In the old days, when the Conservatives were chalking up opinion poll ratings in the forties, their strategists knew they needed robust offers on four key subjects in order to secure their electoral base. These were Europe, law and order, immigration and taxation. Brexit has largely removed the need for the first, on the second the Tories are not taken seriously – having just scrapped short jail terms and presided over a collapse in everyday policing – while the least said about their catastrophic record on the third the better.
This just leaves tax cuts. Having presided over record taxation, it will be difficult to sell the idea that the party is zealous about allowing people to keep more of their own money. But the electorate is aware that fighting Covid cost a fortune and also carries a retained suspicion of the Labour party on tax matters.
All the signs are that the traditional Tory audience is no longer willing to indulge in a suspension of disbelief
So here we go then. The morning papers are full of speculation about impending tax cuts in the pre-election Budget of Spring 2024. Top of the list, according to the Telegraph, is the potential scrapping of inheritance tax. A radical proposal on so-called death duties has got the party out of a tight spot once before when it was used with great success to scare Gordon Brown off going for an early ‘honeymoon’ election in 2007. But right now, with only 4 per cent of estates paying inheritance tax, it seems like a measure targeted at homeowners in Home Counties and elsewhere in the south of England – a defensive policy designed to shore-up the Maidenheads and Basingstokes but with an opportunity cost of allowing the Mansfields and Bassetlaws to be lost overboard.
Another measure being considered, at least according to the Times, is reforming stamp duty to help first-time buyers. This is certainly a charge detested by those stretching themselves to get on the housing ladder. The main economic case against it is that it serves as a tax on labour mobility. On the other hand, the impact of getting rid of it would not be to bring owning a home within the reach of millions of disaffected younger adults – only measures that will increase housing supply or reduce population growth can do that. Rather, it would push purchase prices up even further as competing bidders used funds once reserved to cover the stamp duty charge to increase their offers.
Other ideas mentioned in the Telegraph are to U-turn on Rishi Sunak’s freezing of tax thresholds or cut the headline standard rate of tax, currently 20 per cent. The latter measure would help everyone in full-time employment but would surely come across as too easily reversible to reawaken tribal faith in the Tories. The former measure – raising the tax threshold bands – would be awkward personally for Sunak. However a cut on the higher rate threshold, which kicks in just above £50,000, could help to solve a horrendous tax trap that is destroying incentives for ambitious middle earners. Currently the combined impact of a 40 per cent tax rate, the scraping back of child benefit between £50,000 and £60,000, a 9 per cent graduate loan repayment charge and another 2 per cent in national insurance contributions is leading to marginal tax rates above 70 per cent for many in this income range.
Pushing the 40 per cent threshold up to, say, £70,000 would largely solve this and also serve as a radical, ‘cultural’ tax change that could energise the economy. Labour would also need to decide whether to oppose the measure on grounds of it being targeted at the top fifth or so of earners. And setting tax traps for Labour is clearly a large part of what the Tories are up to here. Back in the run up to the 1997 election, Gordon Brown played a canny game by ruling out income tax increases and pledging to stick to Tory spending limits for at least the first two years. In so doing he disarmed a potential re-run of the ‘Labour tax bombshell’ poster campaign that saved the Tory’s bacon in 1992. Rachel Reeves is likely to recommend caution this time round as well.
In tax matters, as in so much else, all the signs are that the traditional Tory audience is no longer willing to indulge in a suspension of disbelief. Still, at least CCHQ’s strategists have taken the public gaze away from migration matters for the next day or two. And from their point of view, that is better than nothing.
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