The truth about Tories and tax

Ben Brogan and Stephen Pollard are among my favourite bloggers. That's why it is painful that this morning they have repeated my least favourite error.

They were responding to Tory Shadow Chief Secretary Philip Hammond and his view that tax cuts would not be immediately forthcoming if the Tories won office.

Hammond said this:

We often hear talk about getting back to Thatcher-style cuts. Thatcher waited until she could see that she had stabilised the situation before she started to reduce taxes.

Both bloggers object that Geoffrey Howe cut income taxes straight after being elected. Yes, they admit, he put up VAT, but he made what Ben calls "a declaration of intent" by the income tax move.

Oh dear. This one again.

First, the VAT increase was not some minor adjustment. It was a huge increase in indirect tax with the overall effect of hiking up people's tax bills. So what Mrs Thatcher did straight after taking office was, repeat after me, put up tax. And why? For reasons of economic stability.

Second, as Mike points out in the comment section of Ben Brogan's blog, the Thatcher government persisted with high taxation.

Here are the rates for tax receipts as a proportion of GDP throughout Mrs Thatcher's tenure:

1979-80 33.8 per cent
1980-81 35.8 per cent
1981-82 38.5 per cent
1982-83 38.6 per cent
1983-84 38.1 per cent
1984-85 38.7 per cent
1985-86 38.0 per cent
1986-87 37.7 per cent
1987-88 37.4 per cent
1988-89 36.7 per cent
1989-90 35.9 per cent

It came down to 34.6 per cent under John Major and is now around 37 per cent.

Margaret Thatcher's Governments cut the marginal rate of income tax, not tax bills. She was a tax reformer, not a tax cutter.

Why? Because achieving lower taxes is a hard grind and requires a serious long term programme of structural reform. The Thatcher Governments were doing other things - freeing markets for instance.

Much of the tax cutting debate on the right is, I am afraid, a combination of wishful thinking, historical revisionism and immaturity.

Comments

[Michael McGowan]

Sorry, Danny, but on the strength of the above, the right has no monopoly of wishful thinking, historical revisionsim and immaturity. Cameron is now pledged to go into a general election on the basis that government spending well north of 40% of GDP in unreformed public services is sacrosanct regardless of the state of the (deteriorating) economy. So if it's sacrosanct and tax revenues are likely to decline, which other taxes is he going to raise? Or is he going to play fast and loose with the public finances and jack up the PSBR (i.e. deferred taxation) even more? Or does George Osborne's trust fund give him a guaranteed line of credit from the Tooth Fairy? Is it any surprise that with such a phoney economic policy, more and more people cannot be bothered to vote....because no politician can be trusted?

[Simon Chapman]

Danny,

Would you say that the current direction of our health policy is towards serious long term structural reform?

[Letters From A Tory]

Very interesting analysis.

As I was saying on my blog today, it seems ridiculous that so many Conservatives are crying out for tax cuts under the pretense that we are the party of tax-cutters when Thatcher's greatest achievements was actually freeing markets, not cutting taxes.

[AJM]

1) As far as I know, Hammond did not just say that tax cuts wouldn't come within the first year of a Toty government (an understanderble albeit hardly reassuring message), but they would not come within the first TERM of a Tory administration. Big difference.

2) The idea that the economy is too bad that we can't have tax cuts is just absurd. Tax cuts help stimulate the economy.

3) It's "immature" to think that tax cuts would be best for the county's economy? Well ... thanks for the condescending lecture, but I think it's been proven time and time again that lower taxes = more business, more entrepanurial success, and more growth.

I don't see why you feel the need to support the Tory 'modernisers' (AKA Blue Labour) all the time, Daniel. It is absolutly the case that the Tory leadership is abandoning it's small government, low taxation, public-sector reform base - the fact that they have stated as much as clearly as they have done is astounding. Who should I vote for in the next election for low taxation, Mr. Finkelstein?

[Oliver Kamm]

To Daniel's critics on this thread: I am a man of the left. While Daniel was a prominent figure in the SDP till he joined the Tories in 1992, I voted Labour in 1983 under Michael Foot's leadership. I then voted Labour in 1987 and 1992 to secure Neil Kinnock in Downing Street. I believe in redistribution (though on grounds of autonomy rather than equality), and favour European economic and monetary union. In this post, Daniel unequivocally speaks for me and represents my views. The Tories would be mad to disregard his advice.

[billquango mp]

oliver Kamm

michael foot?

As you youself point out , you have made a wrong judgement on a least 3 occaisions.
why would anyone support your view now?

[M Jeffs]

Are the Tories not able to be less profligate or inefficient with tax payers money then? I recall reading a report that 7 billion pounds worth of expenditure by the government on consultants had realised negligible value. The report was compiled by consultants naturally.

[Praguetory]

We stand for lower state interference and lower taxes. Fighting this philosophy tooth and nail against a background of falling disposable incomes, falling opportunities and increasing indebtedness and bankruptcy makes you part of the problem.

[Lola]

The bald figures do not necessarily show what was going on. It looks to me as though taxes went up under Thatcher AS A PROPORTION OF GDP when the country was in recession in the early / mid 80's. Then the the trend was downwards. In other words the market reforms paved the way for lower government spending and hence tax cuts. Major continued this work. Brown has reversed this trend and increased taxation hugely, as well as making markets less efficient by over regulatioon as a form of nationalisation lite, and not at all reformed the services of goverment. If we all recall one of Blairs electoral promises was to reform public services. He stated that money would depend upon reform, and at the time he had the goodwill of the voters to do this. Of course he didn't and the past has been re-written by New Labour.

Overall the Tories do believe in low taxes. But Cameraon knows that when he gets elected he'll have another ten year job to do to properly reform governemnt supplied services as well as seek to lower the tax theft.

In reply to O Kamm I do not believe in redistribution as a rational for high taxation as it does not ever work. All that happens is the, say, 5% at the bottom become more dependent on benefits and are institutionally impoverished and the 5%, say, at the top get better off. The 90% in the middle are all made far, far worse off.

This is one of the main lessons we must learn from this New labour debacle of the last 11 years.

[AJM]

Oliver Kramm

I think the Tory's would be mad to listen to somebody who voted for Michael Foot in 1983. If Dave's trying to appeal to your type, then God help us!

[KW]

It is unlikely that any incoming government will be able to cut taxes, given the likely state of debt at Brown will leave.
What Cameron must do is show willingness to cut waste in spending on consultants, external advisers and quangos