In the wake of Cameron’s decision to drop his pledge to match Labour spending, Fraser Nelson and Daniel Fin kelstein of the Times trade rhetorical blows over the issue that is gripping and troubling the Conservative party as it adjusts to the transformed economic context
Dear Fraser,
I feel we really need to have a word about tax. It was something you said that set me off. Something you used to underpin your argument that the Tories need to start announcing tax cuts. Could I detain you for a moment, and ask for an explanation?
Perhaps you remember your words. ‘The Tories were daft to focus so much on borrowing — it’s inevitable in a recession. The question is whether you use the deficit to spend or relieve taxes.’ Now I really couldn’t make head nor tail of this.
You see, in a recession, government revenue from tax receipts goes down and spending on benefits goes up. It is for this reason that borrowing increases. There isn’t any question of ‘using’ the deficit for anything. So what did you mean?
Do you think the Tories should borrow even more and cut taxes, throwing their fiscal conservatism out of the window? Or do you want them to hold borrowing steady and announce tax cuts paid for by specific spending reductions? If so, what would those reductions be? And how much?
Every single time since 1997 that the Tories tried announcing specific tax cuts paid for by specific spending reductions it has been a political failure. Why? Because people didn’t believe the figures, didn’t think they would happen and didn’t think it would make much difference if they did.
And they were right not to, because usually the exercise was pretty unconvincing. Why do you think this time would be different?
Yours,
Daniel
Dear Daniel,
I’m pleased to help. I may even try to convert you to the tax-cutting cause: I sense you are almost there, but need a little nudge. Let me try.
First, about that deficit. I thought the Conservatives were unwise to get drawn by Gordon Brown into whether they considered deficit financing a good thing or not. I suggest that the Tories simply accept whatever deficit projection is in next week’s Pre-Budget Report. I daresay it will be an £85 billion deficit in 2009-10 to finance £650 billion of spending.
There is more room for manoeuvre here than you seem to think. Given how wasteful Labour’s spending has been, it’s easy to find, say, £40 billion of savings. I offered a quick list in last week’s Spectator and my chief proposal is a pause in NHS budget increases, allowing a chance to digest the cash which Labour has been force-feeding it.
You ask — seriously, I presume — what has changed since 1997. Then the public felt optimistic. Now they feel mugged after tax rises working out at £6,200 per household with no accompanying improvement in public services. They would quite like some of their money back, knowing they can put it to better use than this government has been able to.
Tax cuts are not popular when offered disingenuously, as they were at the last election. But the inheritance tax cut George Osborne proposed last autumn was of course so popular that it stopped a general election — and, almost certainly, a fourth Labour term. Now, that was a tiny cut. Just think what a real one could do.
Best,
Fraser
Dear Fraser,
Thank you for your reply.
I still don’t fully understand your answer on funding your tax cut. You move from funding it by borrowing, back to funding it by instant savings. Which is it? Or is it both? Anyway, your offer was kind, but I do not need converting to the tax-cutting cause. I believe strongly in lower tax. But I want proper tax-cutting, based on real reform of the scope and operation of the state. I want them to be sustainable. A proper tax cut is not for Christmas, it’s for life.
What I oppose is punk tax-cutting. Borrowing to fund tax cuts is punk tax-cutting. These tax cuts will have to be reversed within a year or two to repay the debt.
Then there is a more subtle form of punk tax-cutting, the sort you seem to be advancing. You argue (correctly) that lots of money spent on public services is not spent wisely. You then — without saying what reform you will introduce and when — confidently announce exactly how much you can save immediately. Your list in The Spectator, like all such lists, was unconvincing. It would be torn apart in a campaign.
Finally, you give this fictitious sum out instantly in tax cuts. Questions of timing — you assume you get your savings right now — or paying back borrowing, never seem to come up.
And people, who do want tax cuts, don’t believe this stuff. Who can blame them?
Yours for proper tax cutting,
Daniel
Dear Daniel,
When the government is borrowing £85 billion a year, is the NHS funded by taxes or debt? There’s no clear answer in a recession, and it’s the same with tax cuts. So why get hung up on it? My proposal is really quite simple: identify £40 billion of savings (via cuts, budget freezes, whatever), split it between tax cuts and deficit reduction. I really can’t make it plainer than that.
As for timing, I’d have no problem if the Tories would, say, take power next spring, freeze budgets then implement tax cuts in the 2010 budget. It’s really not that big an ask.
Sure, any cost-cutting programme would be jumped on by Gordon Brown in a campaign, but when Thatcher was drawing up her tax-cut proposal do you think she was trembling at the thought of what Jim Callaghan would say? True leaders make policy on principle: I have every confidence that David Cameron will do the same.
As for your punk tax-cutters, it’s a good insult to hurl at Gordon Brown. But can you name one Tory MP who has been calling for ‘unfunded tax cuts’ that the Cameroons were so boldly promising to stand up to? I doubt it. I suspect that Tory punk tax-cutters are about as numerous as Tory punks.
Given that your enemy doesn’t really exist, perhaps we can agree that we’re on the same side. We want radical tax cuts, paid for by cuts in Labour’s wasteful spending. And we want this urgently because we think our country would be stronger, fairer and more prosperous as a result.
Best,
Fraser
Dear Fraser,
Thank you for your reply. You are correct in thinking that we have made progress.
Having originally said that the Conservatives were too hung up on borrowing, you now wish to reduce it by £20 billion. And having originally argued that the Tories should support tax-cutting now as a response to recession, you have changed tack completely. Your proposals are for a year after the Conservatives take office.
I entered this debate with you arguing that the Tories should announce tax cuts now, this year, and that anything else was a confused response to the immediate recession. You then appeared to suggest that the money for the tax cuts could come from more borrowing. After which you wrote an article saying that rather than borrow, it was easy to cut spending to fund immediate taxes.
And now I find you have dropped all of this altogether. So we have certainly made progress.
As for the £40 billion of savings you seek — is that the total sum, or are you hoping to find £40 billion a year? I agree that saving is possible, but you are, I have to say, cheerfully optimistic about achieving very big reductions very quickly.
Finally, there is your point about Margaret Thatcher. Mrs Thatcher did not propose tax cuts — she wanted to cut direct taxes, paid for by increasing indirect taxes. In her first budget she raised taxes.
I think her experience was that finding the odd £40 billion was, though possible, actually a ‘big ask’.
Yours,
Daniel
Dear Daniel,
If you ever tire of journalism, a place on Gordon Brown’s attack team beckons — your ability to invent contradictions where none exists is striking. I also salute your optimism in thinking we’ll be out of the woods in 2010, when the downturn is likely to be at its devastating nadir. I won’t waste time pointing out that it’s normal to announce tax cuts that are implemented in the next financial year. Nor did I ever suggest borrowing more to fund tax cuts. But you know that.
What we’ve established is that, alas, Tory punk tax-cutters just don’t exist. That’s why you can’t name any. It’s a shame, as the phrase is rather wonderful. But the head-bangers are on Labour benches now, determined to jack up state spending at all costs, hungry for the earnings of the British public. Yet again, it has fallen to the Conservatives to pay off Labour debts and restore fairness to the tax system.
As for the Lady, someone obviously forgot to tell her she wasn’t in favour of cuts
because she mentioned tax no fewer than 61 times on the eve of the 1979 election. Her manifesto laid out income tax cuts being
paid for not just by VAT increase but by ‘reductions in Labour’s public spending plans’. This last bit has just been adopted by David Cameron, who has said he’d spend
less than Labour in 2010-11. I’ll bet you a signed Art Laffer book that part of the proceeds will be used for tax cuts.
So our little exchange has been overtaken by events. The debate is over — on the Tory side, at least. I hope you agree that we’re all proper tax-cutters now.
Fraternally,
Fraser
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