Tory tax pledge makes no sense
Cameron’s promise to rule out tax rises for five years undermines the flexibility governments need, writes Bill Jamieson
IT MAY still be possible for the Conservatives to poll more votes than their rivals next Thursday. But as the election campaign has proceeded, the more inept their campaigning has become.
This ineptitude has hit a new high with the announcement by David Cameron to introduce a law “guaranteeing” no rise in income tax rates, VAT or national insurance before 2020. The Conservative leader has pledged legislation “within 100 days of assuming office” to ensure rates do not rise in the next Parliament.
What on earth has got into Cameron? Has he, too, taken to the TV studio couch with Russell Brand?
Even assuming this resort to law survives the election, it has one demeaning and destructive effect on the Conservative campaign. It immediately casts doubt on the credibility of its other election pledges – unless these, too, will be backed by legislation. Labour lost no time in warning of cuts to tax credits – not covered in the Tory pledge.
It is the naiveté – and impracticality – of this announcement that is breathtaking. Does it mean its previous commitments on tax are not to be trusted until a law is passed? It also heightens public apprehension that other taxes will be raised – or new ones introduced – while income tax and national insurance are held at current levels. So much for earnest pledges to simplify the tax system.
Passing a law to restrict a government’s flexibility and discretion on tax flies in the face of circumstance and fact. For you can never know what lies round the corner – the unforeseen assault or adverse event that can require an urgent and necessary response.
What of a serious blow to the government accounts? Or a speculative bubble? Or a financial crash?
Don’t pretend these things never happen. They just did. And we are still paying the price.
The European single currency was buttressed by solemn legal bindings not to allow budget deficits to exceed 3 per cent of GDP and individual country debt to exceed 60 per cent. These were backed by earnest sanctions and penalties.
All this was blown to the winds in the global financial crisis. Indeed, any attempt to “enforce the law” would have resulted in an even greater catastrophe for many of the eurozone economies.
An election pledge to “bring in a new law” is both naïve and also demeans the law. The greatest asset of any government is the capacity for flexible response. This room for manoeuvre can make all the difference between mild downturn and prolonged recession.
This is a principle on which Conservatives were thought to have an innate understanding: that in the underlying battle between government based on a system of prescriptive rules and one based on practical discretion it instinctively favoured the latter.
Rigid rules laid down in different circumstances and innocent of what the future might hold always end in trouble.
Discretion is critical. But this “no tax rise pledge” is intended to convince voters that this Tory commitment will also “bind the hands of a future chancellor, even if there was a new economic crisis”.
That is about as near to a definition of economic madness as you will find in this election.
Critics point out that the Conservative-lib Dem coalition government raised VAT from 17.5 per cent to 20 per cent in 2011 despite the Conservatives saying they had no plans to do so before the 2010 election. So a legally enforceable pledge is now necessary.
But there was a reason why that pledge was broken. In fact, there were £163 billion worth of reasons that year – because that was the size of the Budget deficit.
Conservative ministers argue that our financial situation is now much less serious than in 2010. But it did not look particularly serious at all
That is about as near to a definition of economic madness as you will find in this election
in 2006-7 – just before the wrecking ball struck.
Such an “anti-tax rise law” would, of course, need to be passed by parliament. I suspect that in the process of detailed scrutiny it will be savaged by constitutional lawyers, even assuming it gets that.
For an explanation of what looks like a massive Tory loss of nerve we need only look at a darkening alignment now upon this election campaign: a lack of trust in traditional politics – exacerbated by the downpour of pledges and promises of the past few weeks – and the proximity of the election itself: an alignment that has brought an eclipse of good sense among Conservative strategists. It is a desperate dash to secure credibility, but a dash in the wrong direction.
And there are many pledges in this election that are unlikely to survive the scrutiny of legislation. Take the popular cry to abolish “zero hours contracts”. How is this to be enforced exactly? Does it mean all flexible employment contracts are to be outlawed? And how is “flexible” to be defined in legislation? There are now an estimated 1.8 million such contracts in the UK, with as many as one in seven jobs now “zero-hours”.
Flexibility is a vital part of today’s labour market. Legislation needs to take care not to result in huge lay-offs.
Note also that the “no tax rise by law” pledge appears, as many from most of the parties this week, after the publication of the party manifestos. So do they have the same status as a manifesto pledge? And if that is the intention, why are they not in the manifestos to begin with?
To this muddled brew legal mayhem has now been added. And much of this springs from a reluctance or inability to provide clear guidance on tax rises and spending cuts that will inevitably lie ahead.
Little wonder the Institute for Fiscal Studies concluded this week: “With significant deficit reduction still to come, households can expect the tax and benefit changes implemented over the next parliament to reduce their incomes, on average. There are large differences between the Conservatives, Labour and the Liberal Democrats in how they propose to do this. But they share a lack of willingness to be clear about the details, and an inability to resist the urge for piecemeal changes which would make the overall system less efficient and coherent.”
Exactly. And no panic lurch to legislation – tax chastity by law – will make this good by one iota.