Monday, 11 July 2022

Money trees and Thatcherite myths


One of the things which has emerged from the Tory Party leadership pantomime to date is the fact that almost all of the candidates (Sunak being the sole exception as far as I’m aware) have remembered that there is a magic money tree after all. Indeed, the rate at which some of them are committing to both cutting taxes and spending more suggests that they’ve found a whole forest full of them. Whether this is a good thing or not depends on what they’re planning to do with all the money that they’re proposing to pick from the heavily-laden branches.

The prospects are not good: as Richard Partington put it in the Guardian, “…planning fiscal policy to woo a narrow group of mainly affluent Tory party members isn’t likely to meet the needs of wider society amid the worst hit to household finances of our times”. It’s a good summary, reminding us that however slick the videos or enticing the promises, they’re not aimed at the population at large, only at that small minority who actually get a vote on who should be the next PM. Initially, that’s the 350 or so Tory MPs in the House of Commons (I’m reluctant to state a precise number, given the regularity with which it is being reduced by further scandals), and then it’s the roughly 200,000 members of the wider Tory Party. By concentrating on using the money which they know can be made available to put more into the pockets of the most affluent, they are merely reverting to type.

I’m sure that they would argue that cutting taxes firstly puts more money in people’s pockets and secondly encourages economic growth, which generates more tax revenue for the Exchequer in the longer term. The first is true, after a fashion. People having more money in their pockets are better able to protect themselves against the cost of living crisis, but that rather ignores two very obvious facts: cuts in taxes are of more benefit to those who pay the most tax, and cuts in taxes do nothing for those whose income is so low that they aren’t paying the taxes in the first place. If the aim is to target help at those most in need, increasing benefits is a far more effective way of doing it. That group tend not to vote Tory though.

The second – about encouraging economic growth – is much more contentious. It’s regularly trotted out as though it were gospel truth, but the idea that ‘tax cuts pay for themselves’ is one for which there is scant empirical evidence, just like the infamous Laffer Curve. What the argument does achieve is a justification for putting more money in the hands of those who already have most and further increasing inequality. It gives a specious veneer of apparent theoretical and academic validity to those who merely want to fill their own pockets and those of their supporters.

Sunak, on the other hand, is standing up for the traditional Thatcherite myth that there needs to be an equivalence between spending and taxation. Strangely, he still seems to be the bookies’ favourite, despite making an argument which runs directly contrary to the personal financial interests of those with a vote in the contest. (He’s also backed up, apparently, by the Labour Party, whose leader has referred contemptuously to “…more than £200bn of unfunded spending commitments” made by the contenders over the weekend. That may make Starmer and Sunak the last true Thatcherites.) Maybe he’ll win anyway, but the more venal instincts of the membership appear more likely to win out.

That could leave us with the second favourite, Liz Truss. She has received a surprising compliment from Dominic Cummings this weekend. Having previously described her as being “about as close to properly crackers as anybody I’ve met in parliament”, he has now opined that, of the candidates so far declared, “at least 1 is more insane than Truss”. Whether Truss will see that as some sort of endorsement is doubtful, however; and the suggestion that multiple candidates are mad is certainly not very reassuring for the rest of us. Always assuming that the opinion of Cummings on the madness of other people is worthy of any credibility anyway.

1 comment:

dafis said...

Noteworthy that most of the candidates for P.M role are babbling about tax cuts which inevitably means that the biggest payoff will accrue to high earners in the form of lower income tax. Now an income tax cut would be most welcome to most working people but the biggest drivers of the cost of living crisis they currently endure are the rising prices of energy ( gas, electricity and vehicle fuels) and food, followed by a number of other products and services whose distribution costs are driven by energy inflation. Accordingly more could be achieved short term by cutting taxes on these purchases - fuel excise duty, VAT, and the Green Levy which is directly recharged via energy bills. Return energy bills to something approx their level of mid 2021, dump the additional N.I charge, and increase the Tax on high earners, say over 100,000 per annum. Oh, and get cracking on rounding up all that evasion, avoidance and mitigation by closing loopholes, dumping ambiguous laws, and nail outright dodgers. Now that would please our much acclaimed hard working families but would probably drive Tory party members and donors bonkers ! A nice additional benefit.