We need tax cuts and spending discipline

Out and about talking to people over the week-end, the clear message was “We’ve had enough”. Council Tax bills, income tax, threats of higher taxes and public sector charges, rail fare rises, energy bills and food bills – the squeeze is on, and much of it results from wasteful government.

Some asked me if it would be the same under the Conservatives. They were alarmed by the comments of Mr Lansley, misconstrued by some in the media. Let me explain why I am not concerned.

The Conservatives have said that in office they would share the proceeds of growth between extra spending and tax cuts. Let us assume the economy is £1.5 trillion in election year. Every one per cent of growth means an extra £15billion of activity, and an extra £6 billion of tax revenue on that activity.

If the economy grows at its trend rate of say 2.5%, that is an extra £15 billion of tax from just one year’s growth. So the Conservatives could decide that £10 billion of that was needed for increases in spending in priority areas like Health, and £5 billion was available to start tax cutting.

The Lansley remarks said that by 2023, if Labour’s plans went ahead, the NHS would take 11% of national output, instead of the 9% today. He did not promise to increase it to that level. Nor, over that time period would such a level necessarily pre-empt tax cuts. If at the same time the civil service was cut by natural wastage, regional government abolished in England, ID and other computer schemes scrapped and the quangos cut back to size, it would be possible to spend much more on health and pocket some much needed tax cuts.

We need spending discipline to get value for all the money being tipped into public services including health . We need to promise service improvements that can be delivered, not large sums of money for any particular budget.

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10 Comments

  1. Bexie
    Posted March 3, 2008 at 11:37 am | Permalink

    I concur. Having just had my annual mugging from the enforcers of the government protection racket, I worked out that between VAT payments, NI payments, Personal Tax, Corporation Tax and the local Mob's fleecing for my living where I do I have had to stump up 30K in the first quarter of the year.

    Since I have suffered fraud, delays in medical treatment, forced to go private and was privately educated it is tricky for me to see what value I get out of it.

    Keep up the good work.

  2. David Burch
    Posted March 3, 2008 at 1:19 pm | Permalink

    The tax cutting message is getting lost and even I am concerned the Conservatives are not seen as the party able to rein back public expenditure and make tax savings. We need to be clear that this is part of what we will do. how we will do it, get elected in 2010 and then do it.

    We need to claim back the economy from those who think money grows on trees.

  3. Neil Craig
    Posted March 3, 2008 at 2:08 pm | Permalink

    I agree that there are areas where cuts are feasible (civil service size, quangos & regulators, windmill subsidies) & likely to be popular. They will, correctly, be unpopular in the NHS, where we spend less than most countries & much less than the free market of America. Portraying any cut as being in the popular services, like the frontline of the NHS is Labour's big card & can best be countered by saying where else the cuts will be.

    In the long term I think the NHS could be brought out of party politics by ring fencing their budget to a set proportion of income or some other tax which would in turn link it to economic performance.

  4. Mark Wadsworth
    Posted March 3, 2008 at 2:25 pm | Permalink

    What Bexie says. Keep it up!

  5. Tony Makara
    Posted March 3, 2008 at 3:34 pm | Permalink

    Tax cuts for business are absolutely vital if we want to not only ride out any economic downturn but also to create new jobs. New business should be taken out of the tax regime altogether and allowed to grow, given time to build up the infrastructure needed to create more jobs.

  6. Dr Dan H.
    Posted March 3, 2008 at 4:17 pm | Permalink

    One quick way to make some cuts without causing too much pain is to drop the budgets of a lot of QUANGOs down to extremely low levels and prevent them acquiring funding from other means, thus forcing them in their quasi-independent way to make their own cuts themselves.

    Follow on by explicitly stating that the official language of the UK is English, and wave a big stick at councils which translate their documentation into myriads of different languages; there is no specific legal requirement to do so, and doing so remves the incentive to learn the local language.

    The key thing to remember is this: taxation cuts economic growth. Economic growth and wealth is the best way to survive hard economic times, as is living within one's means; this means tax cuts and lots of them.

    Keep on saying tax cuts and axing of bureaucracy, and hint at renegotiation of EU treaties. Eventually, in the bitter end, someone's going to have to face up to the EU and its empire-by-stealth, but for now all you need do is promise to cut taxation.

  7. Stuart Mark Turner
    Posted March 3, 2008 at 11:25 pm | Permalink

    Mr Redwood

    Also I think it would be good to mention the fact that if tax cuts are achieved this boosts the economy and produces higher rates of growth, so government revenue will go up as business taxation levels fall.

    It would be great if you have any figures highlighting this which you could publish on your blog.

    All the best

    Stuart
    Reply:THERE ARE FIGURES ON HOW LOWER TAX RATES STIMULATES MORE GROWTH IN FREEING BRITAIN TO COMPETE, AVAILABLE AS A DOWNLOAD ON THE BLOG

  8. Ken Moore
    Posted March 4, 2008 at 12:25 am | Permalink

    Mr Redwood your judgement is very sound, please come down to the front bench.
    Mr Osborne is far too young and inexperienced to be shadow chancellor, his performance on the Northern Crook fiasco wasn't good enough.

  9. Diablo
    Posted March 4, 2008 at 2:23 am | Permalink

    Am I right in thinking that private spending on healthcare is also included in the gross % of GDP spend? If so, it is quite feasible for the total to rise to 11% by 2023.

    Is that your understanding?

    reply: NO, I THINK LANSLEY WAS REFERRING TO THE NHS.

  10. mikestallard
    Posted March 4, 2008 at 10:09 am | Permalink

    Only an idiot thinks that taxes are OK at the moment and do not need to be reduced. Look at Ireland, for just one example.
    BUT (now I am shouting too!)
    There are a lot of idiots in our democracy, are there not?
    1. The quangocrats and their enormous staffs at the very heart of government.
    2. The poor people (like me) who depend on the NHS (thanks to taxes?)
    3. Those on the dole or whatever. (One in four in the North?)
    4. Those who administer the bloated system.
    5. Lady Bountifuls in the government who love to condescend with 50p a year more OAP money and lots of very complicated and intrusive "gifts" to "help the poor" .
    Add all these up and – bingo – Labour have got a majority for the next election!
    And, thanks to ten or so years of lying, cheating and utterly selfish government by Labour, nobody is going to believe you anyway.
    And Rousseau said the General Will was infallible!

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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