Lower Taxes are good economics and great politics

The UK is over taxed. The deficit has not been brought on by taxing too little, but by spending and wasting too much. Labour’s offence is not for setting tax rates that are too low, but wasting so much money on self promotion, poor purchasing, too much bureaucracy, political correctness – and above all on far too many people out of work and living on benefits. The total benefits bill is larger than the massive deficit, including huge spending on more than 5.5million people of working age without a job.

The taxes which are most damaging are the ones which tax saving and earning. We need to work harder, earn more, invest more. To do that the enterprise economy needs lower taxes on effort and success. We are not going to get the deficit down enough without getting many of the 5.5 million into work. We are not going to get it down without more tax revenue, and more tax revenue requires lower rates of tax to stimulate more income to tax, and more jobs to cut the benefits bill.

So I am wholeheartedly behind George Osborne when he recommends making a start with a lower Corporation Tax rate, with the possible abolition of IR 35 and other penal taxes on self employment, the reduction of Labour’s very high National Insurance, and his removal of non millionaires from Inheritance Tax. It’s the right direction for policy. I think we will need to do more to be sure of sufficient response from the enterprise economy to boost jobs and the revenues by enough.

Labour’s petulant and shrill attack on George Osborne for his latest tax cutting proposal has back fired. The more Labour complains about the tax cut, the more business lines up to support it. Labour suddenly realises they face fighting the leaders of the UK’s biggest companies, instead of fighting George alone. They realise that whilst they can brief unpleasant things about George they will not get away with that about the UK’s main bosses.They must be regretting the amount of publicity they have given this popular, sensible and modest Conservative proposal.

So why did they do it? How did the King of Spin make such a mistake? They did it because they know a tax cutting Conservative party will be much more popular than a Conservative party wedded to Labour’s uncompetitive tax regime, based as it is on jealousy and folly. They did it because they have always thought they can lambaste the man and by undermining him damage the policy. This time it hasn’t worked.

They should remember a previous time when George Osborne outwitted them by proposing a tax cut. In the early autumn of 2007 Gordon Brown was riding high. The polls said he go for an early election and win it. Those of us who were keeping the flame of lower taxes alive in the Conservative party had not been having a good time. George Osborne emerged at the Conservative party conference, with the Conservatives staring a fourth General Election defeat in the face, and announced a cut in Inheritance Tax.

It was electrifying. You could feel the whole Conservative party transform from gloom to hope. More importantly, outside the Conference Hall opinion changed dramatically. A tax was going to be cut. People were allowed to aspire again. If you were successful your worldly goods were not to be confiscated by the state. The Conservatives shot up in the polls. Labour back tracked, to pursue a longer personal vendetta against George Osborne.

That is why Labour ware so worried when Mr Osborne returns to tax cutting, and this time proposes cutting a tax that practically all working people have to pay. Tax cuts are lethal chemicals in Labour’s timbers. To the rest of us they are yeast, providing hope, rising spirits, the prospect of a better tomorrow.

The irony is that lower tax rates will help cut the deficit. They are the main way to restore some enterprise, some more manufacturing, some more private sector jobs to a dangerously lop sided economy. The media complaint to George Osborne should not be that he has offered too big a tax cut, but that he will need to offer bigger ones still if we are to recreate a successful enterprise economy in a hurry,. as we need to do.


  1. […] unknown wrote an interesting post today Here’s a quick excerpt The UK is over taxed. The deficit has not been brought on by taxing too little, but by spending and wasting too much. Labour’s offence is not for. […]

  2. Antisthenes
    April 2, 2010

    Lower taxes where it encourages wealth creation are to a large extent self financing. Rolling back political correct and intrusive legislation will eliminate many non jobs and give citizens a much better feeling of well being. Encouraging more involvement in local communities is of course to be welcomed but a 5000 "Big Society" army is not, it smacks too much of government interference that could have undesirable unintended consequences. It could breed just another group of non jobbers and there is the danger of it being hi-jacked by extremists.

    1. Stuart Fairney
      April 2, 2010

      Well said indeed. Every time I hear something sensible from the tories like tax cuts which just might make me hold my nose and vote for 'em, I hear this nonsense from Mr Cameron

      From conservative home…

      "the creation of a new "neighbourhood army" of 5,000 professional community organisers that would give communities the help they need to work together and tackle their problems"

      later (without a sense of irony so far as I can see) they go on to condemn labour paternalism! Acorn was a funded communuty group, Obama was a community organiser. Does this not tell us anything? And can we honestly think the drug dealers and criminals want more community organisers? Tax cuts which create jobs and an abolition of welfare would actually work, unlike this utter nonsense.

      Can you please replace Mr Cameron as leader with someone who is actually a tory. Despite all the supposed media smoothness, to not be 20 points+ ahead given the shattered economy and broken promises is failure writ large.

      1. Bazman
        April 2, 2010

        Cameron is a Tory in the real sense, and this is what weighs heavily against the Conservative party. In any face to face debates with the likes or Blair or Mandelson he would be chopped liver.

        1. Stuart Fairney
          April 2, 2010

          Our definition of tory may differ

  3. Tony E
    April 2, 2010

    I have always wondered if Brown has ever heard of the Laffer Curve. Now I'm no economist but I do work for myself owning a small fledgeling 1 man guitar building business and a music teaching studio. If the government takes more and more, then the risk of business becomes higher compared to the potential profits. I have invested about £2000 on tooling to set up a workshop over the last 6 months. Not much you think. It is when your top line is £20k gross and you can't get a penny from the bank.

    So why should I risk investment in anything if the margins are increasingly squeezed, not by the market, but by the immovable force which is the HMRC?

    If it's not in my interest, I go and get a job. Chances are, that by taking two pieces of wood and hand crafting them into an electric guitar I am adding more value to the economy than by driving a truck ( the other thing that I can do) – making things from raw materials is the only real way to increase wealth as the value of the material rises in itself. Everything else is just transferring funds around which is why service economies can only end in debt.

    If we don't start making things again we will never dig ourselves out. We need a tax system which recognises this and gives manufacturing better tax breaks than other parts of the economy to encourage both small and large manufacturers to invest in expansion and jobs.

    1. grahams
      April 2, 2010

      The Laffer curve was a spurious back-of-the envelope job but it tried to express the general truth that high tax rates stifle output and therefore revenue. If you cut top income tax (or the combined welfare withrawal/tax rate, from 80% to 50%, you usually get a fairly swift rise in net tax revenue as well as output. But if you cut income tax from 20% to 10%, the ensuing rise in output will not be enough to stop tax revenue falling for the foreseeable future. High tax rates (with losts of allowances) bad, low tax rates (with fewer allowances) good is a simpler and truer rule that Nigel Lawson successfully applied in the 1980s. National Insurance is a tax on employment as well as income, more pernicious because it is politically easier to raise business costs than income tax. So a cut in NICs is more likely to boost output and future tax revenues than a comparable cut in income tax. Tax concessions to start-ups like yours could easily be self-financing and not hard to devise once election fervour is over. Good luck.

  4. JimF
    April 2, 2010

    Yes he is only to be congratulated. It isn't a Damascene conversion because lower taxes are what the Conservatives should be about. But just why is getting Osborne to make tax cut announcements in order to increase revenue and promote business here like "pulling teeth?"

  5. A.Sedgwick
    April 2, 2010

    Just think what would happen if DCCs were brave enough to go for flat personal and business taxes, abolish the misleading N.I. "contributions" and massively reduce the bureaucracy in the bargain – 50+ seat majority?

  6. David Belchamber
    April 2, 2010

    Good business sense; the solid way out of recession is through innovation, productivity and growth. I hope that the conservatives will promote the whole business friendly package of pledges as vigorously as possible over the next few weeks.

    I also hope that you have plans for parts of Britain that need the prospect of new businesses starting up.

    Finally you state: '…his (GO's) removal of non millionaires from Inheritance Tax'. What can you do to stop Labour's deliberate distortion of this pledge? Prescott said it favoured the 3,000 richest estates a few days ago and Alan Johnson repeated it last night on QT.

  7. […] Lower Taxes are good economics and great politics | John Redwood […]

  8. Bill
    April 2, 2010

    Where does all this nonsense about taking millionaires out of tax come from (When Labour refers to inheritance tax)

    My granddad was a Blast Furness man, for nearly 50 years, with only a break for war service his estate was subject to inheritance tax.

    1. Number 7
      April 2, 2010

      In the warped world of Brownian Economics, the one eyed Scotch idiot (hat tip Clarkson) believes that because it is ONLY millionaires will be paying ths tax he can infer that a millionaires tax wil be of benefit to them.

      Either that or he can't tell the difference between a plus and minus sign as in "zero % growth".

  9. waramess
    April 2, 2010

    Why does George then not enunciate more clearly his vision of a low tax economy? We have a small cut in corporation tax and a move not to implement a NI increase, but why no policy statement that might go some way to getting the dis-enchanted back on board?

    We know you will push for this but you are but one of many backbenchers who are perceived to have been sidelined because your right wing views are an embarassment to the Conservative leadership.

    George has made a couple of timid gestures to show he can face up to Brown & Co so, he might just as well go for it.

    The Conservatives lost the past three elections because they were unable to field a leader with the charisma of Blair amongst other reasons, not because they espoused low taxes. Maybe they will lose this one by not having a very clear message.

  10. JohnRS
    April 2, 2010

    John, spot on, tax cuts are definitely the key. No matter how much NuLieBore and the Limp Dumbs winge on about "black holes" in the finances the ordinary working person knows that if he gets to keep more of his own money then life will be better. He doesnt care about all the talk of deficit reduction and GDP percentages, he just wants to feel less put upon by the state.

    So you know it and I know it…now how do we make Cameron "get it"?

  11. Ian Jones
    April 2, 2010

    Cut taxes, slash the welfare state and give incentives for private companies to invest in the UK. Also needs public sector wages to be brought down to below that of the private sector.

    Without it the UK is being strangled to death under collectivism aka communism.

  12. Javelin
    April 2, 2010

    I really felt that on Thursday that Big Government had reached it's Zenith.

    There is still more offensive waste and unecessary taxes in the pipeline but reading through the media the under currents are now too strong for Labour to swim back from. I feel like the warmth Sun is just begining to thaw us from the madness that was New Labour.

    I can only imagine TV presenters in a few years saying – "In 1997 Tony Blair won the election with a nice smile. He promised so much, but once the Noughties arrived so did Big Government. Tony let Gordon loose with his ambitious plans to grow the state leaving Tony to concentrate on his narcissistic projects, like wars in Iraq and Afganistan. Whilst Gordon raised taxes through stealth, the Government along with the MPs gorged themselves again, and again and again at the tax payers expense. Cheap goods from China meant low inflation and interest rates were dropped to nothing and the public gorged themselves on free money too. We were taken in by it all until one day the Banks collapsed because whilst the Government was spending freely they weren't spending it on the things they should do – like proper banking checks and controls."

  13. Bob
    April 2, 2010

    Like Bill, I too wonder why the Conservatives don't challenge this piece of Labour dogma, "Raising the IHT limit will benefit only 3,000 of the Tories richest millionaire friends." As if asserting such twaddle often and with Labours' own sleazy brand of earnest 'conviction' somehow makes it true.

    In fact, IHT has been cunningly perverted over the past thirteen years and is now just one more of Labours' carefully targeted stealth taxes. One thing we can be sure of – Labour will have done the calculations and will know precisely how few of its own preferred 'demographic' are affected by this tax on aspiration.

    There are overwhelmingly more: hard working, law abiding, tax paying middle income homeowners than there are of anybody's rich friends now having their aspirations punished by Labour's IHT trap.

    Do the work, research the numbers, pick your moment and make the case, loudly. Seems like an easy win to me.

  14. BillyB
    April 2, 2010

    Mr Osborne isn't cutting NI though is he? And he is keeping Darling's increase for medium/higher-earning people (the easy targets who always get hit and pay for everything else).

  15. Mike Stallard
    April 2, 2010

    You are totally right about the tax cuts: we ned them. We need a society where hard work, savings and decent behaviour and responsibility are rewarded and waste, violence, corruption and weakness and greed are castigated.
    I have had the privilege of working within Socialist and Labour societies. The deal is this: you do exactly what we say or else. We decide: you do not question or argue. You keep your head down and shut up. We get the goodies. You don't. And it is all dressed up as virtue and equality and so on. The moral high ground, just like everything else, belongs to the Socialist Brothers and Sisters who are in charge.
    We saw an excellent example on TV last night with the Rail Unions facing their judgement.
    Time for a change.

  16. Bazman
    April 2, 2010

    Inheritance tax cuts for the richest five percent of the population in this economic climate looks a bit silly now. Who will benefit apart from the likes of Osborne? Sell that one to the voters. Besides tax cuts are not lot of use if you don't have a job. Don't talk about this creating jobs as this as about as likely as record profits producing pay rises for the average worker. Never happened during the boom. Remind me again where all the money went? Got to keep our jobs as the company was so efficient? Only we didn't.

    1. David Price
      April 2, 2010

      My understanding of the Conservative proposal is that estates below 1m won't pay IHT by raising the limit from 325K to 1m before an estate must pay tax.

      Estates worth more than 1m will still pay IHT so how do you get to the view that the IHT change will only benefit the richest 5%?

      1. Bazman
        April 3, 2010

        Only about 5% of the population pay this tax. The rest are rich enough to avoid the system. I suspect Tory loyalties lies with those rich enough to avoid any system. All evidence seems to point to this.

        1. David price
          April 4, 2010

          Raising the tax point will mean a number of people won't pay IHT, but that doesn't include those with estates over 1m so it does not favour the richest 5%. It does include those estates where house price rises could push the estate above the current 325k/670k limits which will increase with the trend in property prices.

          This seems to be evidence that they are not favouring only the rich.

          From personal experience I would rather no-one had to deal with IHT and it was abolished completely but raising the entry point is a good start.

    2. Mark
      April 3, 2010

      IHT is paid at the cost of beneficiaries. Do you have evidence that they are rich? I'd guess many are deeply in debt.

      1. Bazman
        April 3, 2010

        Do you have evidence that they are rich? Yes.

    3. Number 7
      April 4, 2010

      Brownian economics – see my comment above.

      Your understanding of arithmetic is obviously on a par with (Gordon)

  17. Bill Old
    April 2, 2010

    Her, hear, John. I have never understood the knee-jerk socialist reaction to proposed tax-cuts (i.e. less theft) that they must be 'affordable'.

    Since when did Dick Turpin judge whether or not to rob the next stage coach on the basis of whether it was 'affordable' not to rob it???

    This is the crazy world of socialism where you deem yourself to be entitled to a large portion of another's income, for no effort.

    Reality is about to burst in on the dream-world of stealing from others for an easy living.

    1. Bazman
      April 4, 2010

      Every man for himself. Dying of easily treatable diseases because you can't afford treatment as there would be no NHS, not to mention army, police or transport system. No! there would not be without tax.
      Stock up on beans, bullets and gasoline son. There's a storm a coming. Huh Huuuh!

  18. Norman
    April 2, 2010

    On the one hand I think 'If only we could pledge to not implement the 50% rate it would annihilate Labour' and on the other hand the same thought gives me butterflies in my stomach that it could wipe us out. No doubt such a statement would be pounced on by Labour with delighted cries of 'The Tories are planning to sack people so that they can give uncosted tax cuts to the top 1% – they haven't changed since the bad old days of Maggie and the Poll Tax' whilst the few of us who understand such matters (and I am a long way from paying the 50% tax) know that it's not the taxes that the 1% pay that matters, it's what they do for Britain.

    What a conundrum!

    It's been a great week for the Conservatives, let's hope for 4 more of the same!

  19. davidb
    April 2, 2010

    I heard a discussion on the radio today about the case for a NI rise and comparing it with a VAT rise.

    We are in a hole. A few millions hear or there are chicken feed in the big scale of the deficit and the national debt, however there is a glaring difference between the two taxes. NI is borne exclusively by the indigenous population and is a cost on exporting business. VAT is levied on internal consumption only and is no cost on exporters as goods exported are VAT free on export. Further, VAT would be partly borne by visitors spending here, and would be borne by undocumented workers and on spending of black economy income.

    So if there is a straight choice between NI or VAT, VAT is much better for the economy.

    Taxes should not be raised before our soldiers are home, our police drive fords in place of BMW's and the last non job in the council has been abolished.

  20. Bob
    April 2, 2010

    When Labour refer to the Tory IHT threshhold increase as only benefiting millionaires, why don't the Tories correct them?
    It would benefit anyone whose estate exceeded £325k.

    I wish they would remove IHT completely, as the main beneficiaries are wealthy tax laywers.

    1. Mark
      April 3, 2010

      The dead only benefit from a decent burial. Beneficiaries benefit from inheritance – and they're likely to be in debt when they inherit, rather than being rich. Beneficiaries outnumber estates.

  21. Martin
    April 3, 2010

    You mentioned political correctness. The present government is really weird.

    On the one hand we have the Harman types, very consistent in their ideas. On the other hand we the most right wing stuff at the Home Office with Johnson rushing out bans on things faster than the tabloids can scream and losing the scientific community in the process.

    As for this "neighbourhood army" – this smacks a bit of big brother.

    Re ERs NICs (Employers National Insurance Contributions) vs VAT. VAT is payable on everything (just about) including Chinese imports, ERs NICs only on UK jobs.

    The only thing to be said in favour of ERs NICs is that they are the only way the government can get tax out of multinationals with offshore tax status. It has always struck me as bad that a multinational can pay a lower rate of tax overall than a small business.

    Re VAT. It is time this was extended to the newspapers. The newspapers are always keen on public spending on their pet subjects and pushing their ideas. Time for the press to pay their fair whack?

  22. Lindsay McDougall
    April 5, 2010

    Let us be clear that the pain of public expenditure cuts must come before the pleasure of tax cuts.

    In FYRs 2010/11 and 2011/12 there must be substatial expenditure cuts. In this period, we will need to raise the total tax take by a judicious mixture of tax rate increases and tax rate reductions.

    We can't afford to indulge in Reaganomics. President Reagan delivered on tax cuts but did not reduce the USA'a arms expenditure (rather the reverse) and the congress failed to reduce social protection as he wished. George W Bush delivered a tax cut then declared two major wars without reversing it. In both cases fiscal deficits were the result.

    Reply: We need the right kind of tax cuts on earning and enterprise so the tax take goes up more quickly.

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