’s ‘polluter pays’ doctrine.

But green taxes also hit the poorest hardest, and here the party runs a political risk. There is also a danger that ‘sin’ taxes — on cheap flights, fatty foods, uneconomical cars — could be caricatured effectively by Gordon Brown as the intrusive faddism of the Notting Hill elite, imposing its preoccupations on decent Middle Britain.

In the autumn, however, the Tories will start to unveil the sorts of tax cuts they would envisage when the public finances allowed. Married couples who have heard David Cameron speak positively about transferable tax allowances are already doing the maths and longing for him to translate warm words into firm policy pledges. If a husband is supporting a wife, or vice versa, they can save thousands per annum by merging their personal tax allowances. The Conservatives are happy to whet the electorate’s appetite, while stressing — of course — that homosexual couples in civil partnerships would enjoy the same benefits.

The blunt truth lurking in all this is that Middle Britain can forget it, at least for now. For economic as well as political reasons, the first tranche of Tory tax cuts would be focused on the low-paid. High-earners have done well under Labour, they argue: the problem lies with those tangled in the welfare trap of Gordon Brown’s notorious tax credits. I understand that at first the marriage tax break would either be limited to a tiny sum, or restricted to parents who, for example, have children below school age. It is a structural problem. Without pledging overall tax cuts, Mr Osborne’s hypothetical giveaways must be limited to what he can raise in green taxes (and even here he faces the conundrum that green taxes are meant to change behaviour rather than raise revenue).

In practice, Chancellor Osborne might end up with more of a piggy bank than a war chest: the sums he’s looking at amount to less than 1 per cent of the tax raised in Britain. That said, he could do the economy a great service by simplifying taxes radically — which, for business, would be a strong second-best. He is still looking at ideas in Lord Forsyth’s tax report, the inspiration for his plan to cut corporation tax, paying for it by abolishing complex allowances. This is precisely what he has meant by his repeated calls for ‘flatter’ taxes.

Simplification of taxes, support for marriage, green taxes and shifting the tax burden from income to consumption will be the guiding forces of Osbornomics. The shadow chancellor believes that if he is to repair the public finances which Mr Brown has so vandalised, his priority must be to shift the burden of tax, rather than cut the overall tax take — at least in the first instance. Much as he wants to cut the proportion of national income taken by the state — as a ‘traditional Conservative’ — he believes that it will not be open to him to do so very quickly.

A little over a year ago Mr Osborne was speaking about taking on the shadow chancellorship as a kind of masochistic favour to his friend Mr Cameron. It was as if he almost expected to be destroyed by Mr Brown. But he has seen his job more as bear-baiting than giant-wrestling and believes that the Chancellor has become tired, vulnerable and beatable. The credibility of his economic policies, he believes, lies in a refusal to promise reckless change. This, he is fond of saying, is how Conservatives move from opposition to government. And that very traditional Tory principle remains the alpha and omega of all that the Cameroons do.


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