Hammond will resist spending pleas despite £7.5bn tax windfall
PHILIP HAMMOND will rebuff ministers’ demands for more money for the NHS, defence and other departments when he makes his Spring Statement next week, despite forecasts of a £7.5billion windfall for the Treasury.
The Office for Budget Responsibility will publish figures on Tuesday which are expected to revise down previous estimates for borrowing. But his response will make clear that the extra money, which has come from higher than expected tax receipts, is needed to reduce the deficit and the national debt.
The Chancellor and the Prime Minister have agreed that he should stress the “virtue” of economic responsibility.
A Treasury source said: “This is not the moment to make spending commitments. We have made great progress towards repairing the public finances but our debt is still too high.”
Whatever happened to tax cuts? There was a time when they not only grew the economy but also enjoyed moral currency: people who keep more of what they earn, said the Tories, can save and invest and use it to help others. Nowadays, when politicians talk about taxes it is to warn us of an “unavoidable” increase. A dangerous consensus has emerged that the British hunger for social goods, such as education and healthcare, can only be satisfied by higher taxes. Labour champions this as the moral cause of our time. The Conservatives have got to stop confirming their bias.
In next week’s Spring Statement, the Chancellor, Philip Hammond, is expected to announce a significant improvement in the public finances: Britain has been running a budget surplus for the first full year since 2001 and borrowing forecasts are expected to fall. Years of fiscal discipline have helped – a remarkable accomplishment, given the hysterical and duplicitous argument against austerity. It’s also, unfortunately, partly down to tax increases. Yes, George Osborne made intelligent, energising cuts to the highest income tax band and the corporate rate, while lifting many of the lowest paid out of income tax altogether. But fiscal drag – where wages increase with inflation, but tax bands remain the same – also raised taxes on the middle classes, while stealthier levies such as stamp duty lined the Treasury’s pockets and helped to stifle the housing market.
Mr Osborne and David Cameron engaged in a bit of Blairite triangulation. On the one hand, they understood the need for fiscal rigour and some supply-side tax cuts to get Britain out of recession. On the other hand, they were too timid when it came to welfare reform, and ran away from reversing New Labour’s socialist projects, doing too little to rethink tax credits and middle-class benefits. A visionary leader – such as Margaret Thatcher – would have seized the credit crunch as a chance to redraw Britain’s politics entirely. The Coalition instead cut and trimmed to preserve the consensus it had inherited, while conceding too many tax hikes and adopting far too much of the anti-business and anti-capitalist language of the Left.
By failing to open new private markets for the provision of healthcare and, in particular, social care for the elderly, the Cameron Tories continued the orthodoxy of encouraging individuals to rely upon the state even while critical budgets in local authorities were being reduced. Having failed for so long to make the case for tax cuts and the free market, the Tories find themselves not only facing new social problems but also lacking the necessary ideas, or even language, to answer them.
A growing, ageing population is now relying ever more for support on a much smaller number of wealthier taxpayers. Labour’s solution is to squeeze the relatively rich even more. This has never worked in history: it will destroy investment and productivity and drive the brightest and best abroad. The Tories understand this and keep warning of it, but they haven’t yet offered a concrete alternative. They may well be distracted by Brexit, which is undoubtedly the greatest policy challenge of our time. But, again, a truly visionary leadership would realise that Brexit is an opportunity – an obligation, in fact – to press ahead with systemic reform. If we’re to prosper after leaving the EU, it will be by reducing regulations, signing free-trade deals and becoming more competitive. Members of the Government do say this, but the emphasis is still largely upon Brexit freeing cash to bankroll the NHS, and the talk of personal tax cuts is conspicuously absent.
When a government finally achieves surplus, the last thing it should do is throw it away in a flush of spending. That isn’t the Government’s money: it’s the taxpayers’. And while the goal of the Left is to expand the state, the historic goal of the Right should be to shrink it, to the point that wealth and power can be returned to the people and they can be left to plan their own lives. If the Tories do the opposite and offer some measly spending increases to bribe voters, they’ll walk straight into Labour’s trap. Labour can always offer people even more free things, financed by higher taxes on that group of high earners who keep Britain’s welfare state afloat.
Someone in politics needs to make the case for sound economics and personal liberty. The Tories mustn’t surrender the argument to Jeremy Corbyn.