Keeping a quiet eye on economic and public policy in the UK
Thursday 26 March 2009
Taxing Times
Those who keep a close eye on British politics may have spotted a small dispute growing in the Tory party about how to respond to Labour plans for a 45% rate of income tax. Some may simply say there is one side that wants to implement the new rate, and another that opposes such a move. Life is, however, rarely that simple. The debate appears to have moved in an interesting direction. A number of distinct camps seem to be emerging:
1. The Political Capital Builders - see that spending cuts can no longer be a gentle erosion of spending, but instead are going to have to bite hard. They argue that it's political suicide to argue for strident spending cuts and at the same time strenuously ensure that those on £150k+ are mollycoddled and protected from any adverse impacts of the recession. If the rest of us are going to accept spending cuts, they ought to accept tax rises. Besides, it's the only way there's any chance of getting people to accept the cuts on the gargantuan scale needed.
2. The Finance Pessimists - those who look upon the current state of the public finances and fall into a deep despair. They view the current borrowing requirements, let alone if you relax the currently optimisitc projections, as necessitating tax rises. The debt accumulation is an horrendous economic risk (it's huge, it's growing fast, the rest of the world is borrowing at the same time, the risk of credit downgrading is too high), then spells real economic disaster if we lose control of it. All other considerations pale into insignificance next to balancing the books and getting a grip on the government borrowing requirement. Borrowing is in fact so large, that spending cuts cannot be enough - you simply won't be able to cut spending fast enough. Tax rises are necessary.
3. The "Wait-and-See"-ers - those who wish to wait and see in the hope that something will turn up, and save us. They regard tax rises as a wholly unnecessary commitment, and that the correct course of action is to wait and see. They therefore are more relaxed about the public finances that the Finance Pessimists - believing that things may not be that bad. However, they don't rule out tax rises in principle, and accept that they may turn out to be necessary.
4. The Ideologues - those who will not countenance the Conservative party raising taxes under any circumstances whatsoever. The state of the public finances are an irrelevance, if you want to balance the books cut spending. If that doesn't work cut spending more.
The debate in large part isn't really about whether the party should raise taxes on principle or not. Rather, it is about what we believe about the state of the public finances, and what scale of action is required to return them to a semblance of health.
To my mind, whatever their protestations, I think those who oppose the 45% rate are actually those who are least ambitious about spending cuts - that's why they don't think you need to build any political capital to get them through, and you don't need to cover the fiscal gap. It's rather ironic really. But maybe I'm biased - I firmly count myself in the second camp.
Those who keep a close eye on British politics may have spotted a small dispute growing in the Tory party about how to respond to Labour plans for a 45% rate of income tax. Some may simply say there is one side that wants to implement the new rate, and another that opposes such a move. Life is, however, rarely that simple. The debate appears to have moved in an interesting direction. A number of distinct camps seem to be emerging:
1. The Political Capital Builders - see that spending cuts can no longer be a gentle erosion of spending, but instead are going to have to bite hard. They argue that it's political suicide to argue for strident spending cuts and at the same time strenuously ensure that those on £150k+ are mollycoddled and protected from any adverse impacts of the recession. If the rest of us are going to accept spending cuts, they ought to accept tax rises. Besides, it's the only way there's any chance of getting people to accept the cuts on the gargantuan scale needed.
2. The Finance Pessimists - those who look upon the current state of the public finances and fall into a deep despair. They view the current borrowing requirements, let alone if you relax the currently optimisitc projections, as necessitating tax rises. The debt accumulation is an horrendous economic risk (it's huge, it's growing fast, the rest of the world is borrowing at the same time, the risk of credit downgrading is too high), then spells real economic disaster if we lose control of it. All other considerations pale into insignificance next to balancing the books and getting a grip on the government borrowing requirement. Borrowing is in fact so large, that spending cuts cannot be enough - you simply won't be able to cut spending fast enough. Tax rises are necessary.
3. The "Wait-and-See"-ers - those who wish to wait and see in the hope that something will turn up, and save us. They regard tax rises as a wholly unnecessary commitment, and that the correct course of action is to wait and see. They therefore are more relaxed about the public finances that the Finance Pessimists - believing that things may not be that bad. However, they don't rule out tax rises in principle, and accept that they may turn out to be necessary.
4. The Ideologues - those who will not countenance the Conservative party raising taxes under any circumstances whatsoever. The state of the public finances are an irrelevance, if you want to balance the books cut spending. If that doesn't work cut spending more.
To my mind, whatever their protestations, I think those who oppose the 45% rate are actually those who are least ambitious about spending cuts - that's why they don't think you need to build any political capital to get them through, and you don't need to cover the fiscal gap. It's rather ironic really. But maybe I'm biased - I firmly count myself in the second camp.The debate in large part isn't really about whether the party should raise taxes on principle or not. Rather, it is about what we believe about the state of the public finances, and what scale of action is required to return them to a semblance of health.