Friday, 18 July 2008

Reducing the tax burden - can Clegg make it happen?

Yesterday saw the launch of the Lib Dem 'values and vision' paper Make It Happen. Much of this is very good stuff and is the sort of thing I was wanting to see when I said that the Lib Dems needed to develop a narrative. It's a good first step, but we need to integrate it into our whole campaigning approach if it's to make any impact.

A couple of minor quibbles first. Like Jonathan Calder, I'm not a big fan of the name - it doesn't convey a distinctive liberal approach to me. I also agree with him that the tax proposals may have got things backwards. And I was also slightly startled that the first sentence of the document is: "Families are over-stretched." Are single people not feeling the pinch?

Much of the reaction to the paper has centred on the aspiration to lower the overall tax burden. Now, I certainly don't have a problem with this in an ideological sense; indeed, the emphasis on reducing taxation for lower and middle income people has a long liberal tradition behind it, as does the emphasis on shifting taxation onto wealth and pollution. Lloyd George, for instance, had proposals for land taxation, an area I think the party could certainly look at again.

My concern is whether Nick Clegg can actually achieve that aim of lowering the overall burden of taxation. Firstly, there is the difficulty that the Lib Dems believe in a radical decentralisation of power, to give people the chance to decide for themselves how their areas should be run. If that's to mean anything at all, it has to be the case that communities should be able to decide for themselves whether to spend more on schools, hospitals and transport. Although I think that such decentralisation is likely to mean services will be run better and more efficiently, the possibility remains that the overall tax burden could go up as a result - and there wouldn't be anything that Nick Clegg or any other Prime Minister could do about it.

Secondly, there's also the issue of whether the current economic situation would allow for a reduction in the tax burden, at least in the short to medium term. With public borrowing reaching record highs and even the government admitting that the deficit is expected to reach a whopping £43 billion this year (a figure I expect will be revised upwards in the autumn pre-budget statement), even if Clegg can find £20 billion in savings and waste, that would still leave a big hole to fill. And given that the economy is continuing to slow down, the situation is likely to get worse. And all that's before you consider that every single opposition party always pledges to cut down on waste and bureaucracy, but finds it rather more difficult to do in government.

Indeed, let us not forget that even Mrs Thatcher, for all her rhetoric about rolling back the state, actually increased the tax burden. In 1978, the last full year before the Tories took office, the tax burden was estimated at 37.37% of GDP. It rose to 44.08%in 1984, before dropping back slightly to 43% in 1989, Thatcher's last full year in office. Even by the time the Tories left office in 1997, the tax burden was estimated to be 37.9% - higher than it had been in 1978! Under Blair and Brown, the overall tax burden has actually risen only slightly, to 38.1% of GDP in 2007-08, according to the CBI. That indicates to me that promises to reduce the overall tax burden are far easier to make than to deliver.

I would also ask whether the pledge to reduce overall taxation is a sensible political strategy. While it might well appeal to some wavering Tories, I wonder whether it is likely to have the same appeal to former Labour supporters, who are possibly more likely to come over to us as a result of the chaos of the current government. I'm not convinced that targeting previously Tory voters will have much effect when the Tories are riding so high.

Overall, while reducingthe overall burden of taxation is an admirable aim in itself, Nick Clegg has a lot of convincing to do if he is to make it happen.

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