Seconds out, round two. Nick Clegg has a piece over on Comment Central, taking Danny Finkelstein to task over tax policy and laying out the Liberal Democrat approach:
Without growth there’s no earthly way we’ll be able to balance the books over the economic cycle. Far from being irresponsible, as Danny alleges, tax cuts at a time of recession is the responsible thing to do. No wonder august papers such as the FT and the Economist are now coming round to our view, as are many eminent economists.
Of course, not all tax cuts help the wider economy. The Tory inheritance tax cut for millionaires isn’t just unfair. As any GCSE economics student will confirm, the vast majority of people on high incomes simply pocket tax cuts in savings. Tax cuts for people who are really feeling the pinch, by contrast, lead to increased consumer spending on the high street.
We would cut the basic rate of income tax by 4p (that’s an extra 1000 quid per year for someone on 30k) by ending the tax relief on pensions for top earners, upping green taxation and charging capital gains as income. Straightforward, costed and workable.
But I want to go further. More fair tax cuts for people who really need help. Where’s the money to pay for it? How about redirecting spending from the NHS computer systems that never see the light of day; surveillance databases that make us the most spied upon nation in the world; and pointless ID cards that won’t help catch criminals? By the time we’re fighting a general election we will have identified £20bn of mis-spent money. No vague gestures at ‘red tape’ – we’ll let people know exactly what current spending we’re redirecting. And then we’ll explain how we think that money should be spent on our public spending priorities instead – like children, housing, the elderly – with any money left over going on further fair tax cuts.
Why does Danny think it’s impossible after a decade of spiralling Whitehall spending to find 3% of that money that could be put to a better use? That’s what Gordon Brown says – the Government knows best, and the rest of us are not allowed to question the way he spends our money.
Full piece is here.
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Join the punk revival!
What amazes me is that Nick Clegg doesn’t know how to spell “masochism”. If he didn’t learn that during his amatory career, surely he’s learned it over the last eleven months!
It seems to be a bizarre difference in terminology between tax reform and tax cuts, but Clegg is entirely right on the bizarre silence over Osbourne’s ridiculous promises on IHT and Council Tax. It also seems that Finkelstein is a budget hawk right when Clegg is right to say that we should either be borrowing for tax cuts or finding as much room for them as possible. Consumption has nose-doved since the housing crash- and now we have the credit crunch too. It’s time for some more FDR/Clegg than Hoover/Finkelstein.
“It also seems that Finkelstein is a budget hawk right when Clegg is right to say that we should either be borrowing for tax cuts or finding as much room for them as possible.”
I can’t see where Clegg says anything about borrowing to fund tax cuts. In this article he still seems to be talking about funding tax cuts from what would be left over from the hypothetical £20 billion of spending cuts.
Though admittedly some of what he says – in this article and elsewhere – does seem to be advocating higher borrowing. Maybe the idea is that we would have to increase borrowing just to stay where we are. None of it is terribly clear.
Finkelstein’s response is here:
http://timesonline.typepad.com/comment/2008/11/my-reply-to-nic.html
Clegg, as Finkelstein points out, allows his argument to wander vaguely along between funded tax reforms, unfunded tax cuts, a green tax switch, the idea of borrowing in order to make tax cuts, and finally, the idea of redirecting spending from one thing to another while surreptitiously maybe perhaps somehow slipping in a few more tax cuts along the way.
Finkelstein just wants the state to do a lot less and charge a lot less tax. He thinks that’s simpler. He is right. It would also be quite disastrous, but that’s by the by. Finkelstein talks a fair amount of nonsense when he tries to be positive, but he has found it quite easy to do an effective demolition job on Clegg. See CCF’s link above.
The contrast with Barack Obama is dismaying. It occurs to me that James Graham was right – The worst aspect of this policy is, in many ways, the complete muddle we have made of its presentation. Clegg has tried to be specific and detailed, but at the same time, ambiguous and (I’ll choose the kind word here) flexible. It doesn’t work. Obama has enthused millions. We have not.
Reading the link by CCF, I think Danny’s most elling point is ” the Libs have identified nothing like £20bn of savings. ”
When the party leadership was challenged in the MIH debate, they said they cannot be specific until the next general election. But how can they not be specific about the cuts in expenditure, and yet at the same time they can say they will cut £20Billion?
And how do they expect to find cuts in addition to those they found at the last general election?
I am all in favour of funding tax cuts for those on low incomes by tax increases by those on high incomes, but not by unspecified cuts in public spending.
“I am all in favour of funding tax cuts for those on low incomes by tax increases by those on high incomes, but not by unspecified cuts in public spending.”
And of course we still have the problem that – while Clegg keeps talking as though these proposed tax cuts would be targeted at the low-paid – what is being proposed is (1) a 4p cut in the basic rate of income tax and (2) an aspiration towards further measures which are likely to be a combination of a cut in the basic rate and an increase in the allowance.
None of this is actually targeted towards the low-paid. In cash terms, higher earners would benefit more than lower earners.
Once again the misguided attack on inheritance tax cuts. Nick might as well pick up a megaphone and say: “Anyone with a family house and a bit of money put by, vote Conservative!”
It’s easy to tell that you live in the south Laurence! Just you wait until house prices have dropped so far that the median is under the threshold.
I think that Danny is right that Nick’s piece would have been more convincing had it separated out:
1) The Green tax switch (which is probably but not necessarily regressive)
2) The progressive tax switch by taxing the rich more and the poor less
3) The cutting things we don’t like to fund net tax cuts
4) Borrowing to cut taxes.
In Danny-speak 1 and 2 are tax reforms, not tax cuts (although many individuals will experience tax cuts as a result), 4 is punk-tax-cuts, and only 3 are bona fide tax cuts. Like Danny I could easily find £20bn in wasteful or illiberal spending (and can do it in recurrent spending as well, not one-off capital projects), but like Danny I am sceptical that the party will be able to do it in opposition. It is, as he says, the sort of thing that is easier to do in office than in opposition, just as Labour found it easier to spend more in office than to argue the case in opposition. That is why, unlike Danny, I am not too worried about promising to cut an unspecified 3% of govt spending.
Where I do not agree with Nick is the need to have tax cuts paid for by borrowing. Recessions such as the one we are about to experience are very bad for some people, but do not affect – and can even be good for – many others. At the moment, if you have a secure job and a mortgage, you are likely to be better off than a year ago. I have a friend with a £250k mortgage whose monthly payments have fallen by £400 a month. I also have a friend who has lost his job. It is easy to give a tax cut to the friend who is £400pcm better off, but what is the point of that? In contrast it is hard to give it to the person who has lost his job.
Nor does the macro case stack up: the Bank of England have cut interest rates and that is likely to boost consumer spending by more than any plausible tax cut funded by borrowing. We called for BoE independence: perhaps we should let them get on with the job?
It is a shame that the Party leadership is not proposing to compensate the remaining people who lost out when GB abolished the 10% tax rate band. Do not forget that the extra £600 on tax allowances was for “one year only” as well. I can not get excited about a tax cut of 4p on basic rate tax when a pensioner with a total income of less than £7000 a year is still paying more tax now than last year. (I do not earn £30,000 a year and am not a pensioner)
Hugh: Really? Even with the higher thresholds that are part of the 4p basic rate cut policy?
“Where I do not agree with Nick is the need to have tax cuts paid for by borrowing.”
Is Clegg really saying this? As I said, I can see there are comments that might be construed as hints of this, but none of them is really clear.
Surely the party’s message on tax is confusing enough without adding on a third possible set of income tax cuts, this time funded by borrowing.
Even some of the people taking an active interest here are pretty confused. The BBC is hopelessly muddled – its website says the Lib Dems “Have already pledged to cut spending by £20bn to help fund tax cuts for low and middle-income families by cutting basic rate from 20p to 16p” (http://news.bbc.co.uk/1/hi/uk_politics/7720598.stm). What chance does the general public stand?
Hmmm. Here’s a little clip of Clegg – apparently from yesterday afternoon – where he says explicitly that tax cuts shouldn’t be funded by borrowing:
http://news.bbc.co.uk/1/hi/uk_politics/7720337.stm
CCF:
They’d stand a better chance if the public service news organisation they all fund bothered to get our policy right. I have sent a correction. Let’s see if it changes.
If one wants to look at tax cuts, first one needs an inventory of all the people who work for government, their salary and the total budget for employing them which includes pension, office space etc.
By taking so many onto the government payroll , especially in N Britain, The Labour Party behaves as a pre Reform Act landowner who expects all thse who live on or adjacent to their estate to vote for their candidate. It is pork barrel politics. The idea of a “Government of the people , for the people and by the people” is joke.Labour is a party which supports and is supported by the white collar middle class non-industrial state and quango employee. If Labour councils sacked the white collar middle class types and employed a few more craftsmen to repair the crumbling council homes at least they would be increasing the technical skills base. The councils and government need to return to core responsibilities and greatly reduce the numbers of white collar administrators. This is where the tax cuts can be found. Plus cancel many of the large and useless computer schemes which would also enable cuts in the white collar administrator and consultancu budget.
Andy
I don’t think all the blame can be placed on the BBC, by any means.
Remember all the conflicting statements about how much of the £20bn would go into tax cuts.
And the recent statements by Clegg are, if anything, even more confusing. Tim Leunig interprets Clegg’s reply to Finkelstein as advocating tax cuts funded by borrowing.
But here’s a snippet from the BBC (apparently recorded yesterday afternoon) in which Clegg calls for “big tax cuts” but says explicitly that they shouldn’t be funded by borrowing:
http://news.bbc.co.uk/1/hi/uk_politics/7720337.stm
Clegg’s great strategy has been to make tax cuts the party’s “unique selling proposition”. But we’ve ended up in a situation where all the parties are talking about tax cuts, and the things that are unique about the Lib Dems’ proposals are that they are confusing and untargeted, and that we haven’t explained where all the money is coming from.
CCF
Clearly tax cuts will not be our USP. The public debate seems to be crystallising around Brown favouring borrowing, Keynes and jobs, Cameron posing as more responsible and business-oriented. Clegg might get a few cheers for speaking up for ordinary taxpayers. On the other hand, he may just get pilloried for over-promising.
So do we just shrug shoulders, mutter “c’est la vie” and move on?
I have two problems with that. One, why is Clegg so confused? Is he just a natural muddler, or, does he have a political need to muddle? My fear is it’s the latter. When we hear the famous £20bn figure, Liberal Vision are meant to think “ah yes, big cuts in state spending, hurrah”. Whilst the likes of you and I are meant to hear “redirected spending on Lib Dem priorities, hurrah”. Of course the leader has a problem here, but, leadership is what he needs to show.
Secondly, if tax cuts are not our USP and Iraq is no longer our USP, then we are still in need of a USP, are we not? There is still a big gap in the market for the Green New Deal – borrowing to invest in jobs building a greener Britain. Why don’t we go for that?
The public debate on tax seems to be crystallising around Brown favouring Keynesian borrowing, Cameron posing as favouring Friedmanesque cuts and Clegg having something imaginative and interesting to say which learns from the mistakes of history instead of proposing to repeat them.
CCF: So yesterday we were complaining, here and elsewhere, that Nick wasn’t being very clear about whether he favoured borrowing to fund tax cuts. He went out there and made some pretty unequivocal statements that he did not. And now we’re complaining.. er.. why?
Andy
Because he wasn’t clear in the first place?