At this week’s Tory Party Conference, leader Michael Howard and Shadow Chancellor Oliver Letwin have been reluctant to promise tax cuts. Why? asks Simon Nixon.
Are the Tories committed to cutting taxes?
No. Oliver Letwin, the shadow chancellor, has studiously avoided committing the Conservatives to tax cuts. He said it is too soon to predict what the state of the public finances will be after the next election and that he would wait until after the Chancellor’s pre-election budget, due in March. Instead, Letwin promised his party conference that there would be “no more broken promises on tax” – a reference to the tax rises during the Major years, despite a Conservative manifesto commitment not to, as well as a comment on Labour’s 66 stealth tax rises. He also announced plans to “set Britain on the path to a lower tax economy”. Michael Howard also refused to pledge tax cuts, saying only that “whenever I can, I will cut taxes”.
Do other Tories share this timidity?
No. John Redwood, recently restored to the shadow cabinet, told a fringe meeting that tax cuts should be at the heart of the Tory manifesto, insisting that the party show people “we are the tax-cutting party, we understand their pain, we understand how Labour has robbed them and – when we have done the homework – we will offer the tax cuts that are so desperately needed by many in our country”. Letwin has come under pressure to commit to specific tax promises from the Tory press. The Daily Telegraph demanded “a tax plan that is financially credible and provides real relief to overburdened, working families”. The Express lamented Letwin’s “feeble talk” and said Britain deserved more than “sweeping statements”, especially from a party that has had plenty of time to plan.
Why is the party so hesitant?
Partly because it is not at all clear whether the public actually wants tax cuts. According to the Daily Mail, private polling for the Conservative party shows the public is turned off by talk of tax cuts. An ICM poll for BBC’s Newsnight backed up these findings. It showed people were more likely to vote Tory if the party pledged to spend any savings on public services, rather than reducing taxes. Only 20% would vote Tory in exchange for a firm pledge to cut taxes, compared with 41% who wanted the Tories to keep taxes as they are. However, Letwin faces an even bigger problem, and one very much of his own making: he has already spent the money.
How has he spent the money?
He has already committed to matching Labour spending on the NHS and education. This extra money is needed to pay for the introduction of the Tories’ plans for health and education “passports”, as well as the restoration of the earnings link for state pensions. But this all means there is unlikely to be much spare cash for tax cuts. Given that Gordon Brown has already run up a £30bn public deficit, raising the prospect that he will break his “golden rule” on Government borrowing this year, there is no scope to fund tax cuts from borrowing.
Where will he find the money?
Letwin says he will find the money by cracking down on Government wasteage. This, of course, is what politicians always say when their numbers don’t add up. The difference this time around is that the Tories have set up a special waste-busting unit under former City troubleshooter, David James, which claims to have identified £15bn worth of savings already. This figure is likely to rise to £35bn. Letwin has said he will bring in a budget implementing David James’ recommendations in the first month after the election. This, he says, will “begin the thinning down of those fat bureaucracies”, with up to 100,000 public sector jobs set to go; something the Tories insist can be achieved through voluntary redundancies alone. Other savings will come through a civil service recruitment freeze and a slashing of regulations affecting local authorities, which the party says it will implement the day after the election.
Which taxes would Letwin cut?
Letwin is not saying. However, he gave a list of eight taxes that would be top of his hit-list. These are: council tax, inheritance tax, stamp duty, income tax, savings tax, capital gains tax, small business tax and environmental tax. Much depends on what the Tories are trying to achieve by cutting tax levels. David Willetts, the shadow work and pensions minister, thinks any tax cuts should be aimed at poorer people whose earnings are above the level needed to qualify for Labour’s targeted tax credit. Others believe cuts should be aimed at stimulating economic activity and encouraging people to work harder, which would point to raising income tax thresholds so that people would be able to keep more of their money. But all the hints dropped by the Tories in recent weeks suggest their priorities will be to cut stamp duty on houses and inheritance tax – a tactic that appears calculated simply to shore up support among the more affluent members of the middle class.