Tax and waste – to cut or not to cut, that is the question.

It is a good job I don’t eat cornflakes for breakfast. If I did, I would doubtless have choked on them when read the bald Sunday Telegraph headline “Tory tax cut ruled out for four years”. After all I had put into the Economic Competitiveness Report to make the case for lower taxes, after the great reception tax cutting ideas have been receiving, after all the effort to help the party identify waste, needless expenditure and inefficiency throughout the pubic service, was it to be hope deferred for a whole Parliament? My first thought, was why had I bothered?

Then reason kicked in. Try reading the article more carefully, I told myself. See exactly what Mr Hammond had said. Ask yourself is it likely Mr Hammond would be sanctioned to dilute the line on taxes that Mr Osborne has been taking, which has been more and more sympathetic to the idea that lowering tax is important to companies and families? In the text of the article the words of Mr Hammond were rather different from the headline. Maybe there had been some stupid and over energetic spinning, or maybe the Telegraph just saw an opportunity to push the boat out a bit more for one of their strong beliefs. In practise Mr Hammond had said tax cuts would not necessarily come in Year one – consistent with Mr Osborne’s “No upfront unfunded tax cuts”. The development of the Tory approach is somewhat different from the story that we move from wanting tax cuts in due course to ruling them out for a Parliament. What seems to have changed is that now tax cuts come from making savings in spending and from eliminating waste. I regard that as good progress. It must mean we will not be hitched to Labour’s spending plans in perpetuity, but now understand that in the next decade it will be possible to get beneath them whilst delivering better services, and it is imperative to do so.

The new Hammond doctrine should encourage the whole Shadow Cabinet to knuckle down to find the savings and the inefficiencies which are there in such abundance – or if it doesn’t it should at least motivate Mr Hammond and his boss the Shadow Chancellor, to get out the best Conservative tactics for flushing out waste and incompetence in government, to start to put together some spending figures that could deliver people better schools and hospitals without breaking the bank. The government Labour inherited still had scope for doing more with less. After 11 years of bloating the public payrolls, growing the quango state, feathering the beds of many more regulators, and becoming the patron saint of the management consultancy industry, this government has left huge scope to do what Mr Hammond now advocates. Let’s go to it – it’s what the public wants and needs.

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14 Comments

  1. Bob Jones
    Posted March 16, 2008 at 1:51 pm | Permalink

    Why aren't the Tories atleast promising tax cuts for the low-earners? It seems like a perfect opportunity, this Labour government has doubled tax on the poorest so they are worse off, then raised the minimum wage so the low earner will be back where they started but the treasury will have more than doubled its income.

    These figures might not be totally accurate but this is how it seems somebody working 1350 hours a year on minimum wage will end up:

    Last year:
    Wage: £5.52/hour, 1350 hours/pa, earnt: £7,455, taxed: £223, take home: £7,232 (amount of taxable income: £2230 @ 10%)

    This year:
    Wage: £5.52/hour, 1350 hours/pa, earnt: £7,455, taxed: £446, take home: £7,009 (amount of taxable income: £2230 @ 20%)

    This october:
    Wage: £5.73/hour, 1350 hours/pa, earnt: £7,735, taxed: £502, take home: £7,233 (amount of taxable income: £2510 @ 20%)

    Figures are done with a personal allowance of £5225.

    It seems totally clear that this government rose the minimum wage solely to raise their own profits, the poor will suffer for 6 months and will then end up getting about the same money as before but paying double the tax. Not only are the low-earners paying more, but the companies are paying their staff more only for it to end up in the hands of the Treasury.

    Surely the Tories should be saying they'll lower the tax rate for the poor or raise the personal allowance and then perhaps cut benefits for people in work, it seems like the perfect time to try get people off benefits by letting them keep more of their money.

    This Labour government should have lost the confidence of the lowest earners, but the Tories don't seem to be doing anything to try cement that view though.

  2. Iain
    Posted March 16, 2008 at 2:53 pm | Permalink

    "or if it doesn’t it should at least motivate Mr Hammond and his boss the Shadow Chancellor, to get out the best Conservative tactics for flushing out waste and incompetence in government,"

    I agree, but unfortunately the Shadow Treasury team don't seem very anxious or animated about searching out savings or efficiencies from the bloated state Labour have created, unfortunately they seem to spend most of their time crushing any hope the hard pressed tax payer might have that their burden would be lightened by voting in a Conservative Government.

  3. Brian Tomkinson
    Posted March 16, 2008 at 6:24 pm | Permalink

    It is a little worrying if the Conservative supporting Sunday Telegraph should have so seriously misinterpreted Mr Hammond in its headline. Why should that be? What is clear to me is that, sadly, there is no consistent message coming across that the Conservatives do favour a smaller state and the accompanying reductions in taxation.

  4. Small state advocate
    Posted March 16, 2008 at 6:42 pm | Permalink

    Cutting taxes (or reducing debt) by flushing out "savings and inefficiencies" is, politically, the easy bit. How many MPs would stand up and cheer for inefficiency or waste? This sort of cost cutting is what all governments should be doing and is what all voters, Left or Right, want to see.

    No, the hard bit is for politicians to get up and declare that their government will stop doing something and so save money on the tax bill. This is where the real ideological debate is to be had, not in how well one particular government will manage the account.

    Everyone knows that the Conservative Party believes in a smaller state and the Labour Party a larger state but there is no demonstration of what this smaller state might look like. By hanging back, the Conservatives merely allow Labour to perpetuate the myth that a smaller state equals children starving on the streets.

    Until someone is prepared to start questioning the very existence of some schemes (tax credits in particular) and show us the look of a smaller state then the public will never learn that government can not only get more efficient but smaller, too.

    Politics is a battle of ideas not a battle of accountants.

  5. Curly
    Posted March 16, 2008 at 7:04 pm | Permalink

    I can't understand this fear of being labelled "nasty" simply because you need to get the house in order!

  6. Matthew Reynolds
    Posted March 16, 2008 at 7:07 pm | Permalink

    Does the £123 billion annual spend on QUANGO’s really improve public services ? Over eight years the Tories must pledge to cut this year on year to say £23 billion with a view to adding to the reserves & paying down some public debt . Once the PSBR has been at least halved some money can be released for cutting taxes – a token 1p cut in income & corporate taxes lowering them to 39p & 19p and 27p & 21p respectively . This would be a prudent way to put stability first by building up the reserves to be able to
    fund the costs of emergencies or recessions without blowing the budget . The mounting PSBR is a tax for future generations to fund vast waste in the state sector & smaller government is a pro-growth policy as displayed in Eire while excess public borrowing threatens economic stability . The negative effects of high taxes are there for all to see . Is this idea really so mad ? Don’t we need the opposite policies to Brown to persaude the electors that a Conservative government will be better than a fourth Labour term ? If we offer more of the same why will voters want a change of government ? Lower taxes can be popular as Labour have tested high taxes to destruction and the prevailing popular mood has forced the Lib Dems to adopt revenue neutral taxation proposals . The Tax Payers Alliance have caught the popular mood – can the Tories not learn from that ?

  7. mikestallard
    Posted March 16, 2008 at 7:33 pm | Permalink

    May I remind you that taxation is approaching 50% of income (tax freedom day was June 6th according to the Adam Smith Institute.) this means that people are taxed almost as much as the peasants before the French Revolution. It is terribly difficult to estimate late Roman taxation, because it was so unfair and so uneven, but everyone is agreed that high taxes made the Muslim conquest much easier.
    We are up there with the all time greats.
    Ireland shows how effective lowering taxes is.

    One question I would very much like to ask is this: how much shortfall is there now in gathered taxes? How many people are simply not paying their taxes in full? I realise that this is an impossible question (Like how much crime is unreported or how many illegal immigrants enter the country) but I should still very much like someone to discuss it. Can you?

  8. niconoclast
    Posted March 16, 2008 at 7:50 pm | Permalink

    Perhaps the Conservatives will tell us if they think 60%(plus) tax on petrol is ok and if not what they would reduce it to.No one hold their breath for an answer!

    Has any other country got a tax level like that? Mr Osbourne says he cannot see a way to cut taxes.If that's the case he should resign and be replaced by someone who can and will.

    Voting is like signing a blank check. There are no payments by results in politics as there are in business.That's the problem.There is something rotten and corrupt in the State and no one is promising to fix that.Turkeys don't vote for Christmas do they?

  9. Robert
    Posted March 16, 2008 at 7:55 pm | Permalink

    Sadly,I can't put an optimistic spin on this at all. I do not believe any of this nonsense. The FACTS speak for themselves. We have become a party of big government, interventionist and like the new labour redistributive. Why do I make such assertions? Well, we seem to have accepted that the state takes a bigger role in our lives despite the rhetoric that it is otherwise. Unless this is just cynical spin pitched at the electorate who are employed both directly and indirectly by the government.The reason why we have such a large underclass is simply the fact that people are not encouraged, or even forced to take reponsibility for many facets of their lives and this leads to most of them becoming trapped in the mire. People of all abilities, persuasions and talents need to be challenged to have any chance of leading fulfilled and responsible lives. Government at most should only provide reskilling, a breathing space i.e a safety net. Both political parties by their policies have continued to fail the poor and have failed to address the real causes of our socialproblems. Big government and its interference has done much more harm than good. So John, a simple thing to do would to be reduce government by over 50% in our first term, if elected. If you want some ideas, happy to oblige. I think I could find at least 200bn of unnecessary expendure! So as usual the Tories are fighting yesterdays battles, are too focus driven- lacking in conviction politics. Why is it that our social service budget has gone up inexoribly despite 15 years years of growth and supposed low employment? To get back to a thriving, driving, flexible economy that can compete against the BRICS etc we need both low corporate and personal taxes, the terminology of sharing the proceeds of growth is nonsense!

  10. James Strachan
    Posted March 16, 2008 at 8:11 pm | Permalink

    John Redwood is quite right.

    NuLabour, on official statistics, will be spending £43 billion more than they collect in taxes this year.

    That's on official figures. You need to add the effects of PFI, Northern Rock and the increasing liabilities for public sector pensions.

    We are close to the point where people who do have money will refuse to lend to the British Government just as they have refused to lend to Bear Stearns.

    It will take the most enormous effort just to stabilise the position, and to restore the habit of economy in the public sector, before taxation can be reduced.

  11. Chuck Unsworth
    Posted March 17, 2008 at 11:30 am | Permalink

    The Sunday Telegraph is not the first (nor certainly will it be the last) newspaper where an enthusiastic sub-editor can completely 'misunderstand' the content of the article he/she is subbing.

  12. steve-roberts
    Posted March 17, 2008 at 1:58 pm | Permalink

    It is interesting that the Telegraph today has a piece on John Seddon’s new book [ I haven’t read it yet but I am familiar with his previous book “Freedom from Command and Control” – do read both]. Seddon is a remarkable man, and his approach to managing service provision is a) right on the money, b) totally opposite to the Blair / Brown top-down target-driven approach, and c) absolutely consistent with the work of other giants including W E Deming and Eli Goldratt.

    There is enormous scope for improvement in public services by restructuring them around demand rather than around meeting arbitrary numerical targets. This actually requires the demolition of a vastly expensive bureaucracy freeing up money to fund the ‘coal face’ or to be returned to the taxpayer.

    However, at the moment the general public, and in particular Labour’s client state, simply do not believe this, adhering to the simpler message that less government spending must mean worse public services. Therefore the path must be 1. Improve services with out extra money by a Seddon-style approach of taking the bureaucratic shackles off the competent staff; 2. Note that the demand-centred service organisation is very similar to the forms spontaneously generated in a free market, and shrink the scope of government provision of services accordingly; 3. Rinse and repeat, cutting taxes as the public sector shrinks.

    If you have read this far, I’ll summarise. The nation needs better services than the government currently provides. Scrapping the cargo-cult management of top-down targets and implementing Seddon-style demand focused organisation enables sharp improvement while saving lot of money. As a politician in opposition, this represents a golden opportunity for you to resolve the apparent contradiction between low taxes and high quality services.

    PS Great blog !

  13. Puncheon
    Posted March 17, 2008 at 5:22 pm | Permalink

    I understand why the Tories don't want to announce a programme of public expenditure reduction – Labour have swelled the public sector payroll too much. But they have to start saying that they will take the lowest paid out of direct taxation as a priority – what possible hostage to fortune can that be? Then they need to make the point that high spending Labour have put the UK in hock for years to come with their irresponsible profligacy. But that their medium/long term aim is to change us to a low taxation economy because that is what has been proved to deliver the most economic benefit to society as a whole. Just stop talking about honouring Labour's spending promises, that way they make themselves sound like a second class Labour Party – Labour are better at wasting public money than the Tories or indeed anyone. The Tories can also attack the idiocy of Labour's continued presentation of upfront car taxes as good for the environment, they are not. They should announce a strategy of transfering taxation from capital/up front costs to running costs. The Tories need to start treating the electorate as more adult and mature than they are at the moment.

  14. Bazman
    Posted March 17, 2008 at 7:35 pm | Permalink

    No doubt the waste and inefficiency in this country is on a grand scale. In industry though, when people start to talk of inefficiency and cost savings it often means they have run out of ideas. Switching lights off and other insignificant costs. It would be certainly something to have a company so efficient that switching a light off would make a difference. Efficiency and quality are not addition or a bolt on item but an integral part of the system.
    It would be interesting to see who has a vested interest in the companies carrying out any work or tasks for the state.
    I suspect a lot of MP's would squeal like stuck pigs should any changes or investigation effect them or their departments.
    Or bunging their mates work if you like.
    The so called 'John Lewis' list was interesting. Not really what was on it, he costs all looked reasonable to me, but the reaction of the establishment to it being revealed even to MP's.

  • 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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