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October 19, 2006

Tax cutting tories

For all the rhetoric of the past few months, that public services are safe under the Tories, the future of the welfare state is garenteed under a Cameron premiership, we finally see the true blue members of the Tory party coming up for air. Today, one of Cameron’s policy think tanks has unveiled recommendations to reduce tax by £21bn. How nice!

[Edit: I realise this is a bit misleading. The Tax Reform Commission in fact only contained one member directly associated with the party. However, as I said in the comments, it wasn’t exactly a well balanced team of people. All bar one or two have specific interests in a lower tax regime, or had previously showed a great inclination toward lower taxes. These people were picked by George Osbourne. The only conclusion is that he wanted this outcome. The result: “want tax cuts? no problem, vote for us! Don’t want tax cuts? well that’s just an ‘idea’, we won’t do it really” ]

Unfortunately, the plans are incredibly regressive. The claim, obviously being touted by the Labour party at the moment, is backed up my the independant Institue of Fiscal Studies (IFS). It will be interesting to see how the Conservatives respond to this after years of using the IFS’s reports in their accusations against Gordon Brown.

Indeed, they are out in force doing damage limitation already. Deputy Cameron-in-chief George Osbourne is doing the rounds saying that he wants “this report to start a major political debate in this country about how we can make our taxes simple, fair and competitive.” Read: flat tax. Does he realise why our tax system in so complex? It is industry’s commitment to piling more and more resources into tax avoidance. Of course it has to be complex, otherwise billions of the revenue rightly due to the state simply wouldn’t get paid. The perception by the public that the taxman is needlessly causing companies so much strife over tax will only be further strengthened by comments from Lord Forsyth who led the commision that wrote this report saying, “it is clear that Britain needs a less complex and more competitive tax system” as if it’s some sort of self-evident tautology. Less complex means easier to fiddle, and more competitive means lower, even though we still are still behind the EU average for percetage of GDP being paid in tax. Even though we are actually ahead of the low tax haven the US in terms of levels of business freedom (I did read this somewhere, but can’t find the link, you’re going to have to trust me).

Let’s look at those IFS comments in more detail:

“It’s quite clear that these proposals would benefit the rich. Inheritance tax cuts, income tax cuts are going to benefit people in the top half of income distribution.” Carl Emmerson, Deputy Director of IFS

Pretty damning if you care in the slightest about social justice, and furthermore if you realise the fact that the top percentiles in terms of income already pay less as a proportion of their income in tax than the lowest earners in society.

So £21 billion (although some say £30 billion is a closer estimate of the extend of the cuts). How will this be funded? Cameron’s answer: green taxes, which will plug the gap and allow spending on public services to continue.. A tax which in principle I completely agree with. Aside from at best being income neutral, at worst even more regressive, the problem is that the income from green taxes, if implemented properly, should fall dramatically as they are designed to alter our behaviour. Final result: less money in the Government coffers, less investment in our public services. I must hand it to our ‘Dave’. Stealth tax cuts… impressive.

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