Is it really a 'moral duty' to cut taxes?

According to my copy of the Times last week, David Cameron has proposed some pretty hefty tax cuts on the basis that it is a moral duty to cut taxes. Personally, I always worry when I hear the words 'moral' and 'tax' in close proximity, as what happens next may very well not sit comfortably with my personal morals.

The problem is, cutting taxes is, in itself, not necessarily desirable. Yes, if the State is doing too much, perhaps, or if it is doing it inefficiently, there may be scope to cut taxes, but if by cutting taxes, you increase the numbers of vulnerable people, or cause the withdrawal of key services, your behaviour might be immoral, not moral.

It is far from easy to argue what the purpose of taxation is in philosophical terms. Much depends upon your view as to the size of the State, or its obligations towards individuals and communities but also whether or not the State is an effective and efficient provider of services. It is not unreasonable to assume that relatively high tax rates, combined with efficient services valued by the community are more likely to achieve sustained support than relatively low tax rates combined with hopeless services. But the 'satisfaction tipping point' will vary over time, and with local culture. In 1997, voters concluded that more spending on public services was required, and elected a government committed to doing that. And yet, by 2010, the mood had changed. Had extra spending really improved outcomes, and was that improvement sustainable?

I would argue that the moral duty of any government is to ensure the freedom of its people, to protect the vulnerable and strengthen them against threats. That might mean increasing taxes in the short term, it may not. And, given the small, and rather inconvenient, fact that the Government will be spending £53 billion on debt interest, closing the deficit might well be seen by some as being rather more of a moral imperative.

I'm a fiscal conservative, so I would be on the side of deficit reduction, so that we can build a sustainable State, capable of protecting those in need of protection, efficiently run and responsive to the wishes and needs of the population as a whole. So, when the time comes for further tax cuts, my questions will be, what are your proposals aimed at achieving, and what impact do you expect them to have?

Politics has to about a bit more than pure ideology, it has to be about the human impact of your decisions...

Unemployment in Mid Suffolk falls to 4%

Today's labour market figures are, it must be said, pretty encouraging. They're not 'great', because having more than two million unemployed scars the lives of those individuals who are out of work, and I'm not one of those who do triumphalism. However, they augur well for continued economic recovery, for closing the budget deficit, and for spreading the benefits of both so that as many of us as possible benefit.

We are particularly lucky here in Mid Suffolk, in that unemployment is half that of the United Kingdom as a whole, 4% as opposed to 7.7% at the end of September, and the number of JSA claimants is down by more than a quarter over the past year (848, as opposed to 1,135 this time last year).

There are those who have condemned the approach of the Coalition in terms of economic policy, and we will never know the truth of that, especially as the nuts and bolts of the alternatives were never really clearly stated. Besides, economic modelling is still really only an art, not a science, so any arguments either way are conjecture.

But it cannot be denied that the worst of the fallout from the financial crisis of 2008 has now passed, and the mission now is to find ways of ensuring that the vulnerable are sustainably supported in the future. I can't help feeling that politicians need to start turning their attention to that aspect of our economy as policies are fleshed out over the next fifteen months.

Sadly, I fear that we'll have rather more of the heat of blame allocation than the light of long-term policy exposition until May 2015...

Balancing the budget, or is it merely juggling with Balls?

The news that Ed Balls is promising that, if elected next year, Labour will achieve a budget surplus within their first term is interesting. That isn't to say that I particularly disapprove of the notion - it is sort of laudable to have such an aim. The catch, however, is how one achieves it from where we are now, and what impact it will have on those most affected by the measures deemed necessary.

The total lack of clarity on whether this means higher taxes or further spending cuts makes any judgement on the credibility of the promise quite difficult. But you can consider the relative benefits and penalties of each option to see how likely they are and what compromises might be necessary.

Perhaps a nice cup of tea will help, Ed...

Economic growth might, in itself, help to close the gap if it feeds into tax revenues. However, unless tax revenues grow faster than the rate of inflation, without further real terms spending cuts it won't solve the problem, and the required growth in tax revenues is surely too big to overcome the current £96 billion budget deficit without any other adjustment.

He might choose to increase taxes, but is somewhat boxed in by previous statements. Labour's criticism of the increase in the standard rate of VAT to 20% surely means that increasing that isn't a runner, and raising taxes for 'hard working families' would be particularly difficult given how hard they've pushed the issue of the 'squeezed middle'. That doesn't leave very many people to 'squeeze until the pips squeak', and a lot of the really wealthy are potentially mobile for tax purposes. Just how much more can you extract from the rich, or from further enhancements to the resources that HMRC has to pursue the non-compliant?

It therefore seems likely that spending cuts will need to be made in order to fulfil the commitment, but where from? Can a Labour government not commit to protect the NHS and what will be the cost of doing so given inflation rates in the healthcare sector? We can, if Rachel Reeves is to be believed, expect cuts in some benefits, although unless the protection of the state pension and benefits for the elderly is ended - not very likely, given their disproportionate influence on party policies - that might not be enough.

And such uncertainties play into the hands of Labour's opponents, as it means that they can simply quote a shopping list of possible cuts that will hurt potential Labour supporters or, if they assume that Labour aren't serious about cuts - and Labour would need to establish some credibility to challenge such an assumption - a cocktail of potential tax increases would be pretty toxic too.

So, I'm a long way from asserting that Ed Balls doesn't mean it, or is anything other then sincere in his intentions. It's just that, if Labour are going to continue to assert that they will be tough on spending whilst opposing every specific measure, they're going to have to come up with some answers eventually. The clock's ticking, Ed!...

Rally Against Debt - not really bringing the people with them...

I was intrigued by the reports of the 'Rally Against Debt', which took place at the weekend in London.

Intrigued because, in a society which is generally resistant to change, most demonstrations are aimed at stopping something from happening, rather than demanding that it does. And curiously, I find myself sympathising with their wish for the deficit to be cut faster, and for the level of debt to be decreased. After all, interest paid on debts that accrue on non-investment activities is wasted expenditure, and debt has to be settled eventually.

However, the organisers of, and participants in, the 'Rally Against Debt' don't appear to inhabit a world where the art of the possible meets the science of economic theory. And yes, you could legitimately argue that an adherence to the art of the possible has contributed to the economic mess the country now finds itself in. That said, successful reform brings along enough people with it to sustain it when times are tough.

The United Kingdom has become a country where people have grown used to, and comfortable with, a level of State provision that we apparently cannot afford. I say, apparently, because until you strip out the bureaucracy, over regulation and inefficiency that dogs this country, it is difficult to tell what the nation can afford. Individuals have become dependent on the State to sustain them and their lifestyle, in some cases regardless of merit.

But there are plenty of people out there who need the protection of the State, who are genuinely ill, genuinely disabled, genuinely victims of misfortune, who need and deserve the support of the wider community. And these people are genuinely fearful that the blunt instrument that is big cuts will hurt them, and hurt them badly.

Many of the rest of us retain a sense of compassion, a sense that, whilst cutting spending is necessary, we would like to protect those people, to retain those aspects of communal life that add value to our lives, like libraries, to play our part in building a better society. And I don't sense that those who participated in the Rally entirely 'get' that.

The reports so far, almost entirely from bloggers, given the relative lack of critical interest from the mainstream media, seem to feel that the rest of us are part of some terrible conspiracy to stall deficit reduction measures. And if by 'stall', they mean 'seek a strategy that isn't simply slash and burn', they would be right.

Because, ultimately, it is imperative that those who govern comprehend the effects of their decisions on those they govern, that spending policy is about more than a rush towards minimalism, and that taxes paid contribute towards building a safer, freer society.

Now I'm not saying that those attending the Rally disagree with me on this, it's simply that they give the impression of worshipping at an altar by indicating a willingness to sacrifice those less fortunate than they are. Worse still is the utter disdain shown for those who indicate less than total agreement with them.

It is very difficult to make lasting changes to society without building a base of support, or at least acquiescence, for those changes. Political parties that try to buck that rule tend to crash to defeat, their changes reversed by an incoming administration with a mandate to do so. Perhaps those so keen to cut the debt might bear that in mind before lecturing the rest of us...

Chancellors on Ice - Vince keeps his cool

So, the big debate is over, and the dust has settled. Time to mark the contenders, I think, and, in a nod towards modern culture, the marks are inspired by 'Dancing on Ice'...

Alistair Darling

artistic impression - 4.2
technical merit - 4.8

He clearly doesn't rate George Osborne, and was only too keen to attack his proposals on National Insurance Contributions. Indeed, his attacks displayed a sense of passion that has seldom surfaced in the recent past. He does give the impression that he is grimly determined to fix the economy, and one sensed that, if it were down to him, and an election wasn't pending, there would be far more detail on proposed cuts.

George Osborne

artistic impression - 5.2
technical merit - 3.7

As I noted this morning, George used his prepared soundbites well, and said the right things in terms of what needs to be done - deficit reduction, supporting enterprise, rewarding work - without ever convincing that he could demonstrate how it would be achieved. The problem is, what he says is so obviously correct that you want to move straight on to the detail. As was pointed out, you can't ridicule Labour plans for efficiency savings and then use them to justify tax cuts, and you can't say that reducing the deficit is the key priority and then dedicate a large chunk of savings identified to tax cuts. You certainly can't claim to be protecting the NHS, defence and overseas development unless you can say how this will impact on other spending areas.

Vince Cable

artistic impression - 5.5
technical merit - 5.7

Vince went in with a Channel 4 poll showing that, of the three, he was the preferred choice as Chancellor. He kept it steady, playing a straight bat, not attempting to pin zingers on his opponents, but attracting virtually all of the applause. He attacked Alistair for failing to provide sufficient detail on proposed efficiency savings, whilst making George look like the history graduate and spin merchant that he actually is. Virtually all the specifics came from Vince and, let's face it, the audience response spoke volumes.

In summary, 'Good Time George' demonstrated that, whilst he would be passable in a strong economy, you wouldn't want to depend on him. Alistair, the county town solicitor, appears trustworthy if uninspired. But Vince, now there's a man who you'd entrust your savings to.

How do you solve a problem like George Osborne?

How do you catch a cloud and bring it down?...

If the Observer is to be believed, Labour intend to target George Osborne as the weak link in the Conservative leadership team. What astonishes me is that it has taken them so long to reach the conclusion.

It may be that, in tonight's 'Ask the Chancellors' debate, George will do quite well against Alistair and Vince, especially if it boils down to a battle of soundbites. However, he still has a barrier to negotiate before he can establish a degree of credibility where it really matters, with the pundits and the public.

I've done a lot of Local Party events over the past year, and one consistent feature is the response when Ros suggests that one rarely hears that what our economy needs is George Osborne as Chancellor. That response is not muttering or discontent, it's laughter. I freely admit that Liberal Democrats are hardly likely to display any warmth towards a Conservative politician, but it is unusual for any of them to attract such a degree of ridicule.

Having been pretty critical of Conservative proposals on tax and the economy, and they can't be called plans in the absence of substance, you might think that I would be personally critical of young Master Osborne. Actually, I think that he's pretty bright, or is at least sensible enough to surround himself with bright people. The problem, as I see it, is that his skill set is wrong.

He has a keen eye for a soundbite, as I noted earlier, and his call for a dramatic rise in inheritance tax thresholds was well-timed and achieved its political aim, to prevent Labour from calling, and winning, an Autumn 2007 election. The fact that it was, in fiscal terms, barely literate, and would have helped far fewer people than seemed to be the case, was hardly relevant. What it also achieved was to secure his position, despite the doubts about his overall ability to do the job for real.

But now, with the public finances in a desperate state, with the economy fragile, what the country craves is reassurance. And what George doesn't do is reassure. Worse still, he seems determined to offer tax cuts in the belief that the soundbite is enough. The notion that people want to know how any cut in taxes will be funded doesn't seem to have registered, creating a sense that he doesn't really have what it takes.

And so the pressure is on today. Another announcement of tax cuts, this time National Insurance Contributions, is a typically flashy effort, with nothing to indicate how it will be funded. Tonight, you can be sure that he'll be pressed on the point. He'd better have a good answer...

Hey George, we're in debt, remember!

Today's interview in the Sunday Times with George Osborne provides further evidence that the Conservative Party still haven't made time in his busy schedule for that Economics 'A' level that he so badly needs.

His suggestion that a Conservative government might sell off its shareholdings in the banks at a discount in order to offer the public a 'people's bank bonus' is, in the shallowest sense, good politics, in that it will be popular. However, the country's finances are in crisis, the national debt enormous, and the burden of servicing that date a heavy one. So how would giving state assets away at a discount actually help?

Yes, those people who buy those shares will have an immediate profit. However, they are people who have money anyway. Those who don't have money won't buy any, so they will remain without. So, George is calling for a redistribution of Government assets to the comparatively well-off. That would be a bribe then...

I would have thought that any Government would have a responsibility to get the best price for those shares that it could, and use the funds raised to lower debt levels - in the same way that a household would arrange its affairs. Instead, George wants to be altruistic with my money, having spent so much time telling me how much of a debt Gordon Brown has run up on my behalf.

I have no objection to selling off the shares. Indeed, I would accept the premise that, in an ideal world, the Government would divest itself of the shareholdings in the likes of Lloyds TSB or HBOS, because I have never believed that governments are terribly good at active shareholding. However, the market decides how much those shares are worth, that figure is factored into the Government's finances, and potential purchasers of gilts and the like value those assets on a cold calculation of expected profit. For George to announce that he will effectively write off a proportion of their worth is to encourage overseas investors to be nervous. At the moment, nervous isn't good.

But how much will the potential profit for those purchasing shares actually be? Who knows, after all, these plans are still being drawn up, although the suggestion is that people would be offered shares worth between a few hundred and a few thousand pounds. So, unless there will be a really serious discount, you'll need to be at the 'few thousand' end to make a profit worth having, a profit that will be on paper only, unless the shares are sold on.

And so, yet again, George demonstrates his flair for low politics and his disregard for those at the bottom end of the economy by promoting a scheme that will hand money to those who have already, people like him. Perhaps he might like to go to a Peckham housing estate and explain how his cunning plan will help them?

George Osborne wants to re-enact the mid-1990's Canadian fiscal consolidation - so do I...

George Osborne writes in today's Times that he has been studying the methods used by Canada in the mid-nineties to consolidate the economy. He's young, and perhaps doesn't understand how the Canadians got to such a state. Of course, a better memory and a stronger grasp of history does help. So, for the benefit of George Osborne, perhaps a refresher course might help.

First, just who was in Government in Ottawa between 1993 and 2000? Let me see, ah yes, Jean Chretien. You remember him, didn't like George W Bush very much, rode a bicycle, led the, on the tip of my tongue, yes, I remember, Liberal Party of Canada, sister party of the Liberal Democrats. Not the Conservatives, who were in opposition.

Second, why were the Liberals in power? Ah yes, the 1993 Canadian election, when the ruling Conservatives went from having a majority to being the opposition. Actually, to be accurate, they weren't the opposition because the Bloc Quebecois had more seats in Parliament than they did. As did the Reform Party... And the New Democrats... In fact they only retained two seats, lost their Party leader and were cast into the political darkness for the best part of a decade.

So I say to George Osborne, bring it on, young man. We'll run the country whilst you go away and write some policy. We won't wait up in anticipation...

Why you might want to invest your money somewhere else if the Conservatives win the next General Election

I don't normally read the Observer on a Sunday morning/afternoon, as it's a bit on the worthy side. However, Ros picked it up this week and, whilst she lounged in the hot tub at the family 'entertainment hub' (and it really is that good...), I ploughed through the Business section to see how grim things are getting (don't ask, you really don't want to know...).

And indeed, things are getting grim, with sterling falling 3% this week against the dollar (the dollar, for pity's sake!), inflation at over 4% (and food inflation at 9%, apparently) and the housing market on a one way ticket to oblivion, it seems.

However, both the Conservative and Liberal Democrat Treasury spokesmen were invited to offer their suggestions as to what might be done. Philip Hammond, the Conservative Shadow Chief Secretary to the Treasury used his opportunity to tell us what was wrong with the economy and what Alastair Darling could be faulted for. As for their 'concrete' proposals;

"We are consulting on proposals for a Fair Fuel Stabiliser, so that when petrol prices rise, the government uses the extra revenue it gets from North Sea Oil to cut fuel duty. We are campaigning for next year's planned increases in road tax to be scrapped. We believe we should cut tax rates for companies. We will improve the process of making tax law. And we should look at reforming insolvency law, so that basically sound companies are given time to come up with a rescue plan."

Good, eh? I knew that you'd be impressed. Vince, on the other hand, provides a mini-manifesto of options, suggestions and proposals. One of the two has a clear understanding of how economics works. The other is a Conservative.

I have a message for George, Philip and the rest of the Conservative Treasury team. Develop some policy, for God's sake. You're only looking good in comparison to the current administration, but if you don't get better fast, the financial markets will eat you alive. And I quite fancy collecting a pension some day...

The 10p debacle - why the bleeding won't stop

It's all become like passing the scene of an accident on a motorway. As people drive by, they can't help but slow down to look at the grisly sight of wreckage and perhaps the odd smear of blood. Voyeuristic, I know, but human nonetheless.

Alastair Darling, having been given one of the worst 'hospital passes' of recent years, understandably concluded that silence was the best approach to dealing with his inheritance from Gordon, and it would probably have worked but for the misfortune that at least one opposition party was on the ball. The calculation wasn't difficult to do, but the fact is that either it wasn't done by the Government or, worse, it was and they ignored it. It does, I admit, puzzle me that there was silence from the Labour benches, but they probably took their eyes off the ball celebrating the reduction in the basic rate of tax to 20%.

And so the demands for a fix, and a quick one at that. Worse still, the Conservatives were allowed to claim that they were standing up for the disadvantaged. Chutzpah, I admit, but a fine example of the art of opposition.

I have to admit that the solution is a pretty elegant one. By reducing the threshold for the 40% rate band by £1200, higher rate taxpayers do not benefit, whilst most of those who had lost out are compensated in full. There are some additional beneficiaries, like myself, who earn between £18,500 and £40,000, who benefited from the reduction in the basic rate and now benefit from the enhanced personal allowance but we won't complain.

The downside is that we have a government that is on the run, and everyone knows it. £2.7 billion to fix what might charitably be described as a mistake is not a promising start in rebuilding economic credibility and the package has an impact in future years in terms of income tax take. Of course, the Chancellor might be planning to claw it back, for example by not increasing allowances or rate bands with inflation next year, but everyone will be watching now, and such slight of hand will be harder to get away with. Besides, if we shout loudly enough, it will probably be overturned anyway.

The Conservatives and ourselves will be pecking away at the weaknesses in Labour's taxation strategy, knowing that in an increasingly complex tax system, the scope for unintended consequences grows almost exponentially. It isn't even necessary to offer a concrete alternative, as very few people will understand the concepts requiring grasp. On the other hand, cries of unfairness will have Labour's Treasury team running for the hills.

Finally, there is the question of the additional borrowing. There is now very limited manoeuvre in terms of borrowing is concerned if the various 'golden rules' are to be adhered to and, in a recession, an inability to pump-prime the economy could bring dire consequences for jobs and for those juggling large mortgages and other debt.

Credibility, once lost, is often elusive to those trying to recapture it. For the time being, Alastair resembles someone trying to catch an elephant with a butterfly net. And time, my friends, is not on his side...