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July 05, 2007

David Cameron and Taxation: William D. Rubinstein argues that taxes under a future Cameron-led Conservative government will only go in one direction - UP

Posted by William D. Rubinstein

William D. Rubinstein - professor of modern history at the University of Wales, Aberystwyth and the author of Men of Property: The Very Wealthy in Britain since the Industrial Revolution - argues that the only direction in which taxes are likely to go under a future Cameron-led Conservative government are up. The views expressed here are those of Christie Davies, not those of the Social Affairs Unit, its Trustees, Advisors or Director. The Social Affairs Unit is not a party political organisation.

Almost every political commentator and pundit in recent days has pointed out that David Cameron's electoral stocks appear to be declining, at least temporarily, and perhaps among his own supporters most of all. To be sure, David Cameron has a difficult task. To win the next election the Tories have to secure at least 41 per cent of the vote. At the last general election, they received 33 per cent - only a few points less than Labour, despite the great difference in seats. This gap has to be made up from somewhere, and the most obvious and likely place is the votes of Liberal Democrats and soft Labour supporters, especially those who voted Labour because Tony Blair was Prime Minister. Hence Cameron's harping on the environment, a "left-wing" issue that most Tories can live with or even endorse. (The first major modern politician to embrace environmentalism as a key issue was Richard Nixon. He discovered it as an issue during the Vietnam War period, specifically as a way of distracting attention away from the War.) Hence, too, his placing of immigration, Europe, and taxation on the backburner, much to the distaste of virtually all hardcore Conservatives.

Much of this shift is unquestionably cynical and opportunistic, but I greatly fear that - to take the issue of direct taxation - Mr. Cameron and George Osborne, the Shadow Chancellor, are endemic and incorrigible high taxers and big spenders. Tories who know that lower direct taxes - in particular lower rates of income tax - are among the central spurs to economic growth, are likely to be very disappointed should the Tories win power in a year or two. Messrs. Cameron and Osborne are classic examples of politicians who just do not understand that a person's income belongs to the man or woman who earned it, and not to the state, nor that, since any government has unlimited powers to tax, it must always resist the temptation to do so beyond strict necessity.

This homily is prompted by an advertising flyer recently sent to me by the Conservative party (along with a begging letter asking me for a donation, which promptly found its way into my circular file) entitled

Now He's Prime Minister, How Much More Will He Take?
The flyer first outlines:
Brown's Stealth Taxes
Gordon Brown has put up taxes more than 100 times - that's almost a tax a month for his decade as Chancellor.
Then the Tories at last spell out how they differ:
Conservatives believe in lower taxes. We will share the proceeds of growth, so that over time, when the economy can afford it, we will cut taxes and reduce the burden on families across the country.
Not much of a promise, is it? What they are saying, of course, is that they do not have the slightest intention of cutting direct taxes. "When the economy can afford it" of course means never. To all high taxers and big spenders, there is never a good time to cut taxes: when the economy is good, it isn't necessary, and when the economy is bad, it isn't possible. So long as the money rolls into the state's coffers, no high taxing government is ever going to shut the tap on the largesse with which it can win the next election.

It seems inconceivable that had Messrs. Cameron and Osborne been in charge of the British economy in the 1980s, they would have cut the top marginal rate to 40 per cent - probably the most important single step to transforming the British economy from probably the worst in Europe to unquestionably the best. Indeed, it is quite possible that these "One Nation" Tories, with their eyes on porkbarrelling another election win, would actually have raised the marginal rates of income tax. The cut in the top marginal rate was (as I recall) opposed by the whole of the Labour party (whose backbenchers would not have been happy unless it was 140 per cent) and by vocal components of such groups as the Church of England, who evidently thought that the Vow of Poverty should be made universal.

Thus far, so far as I am aware, Cameron and Osborne have only promised to raise taxes: whenever asked what taxes they intend to cut, they simply evade and prevaricate. An example of this was their poorly conceived scheme to slap a tax on short-haul plane fares in order (so they said) to help the environment. Mr Cameron was concerned, it seems, that rail fares were higher than plane fares for the same journey, so, naturally, like all high taxers, his solution was not to find a way to cut rail fares, but to raise plane fares; and not to design less polluting aircraft, but to tax the people who fly on them.

So much is wrong with this idea that one hardly knows where to start. Flying, as I understand the matter, accounts for only three per cent of all air pollution, and British domestic flights cannot possibly account for more than a tiny percentage of this figure. People fly domestically either because they are businessmen, for whom speed is a necessity; or to visit relatives or friends, usually with limited time (ditto); or because they regard planes as more reliable than any other form of transport, especially for more than commuting distance. Few of these will switch from flying (nor, in most cases, ought they), and many of those who do will surely go by car, polluting still more. It would be the families of very ordinary people, going on an annual holiday, who are most likely to feel the pinch of any tax on flights.

Realizing that his proposal was manifestly unpopular, Mr Cameron came forth the next day with a promise to cut other (unspecified) taxes by the same amount as he raised them on airline tickets. Pardon me, but if you raise one tax and then cut another one by the same amount, how is that supposed to deter anyone? This proposal, too, was made in what is now typical Cameron style: seemingly as a throwaway idea, poorly thought through, and then quietly buried (as it has been) when its obvious flaws were noticed.

Since Mr Cameron will not cut direct taxes, it might also be pointed out that a new Tory government would certainly see a continuation of "stealth taxes" in a new guise: hundreds of thousands, perhaps millions, of ordinary people will assuredly climb into the 40 per cent tax bracket, simply because their salaries have inevitably risen. That is, if the top marginal rate remains at 40 per cent and is not raised higher, as all high taxers would love to do.

William D. Rubinstein is professor of modern history at the University of Wales-Aberystwyth. He is the author of Men of Property: The Very Wealthy in Britain since the Industrial Revolution, (Social Affairs Unit, 2006).

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