We must rediscover Nigel Lawson’s bravery and become tax-cutting Conservatives again
The recent passing of Lord Lawson, the architect of the low-tax economy that drove the 1980s economic boom, feels like something more fundamental than simply the passing of a great man.
It also brings into very sharp view how far both we as a country and as a party have moved away from his policy for a low and simple tax system. I mourn both the passing of the man and with the highest tax burden in 70 years, his ideas.
Indeed, the United Kingdom is suffering under the highest tax burden since the overtly socialist government of Clement Attlee. What is, if anything, even more extraordinary is how little most of the Westminster bubble seem to care. A clear shift from lambasting Attlee’s Labour for introducing the highest tax burden “outside of the Communist world” to 70 years later overseeing a tax burden even higher than that avowedly socialist government managed.
The narrative that tax cuts 'cost' government is just plain wrong
There are clear excuses – the cost of the pandemic (which to be fair, in the manner it was handled was economically off the charts), our absolutely correct support for our friends in Ukraine, and the sheer scale of paying people’s energy bills.
In Lawson’s time, the answer was to cut taxes, get economic growth and therefore get the additional funds into the Treasury to pay for the mess. Yet many offered nothing more than a unhappy shrug when the Chancellor increased our corporation tax by a third and paying the higher rate of income tax went from the preserve of the richest 5 per cent to now being on track to hit one in every five workers.
The fated mini-budget got many things wrong, but the reaction of the markets was far more to do with the Bank of England’s actions around bond sales earlier that week coupled with a mind-bogglingly unaffordable commitment to taxpayer subsidy on energy bills for two years. The relatively modest tax cuts, which were only ever statically modelled rather than dynamically modelled, would have worst case cost the exchequer a relatively small amount but in reality brought in more.
It is this narrative around “unfunded” tax cuts that we must break. Tax cuts cannot be “unfunded” when both history and academic economic theory shows us they stimulate growth, dissuade avoidance and evasion and bring more money in! The narrative that tax cuts “cost” government is just plain wrong.
So tax cuts there must be. While many of my colleagues may have forgotten the rationale for low taxes, the simple fact is that high taxes undermine economic growth and are, for many families, the largest cost of living expense. Lower taxes not only create new businesses and new jobs, but also allow people to keep more of their own money in their pockets instead of needing government welfare.
The case for lower taxes is reasonably simple, if perhaps counter-intuitive. Tax rates do not exist in a vacuum. They encourage and discourage different types of activity. Indeed, this is the rationale for regressive nanny-state policies such as a sugar tax or ever-increasing tobacco duty: by artificially raising the price the levels of smoking or sugary drinks supposedly falls. However, the same principle applies to when we tax things that we supposedly want to encourage, such as work and business profits.
Approximately a third of income taxes are paid by the top one per cent and another third comes from the rest of the top 10 per cent. This leaves the UK very exposed to decisions by these high-net-worth individuals to relocate their activities and wealth to less taxed localities. And the idea that they will never move, no matter how great the burden placed upon them is, is simply wishful thinking. In France, for example, the high taxes introduced by former president François Hollande resulted in an estimated 10,000 millionaires leaving France for tax purposes in 2015 alone.
The Prime Minister and the Chancellor have said they are, in their hearts, tax cutting Conservatives. But with the chance to “do”, always cry “not yet”. There is never a perfect time for cutting tax. Lawson pushed his cuts through a hostile media and an uncertain public. If we want to create the economic growth that we need to avoid the death spiral, we need to rediscover some of his bravery.
Greg Smith, Conservative MP for Buckingham
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