Just as every problem resembles a nail to someone equipped only with a hammer, the faintest glint of good economic news entices Conservative MPs to call for tax cuts. Earlier this week, new data showed that government borrowing in the second quarter of the year was £11.3bn lower than had previously been forecast by the Office for Budget Responsibility (OBR). The windfall is explained by higher revenues. That in turn is largely a function of frozen income tax thresholds – a stealthy tax rise that scoops more people into the higher rate as their earnings increase.
Tory MPs have not hesitated to call for cuts. Most frame the argument in terms of economic stimulus – the conviction that growth will be restored as people spend money that would otherwise have been deducted from their pay. Iain Duncan Smith made an auxiliary motive explicit: “If the economy is not growing we will lose the election,” the former Tory leader said.
An expanding economy is a necessary condition for Conservative electoral recovery, but not a sufficient one. The fixation on tax cuts is symptomatic of wider failure to adapt to the complexity of Britain’s economic predicament and the government’s responsibility for it. The underlying doctrine was tested to destruction last year by Liz Truss. Her budget policy invited financial markets to ignore fiscal fundamentals and have faith in magical future revenues to be conjured by hypothetical growth.
The resultant chaos did lasting damage to the UK’s reputation as a country that can be trusted to govern its affairs sensibly. Brexit had already corroded the Tories’ credentials on that score.
Even if the OBR has been overly pessimistic about the national debt (and volatility in such forecasts is entirely normal), a modest revenue windfall has to be set in the context of great uncertainty about the short-term, and pressing, demand for public investment.
A conventional Conservative justification for tax cuts, alongside faith in their capacity to spur growth, is a moral aversion to state intervention and belief that too much taxpayer money is squandered on people who either misuse it or don’t deserve it. That is a tendentious opinion in times of plenty. It is grotesque in a cost of living crisis, when schools are crumbling, health and social care are in crisis, and the judicial system is struggling to function.
The unpalatable choice in the coming years is between a harsh downward adjustment in expectations of what the state does for its citizens, or broadening the tax base in ways that put current provision on a more sustainable basis.
It is hardly surprising that politicians are unwilling to articulate that dilemma ahead of a general election. But there is an additional element of reckless and self-serving ideological mania in backbench Conservative denial of this conundrum. It is neatly expressed in the drum beat of demand for cuts to inheritance tax – a levy on unearned wealth paid by a tiny number of estates, but the object of disproportionate resentment in Conservative media.
There is no alchemy that satisfies public demand for services without progressive taxation. Negotiating tax-and-spend priorities is a normal, healthy part of democratic debate but it should be conducted honestly, responsibly and in recognition of economic reality. Sadly, a large section of the Conservative party has withdrawn from conversation on those terms.
