Welby: raise taxes and borrow more for NHS

It would be a catastrophic mistake for Government to follow Justin Welby’s financial advice

The Archbishop of Canterbury has said that Theresa May’s Government should find its “nerve” and “courage” to raise taxes to fund public services such as the National Health Service. The Most Rev Justin Welby also urged the Prime Minister to borrow more to spend on public services, saying the Government was “panicked” into thinking that increasing debt was “somehow a disaster”. The comments risk reopening divisions with the Conservatives.

find taxes the THERESA National its to “nerve” fund MAY’S Health public and Government Service, “courage” services the such to should Archbishop raise as The of Most Canterbury Rev Justin has said. Welby also urged ministers to borrow more to spend on public services, saying they were “panicked” into thinking that increasing debt is “somehow a disaster”.

The comments risk reopening divisions with the Tories that date back to the Eighties, when the Church criticised Margaret Thatcher’s government over its inner cities policies. Experts said they would also “sting” the Prime Minister because the pair are said to be “on good terms”, and reportedly prayed together after the general election.

The Archbishop made the remarks during a private event at the Institute of Directors in central London last week. On Sunday he separately said the European Union was “the greatest dream realised for human beings since the fall of the western Roman Empire”.

There is a debate in Whitehall over whether Mrs May should increase taxes to fund a £4 billion cash injection for the NHS ahead of its 70th birthday.

However, it has been revealed by Jeremy Hunt that Mrs May intends to provide the NHS with a “significant” budget increase, according to The Guardian. Mr Hunt told the paper: “I have been making the NHS’S case that we need significant and sustainable funding increases to meet the demographic challenges we face, and the prime minister completely appreciates that.”

The Archbishop told the invited audience at the IOD that “there was a certain level of higher taxation” among previous governments “and we seem to have lost our nerve about that”.

He said: “We seem to have also lost our nerve about the importance of National Insurance as a way of funding the welfare system, particularly the health system.”

Asked whether a legacy of Thatcher was that taxes should not be raised, he said: “Yes. The evidence for that is reasonable strong electorally but we just need politicians with more courage.”

On debt, the Archbishop said: “In terms of simple public borrowing, we’ve got ourselves into this debt panic that if we borrow money it is somehow a disaster. We are borrowing, as George Osborne famously said five or six years ago, at the lowest rate that the British government has ever borrowed at since the Norman conquest. So it is possible to invest for the long term with the reasonable expectation that the economy will grow faster than the level of debt.”

A Lambeth Palace source made clear that the remarks were aimed at politicians in general.

Rosa Prince, Mrs May’s biographer, added: “Remarks such as these criticising her government and so by association her, will definitely sting.”

A No10 spokesman said that last year Mrs May admitted there would be policy differences with the Church. She said then: “But I think there are many areas where we can work together.”

It is difficult to remember a time when the Church of England wasn’t a fully paid-up member of the Left-wing revolutionary vanguard, railing against “austerity”, welfare reform and free trade. The ideologues took over during the Sixties and Seventies; by the time the anti-thatcherite Faith and the City Report was published in 1985, the Church had embraced “pure Marxist theology”, in the words of one minister at the time.

Ordinary Anglicans still overwhelmingly vote Tory and back Brexit, but only because they pay no attention to a Church establishment that has adopted an almost Latin American form of Christian socialism. The tragic reality is that the Church serves as a useful contrary indicator: the economic and geopolitical positions it advocates are almost all bad, and the ones it opposes almost all good.

So it tells you a lot about the turbulent state of our politics that many senior figures in our nominally Tory Government will have welcomed the Archbishop of Canterbury’s latest party political broadcasts. In the past few days, Justin Welby has claimed, without a shred of irony, that “the EU has been the greatest dream realised for human beings since the fall of the Western Roman Empire”; and he is now also calling for tax hikes to fund the NHS, as we reveal today. Lambeth Palace is being impeccably consistent: it’s Theresa May’s Government that is losing its bearings.

The hard-core of Remainers at its heart, when not trying to dilute Brexit into meaninglessness, are convincing themselves that taxes will need to go up to spend more on the NHS, a belief that sadly some Brexiteers also share. Many fear that the public will punish any party that doesn’t promise a lot more money to the NHS, and their argument, as ever, is that Tory tax hikes would be less bad than Labour ones. That sums up much of the Tory offer today: we may be useless, but Corbyn would be much worse.

Yet it would be a catastrophic mistake for the Tories to put up taxes. It would rob them of any residual political relevance, and not just on Brexit. The Vote Leave pledge was to spend some of the UK’S contributions to the EU on the NHS: putting up tax to do that instead would be seen as conceding that we will never really leave, or even that it was never really necessary to do so in the first place.

More broadly, the Conservatives’ most powerful political weapon going into the next election will be that Labour would tax the whole country into poverty and economic collapse. There will be much higher levies not just on the wealthy but also on the aspirational classes, their incomes, their pensions and their homes. This argument won’t work if the electorate assumes that the Tories wouldn’t be much different and that “they are all the same anyway on tax.”

The Tories need to be seen as the party of the smaller state, one that allows people to keep more of their money, or they will lose. Sir John Major’s tax increases in the Nineties – including his disastrous plan to hike VAT on fuel – proved lethal for the Tories’ reputation as a low-tax party, and were one of (many) reasons why Tony Blair stormed to power in 1997.

Over two decades later, trust levels in the Tories are low, and it would take one unforced error to provoke a major public reassessment, just as the social care proposals in last year’s manifesto cost Mrs May her majority. The party got away with increasing VAT and the rest after the financial crisis; but many middle-class families blame it for higher stamp duty, and the rises in council tax across the country are a ticking time bomb.

The Government should take heed of the rule that all sensible centreright governments follow around the world: only ever put up taxes if all other options have been exhausted. This is laughably untrue in Britain’s case. The state, while a lot more efficient than it was after the mindboggling profligacy of the Gordon Brown years, remains hopelessly wasteful and poorly managed. The Government also still spends a lot on inessential projects that could be eliminated without affecting core spending areas such as health, the police or education. A determined Chancellor could cut spending by 1 per cent of GDP without having to hugely re-engineer the state, and spend a lot more on the NHS.

Yet some in government believe that a hypothecated tax increase – with all of the cash legally earmarked to the NHS – would be more palatable to the public. This too is a chimera: simply promising that all the cash raised by a 1p increase in income tax would go to the NHS would be meaningless, and seen as such. The bulk of NHS funding would continue to come from general taxation, and any cuts to this would in effect undo the hypothecation by stealth. All tax receipts inevitably belong to a giant pot, and can be doled out at the Chancellor’s discretion, whatever promises he may make.

The only way hypothecation can work is if it’s taken to its logical extreme. The NHS would have to be separated from the rest of government spending, and in effect be given tax-raising powers and a balanced budget requirement. Entire taxes would go straight to it, and some would have to increase every year. It would be a nightmare. Taxes would have to rise especially steeply in recessions when the economy shrinks.

It would be equally foolish for the Tories to increase National Insurance, which in reality is merely a parallel system of income tax. In theory, the National Insurance Fund holds National Insurance Contributions. Receipts are kept separate from all other revenue raised by national taxes, we are told, and are “used to pay social benefits such as contributory benefits and the State Pension”.

Yet all of this, while technically true, amounts to a charade: the Treasury can simply top it up or “borrow” from it. Individuals’ contribution are all mixed up: this isn’t like putting money into a pension pot. The Fund has no reserves to speak of: just two months’ expected cash spending. It’s a PR trick.

The Tories should have learnt the hard way by now that it never pays to take the Church of England’s financial advice. If the Government wants to spend more on the NHS, it needs to find savings elsewhere. The fact that it is even considering increasing taxes shows just how detached from reality it has now become.