The Wilted Rose

Charting Labour meltdown 2007-2010

Why tax cuts are morally right: are the Tories listening?

The lessons of Lehman

As Lehman Brothers becomes the biggest business failure in the US, one must remember that entrepreneurship is about risk and reward. 

Reward: The employees of Lehman have collectively made hundreds of millions in bonus, and now they’re out on the street looking for new jobs (that includes £4,500 in the UK, ominously).  It’s a pity that their bonuses – their rewards for failure, if you like – cannot be clawed bank and handed back to the creditors of Lehman.  But such bonuses are cunningly used as an accounting measure to reduce profits and, therefore, corporation tax paid. 

Risk: They got it wrong and now they are paying big time for their failure.  John McCain is right to describe the financial services sector in the US (AKA Wall Street) as a ‘casino’ – well, the same is true of the City of London’s investment banks.  And entrepreneurship can be very much a ‘casino’ if people take extraordinary risks.  Or are extraordinarily stupid, as was the case with Lehman. 

What does this mean for tax cuts?

I argued on this blog about a year ago that the Taxpayers’ Alliance (TPA), with its brilliant team including Matthew Elliott, Matthew Sinclair and Tim Aker amongst others, has won the argument on tax.  Since then,

  • Labour made a hamfisted attempt to reduce a tax that it raised in the first place (10p). 
  • The Conservatives, on the other hand, have about two tax reducing commitments: first, to increase the stamp duty threshold for homeowners from £175k to £250k; and secondly, to increase the inheritance tax threshold to £1m or £2m for married couples.  The first favours ordinary people and first-time buyers, and the second largely favours the relatively wealthy (although, as Ian Hislop pointed out on Have I Got News For You, it’s so popular with a large section of the electorate “because they’re going to get the house”). 
  • The Lib Dems are now the only party that offers tax cuts for the lower paid and middle-income people who are most devastated by the credit crunch.  It would have been better had ‘Ozzy’ Osborne ( our next Chancellor of the Exchequer, at only 13 🙂 ) had used those billions to help the poorer and middling sections of society, the true coping classes.  This is the obvious next step for the Tories if they are to hold any hope of gaining Lib Dem held seats.  While Eastleigh, Solihull and others are in the bag, the Conservatives can forget Nick Clegg’s Sheffield Hallam or Vince Cable’s Twickenham (unless the latter retires as an MP) – people there can vote with their social conscience for the ‘nice liberals’ AND vote for tax cuts.

Tim Aker of TPA points out that:

The Lib Dems have already made a bold stand in putting the case for lower government spending, a move that even outflanks the Conservative message of higher public spending as all part of the ‘sharing’ deal between the government and taxpayer.  But the silver bullet in twenty-first-century British politics is staring the Liberal Democrats in the face.  In presenting the case for lower taxes on the lowest paid, they should embrace the call to take those in poverty out of income tax by significantly increasing the income tax threshold to the government’s valued level below which poverty begins.  Whereas Lady Thatcher locked in the support of the C2 and D voting classes when the government allowed council tenants to buy their own council houses, the same opportunity is there for any party to take the next logical step and to take the poorest out of income tax.

Absolutely spot on, of course, so it is time for the Tories to sit up and listen.  It’s all very well being 20 points ahead, but the Lib Dems are still an electoral threat in many places.

Not just that, but it is also morally right to cut taxes on the poorer and middling sections of society who are being skewered by Brownite economic policy and the credit crunch – mortgages, petrol prices, food prices, etc.  It is they who elected one of the Tories’ best and most compassionate MPs, Edward Timpson, in Crewe & Nantwich.  He is someone whose parents fostered over 30 children and Timpsons is one of the best employers around. 

It is time for some compassion on tax too.  Now.  Or, if not, at least in time for the next general election, which may be sooner than many people expect. 

What has this to do with Lehman?  Simple.  We’re in this mess largely because of the Wall St and City of London ‘casino’, and the Brownian policy vacuum that doesn’t know how to deal with the credit crunch.  Ordinary people are suffering – we need to stimulate the economy to ease their financial (and thus emotional) strain, as well as making entrepreneurship attractive, and reviving the housing market.  Tax cuts are a good way to start this process.

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16 September, 2008 - Posted by | economy, Gordon Brown, Labour Party, politics | , , ,

3 Comments »

  1. The Tories have traditionally been the party of tax cuts and Cameron is wrong to discard the policy. Over the past few weeks, Cameron & Co have been ominously quiet, allowing the LibDems to gain the limelight and make some sensible suggestions, a missed opportunity.

    The Tories are frightened of suggesting tax cuts for fear of being accused of cutting essential services. They are foolish. This government has wasted £billions and it is well publicised, if the Tories were to have a ‘war on waste’, it is likely that they could offer a fairly significant cut in direct taxation.

    As the public sector cry our for more money, not that theirs should be a special case, the Tories could be suggesting that their government would allow all workers to keep more of their money, rather than simply resorting to extra money.

    Comment by UK Voter | 16 September, 2008 | Reply

  2. Interesting new colours Mr Rose.

    My guess is that Cameron will dump a lot of the touchy-feely nonsense as the election gets closer and concentrate on the necessarily reductions of tax and government spending. I feel the mood is changing to make that an attractive policy, one can but hope.

    Comment by FatBigot | 17 September, 2008 | Reply

  3. Perhaps the biggest failure or outrage of the current administration is the waste of taxpayers funds. I earnestly believe that if we dealt with this issues, there would be room for a reduction in taxation, without affecting services. Agreed, Cameron needs to address this issue, with facts and figures. No-one likes waste, especially that British taxpayer.

    Comment by UK Voter | 24 September, 2008 | Reply


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