Straight talking on tax cuts


The Conservative Party got rid of Boris Johnson because once too often he just wasn’t straight with them or the public. But the danger now is that the leadership election that is meant to help the Party and country move on fails the very same straight-talking test, given the sheer scale of tax cut promises dominating its opening stages.

This truth deficit is two-fold.

First, that huge cuts to corporation tax, VAT, National Insurance or Income Tax (or all four, according to some candidates) will happen without big trade-offs elsewhere – be that borrowing or public services. They won’t.

And second, that big tax cuts are the silver bullets for the biggest questions facing the country – from boosting growth to solving cost of living crisis. They aren’t.

Leadership candidates are right to say that taxes are historically, although not internationally, high. But they ignore the reasons why that’s the case: the combination of our slow growing economy and desire to spend more on public services, particularly healthcare.

The ways we’ve managed rising health spending without big tax rises in the past is by shrinking the military – defence spending fell from 8 to near 2 per cent of GDP between the mid-1950s and today. But today many MPs calling for tax cuts want more defence spending not less.

If you want a bigger army and smaller taxes, it’s time to spell out how the NHS is meant to get record waiting lists down or be straight that you’re happy for borrowing to take the strain.

Tax cuts won’t solve the cost of living crisis either. The scale of the crisis families are facing – with inflation likely to hit double digits later this year – is just too huge, and tax cuts too poorly targeted. Low-income families are being hardest hit because they spend three times as much of their budget on energy, but only a fifth of the benefit of an income tax cut would go to the entire poorest half of the population. And really huge tax cuts could actually make inflation worse.

The candidates have been candid about Britain’s lack of growth in recent times – and rightly so. Our productivity growth in the 12 years since the financial crisis has been half the average across the 25 richest OECD countries. We must turn that around, but it’s going to take a lot more than tax cuts to make it happen.

If a low corporation tax rate was the route to higher growth we’d have got there under George Osborne who cut it year after year. Reforms to encourage firms to invest would help, but you really have to be a true believer to put all your growth hopes in the tax cut basket.

We need a much broader approach to growth from those who seek to lead our nation. From how they’ll deliver the stability crucial to business investment, what they’ll do to make a reality of a levelling up agenda that should persist long after its proponent retires to the back benches and comment pages, to how firms can spend more time training their staff than moaning about skills shortages.

Arguing for and about the right level of tax is an important part of politics. In reality the tax cuts that outlast the current leadership contest are likely to hold out a promise of a couple of hundred pounds a year. But slow growth and stagnant wages means that the average worker earns around £9,000 less per year thanks to the last 15 years of stagnation. That is the big economic question facing Britain today. And, if we’re being straight with people, tax cuts are not the answer.