David Laws has argued at the Guardian’s Comment is Free site that the Coalition should accelerate Liberal Democrat tax cutting plans.
The government’s previous plan was for the allowance to rise in steps of £630 over the next few years, to reach £10,000 by April 2015. Clegg and chief treasury secretary Danny Alexander are rightly insisting that we look to bring forward those tax cuts. This week they seemed to attract the unlikely support of Labour’s Ed Balls. But his plan for a totally unfunded tax cut is as unlikely to convince the deputy prime minister as it is the chancellor.
The Government has so far made good progress in reducing borrowing. From the £163bn annual borrowing forecast inherited from Labour for 2010-11, George Osborne seems on track to deliver an impressive 25% reduction to between £120 and £125bn by the end of the 2011-12 year. The government will not throw that away with unfunded tax cuts which would blow half of the hard won gains.
You can read the article in full here and if you are convinced by his arguments, why not go on to sign this petition on the No 10 website calling for these changes to be implemented?
* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings
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28 Comments
David wrote a fairly good article but then ruined it all with this sentence:
“George Osborne is proving to be a very strong chancellor who gets the big decisions right.” i felt physically sick reading this from a so-called liberal democrat. if he believes it it’s disgutsing, if he doesn’t and he’s kissing ar*e because he either a) wants GO to raise thresholds quicker or b) cos he wants a job, it was in both cases a totally unnecessary sentence to write, and certainly in that manner.
I used to defend Lawsy, but, after reading that sentence, i think he should never be allowed into a position in Government again, at least not as a Liberal Democrat. It is George’ Osborne’s 1930s approach to spending that is depressing growth – on the biggest decision of all, how to reduce the deficit, he has got it calamitously wrong.
what has happened to my party???
Hang on here, raising allowances is very welcome, but the liberal principle informing the policy was always to raise the limit to come into line with the total for a full-time job at minimum wage (currently about £11,800), not some arbitrary round number. This subtle difference is vital in emphasising how our interest is in helping those who most need it.
It would be far better if we could restate the case to explain this – otherwise the enemies of liberalism will cry foul about the progressive instinct and seek to use more authoritarian, more expensive and more inefficient methods because incoherent populism is more convenient for them.
Joined-up thinking is not a happy coincidence, it is absolutely essential to liberal thought. That our leading figures seem happy to bury our principles is the reason why the party continues to struggle in the polls, they must become far more explicit to successfully rebuild our electoral base.
If the Coalition had a job-creation plan worth the name (while NOT dumping 100s of thousands of public sector jobs) we would be enjoying actual growth right now rather than the depressing flatlining economy we have. Also, government activisim on regulating domestic utility companies and capping price rises would go some way to protecting the lowpaid and middle-class sectors from penury and impoverishment. In that context, the pressure for tax cuts for the lowpaid would not be so great. But given the horrible state of affairs visavis the job market and the collapse in demand for mainstream goods and services, tax cuts at the bottom of the ladder has become a necessity.
“but the liberal principle informing the policy was always to raise the limit to come into line with the total for a full-time job at minimum wage (currently about £11,800), not some arbitrary round number.”
an ambition i would be happy to see achieved.
@jedibeeftrix: “an ambition i would be happy to see achieved.”
Interesting — I’d have thought you’d be dead against the existence of the minimum wage. Was I wrong?
LL – forsooth, tis true he is a Laws unto himself …
@ Malcolm – although i might appear to be hard-core right-wing to a traditionally (limp-wristed? :p ) lib dem audience I am really doctrinaire (ideologically commited?) about very few positions.
I do believe that a minimum wage kills more jobs the higher it is set, but i am happy to compromise by setting a low minimum wage, and i am quite happy to extend that logic to a minimum wage at a working week makes a sensible starting point for a tax threshold.
I would like to see lib-dem opinion on the following quote i found in the telegraph:
http://www.telegraph.co.uk/news/politics/conservative/9098504/Tax-cuts-we-can-have-our-cake-and-eat-it.html
“Recent research by the Institute of Economic Affairs showed that, if the government were to construct a tax system that would raise enough money for it to spend around 30% of GDP, it could probably do so with a flat rate of income tax at around 15% (with a tax free threshold of say £12,000 for a single person), with a corporation tax rate set at the same level (giving the additional benefit of making tax evasion less likely, a cause close the hearts of many on the left), national insurance of around 10% and VAT at around 10% (with no exemptions).”
A simple, effective and efficient tax system of which i think even adam smith could approve with his four rules of taxation.
based of this research paper i believe:
http://www.iea.org.uk/publications/research/sharper-axes-lower-taxes
jedi – that’s assuming that youthink govt could get away with spending only 30% of GDP, which i don’t think has happened since before WW2. Is the post-war average about 40%?
well, before the disaster of the labour years, where gov’t spent massively at the top of the cycle to ruinous effect when we hit the bottom, we were happily spending on average about 37% of GDP:
http://www.ukpublicspending.co.uk/spending_chart_1985_2015UKp_11s1li111mcn_F0t
I also accept that an advanced western economy, facing relative technological and demographic decline, should not be spending more than 40% of GDP lest it do serious damage to the long-term growth rate that will preserve the standard of living we enjoy for our children too:
http://ime.bg/uploads/OptimalSizeOfGovernment.pdf
So to a degree we are going to have to get used to the idea of government doing less for us because having a public debt equivalent to 400% of GDP by 2040, and using 15% of GDP each year to service debt interest, is clearly not a happy future:
http://www.bis.org/publ/work300.pdf
In conclusion; yes! given me a simpler, more effective, and more efficient tax system that takes less money from the economy and encourages long term growth.
jedi – thanks for the links. Sorry, though, i don’t see your evidence that it woudl be better to spend 30% of GDP rather than 35-42% (depending on where you’re at in the economic cycle). I note that Germany, France and the Scandinavian countries, who have had better growth, have more productive workforces and a decent welfare state all have, in general, higher proportions of govt spending as a share of GDP than we do. The USA, by contrast, is generally lower. Given the choice between living in the States or in Sweden or Germany, it’s fairly obvious which is the better, safer, more pleasant society. So I don’t buy your assertion that the state must spend no more than 30% of GDP.
“Sorry, though, i don’t see your evidence that it woudl be better to spend 30% of GDP rather than 35-42%”
I am not being absolute about the 30% level in way at all.
I work from the principle, mentioned in the bge link, that 40% is a sensible limit.
I note that there is a roughly 7% swing, in spending as proportion of GDP, depending on the point in the cycle.
I arrive at the conclusion that spending should sit within the 33% to 40% bracket.
I admire the simplicity and effectiveness of the proposal from the IEA above.
I accept that we might tweak them to meet the ~36% ambition, how about:
[JBT]“Recent research by the Institute of Economic Affairs showed that, if the government were to construct a tax system that would raise enough money for it to spend around 36% of GDP, it could probably do so with a flat rate of income tax at around 18% (with a tax free threshold of say £12,000 for a single person), with a corporation tax rate set at the same level (giving the additional benefit of making tax evasion less likely, a cause close the hearts of many on the left), national insurance of around 12% and VAT at around 12% (with no exemptions).”[/JBT]
“I note that Germany, France and the Scandinavian countries, who have had better growth, have more productive workforces and a decent welfare state all have, in general, higher proportions of govt spending as a share of GDP than we do.”
Frankly, I do not care how much foriegn countries manage to inveigle from their citizens, that is for their own political and social settlement to determine.
What matters to me is that i do not believe their is any useful majority in this country in favour of the level of government intervention in British society, along with the elevated spending that would require, as is seen and accepted in France and the Scandinavian countries.
More importantly from my personal perspective, i don’t want the government to spend %50 of GDP, because i do not want it to intervene to such an intrusive level in private life.
“Given the choice between living in the States or in Sweden or Germany, it’s fairly obvious which is the better, safer, more pleasant society.”
I think we both have to accept that society at large sits between the two polar extremes of the negative-freedom USA and the positive-freedom scandinavia, so a balance must be sought. However, while this compromise might be all nice and fluffy it does nothing to mitigate against the economic decline we face from our increasing relative demographic and technological disadvantage.
When one third of the population is in retirement rather than one sixth, will we attempt to justify the punitive levels of taxation imposed on the remaining workers because, it has always been thus? What happens to long-term economic growth when static public spending ambitions lead to 50% or 60% tithe in taxation from the economy?
When we produce only 7% of highly cited IP that produces high-margin economic returns, rather than the 28% we used to produce (currently about 14%) will we attempt to justify the punitive levels of taxation imposed on business because, it has always been thus? Again, what happens to long-term economic growth when static public spending ambitions lead to 50% or 60% tithe in taxation from the economy?
“public spending ambitions lead to 50% or 60% tithe in taxation ”
A pedant writes: strictly speaking a tithe is 10%.
jedi – ah, i see what you’re getting at now. I thought you favoured 30% because you quoted that figure and didn’t seem to resile from it. I would agree that around 40% is probably a healthy level of public spending give or take the economic cycle fluctuations, but that it roughly where we have been for the past 30-40 years, barring the exceptional events since 2008. So it seems to me that you’re arguing for a different form of tax system rather than a radically different level of tax take – of have i got that wrong?
“Frankly, I do not care how much foriegn countries manage to inveigle from their citizens, that is for their own political and social settlement to determine.”
I think, if i may be so blunt,t hat an unwillingness to look at other European countries, our neighbours across the sea in many cases, so see if there are better ways of plucking the goose, or indeed of organising our own society, is extremely short-sighted and a little unwise. Surely if there’s a better way of doing something, whether reforming the tax system or providing healthcare or anything esle, we should seek to be humble enough to learn from that? i’m not asking you to care what happens in Denmark, I’m asking you to see if they do something that we could usefully copy and/or adapt to make our own country better. What’s wrong with that?
@ Tabman – Yes, I am aware of that, but it is a useful phrase in context nonetheless.
@ LL – “So it seems to me that you’re arguing for a different form of tax system rather than a radically different level of tax take – of have i got that wrong?”
More less, yes, though I do explicitly wish for the government to reduce the ambitions of its intervention in society, and spend less as a consequence. If we can retrench spending to the point where we reach the peak of the cycle in 2022 (fingers crossed) taking only one third of the economic output for government services then I will be delighted, and quite happy to spending maintained as we drop over the horizon next time.
“i’m not asking you to care what happens in Denmark, I’m asking you to see if they do something that we could usefully copy and/or adapt to make our own country better. What’s wrong with that?”
Nothing, but i will be encouraging you to examine the many wonders of a US style society that emphasises minimal interference and negative liberty, and thus a creative tension exists which see’s Britain hover between the two models. But, what i won’t accept is that because scandinavian country “X” has spent 50% of GDP, (before its own demographic and technological decline), that we should accept similar spending for our future (as we fly into the face of our own decline).
Jedi – i was expecting to be decimated for that 🙂
Lol! 😀
jedi – i’ve bene to america and to most european countries, and while most americans i’ve met have been lovely people, there’s not a chance in hell i wantt olive in a society like that. Poverty, poor health, poor education and massive social inequalities, the highest per capita prison population in the world, not to mention the religious, gun and media issues there (which are admittedly less relevant to the debate about the size of the state than the former list) all make me realise that the US is not a model to be emulated,. Being somewhere between the US and high spending EU countries is where we are and really always have been. However, i don’t see it as a virtuous creative tension, as we seem to have many of the social problems of the US (high prison population, corrosive media, obesity epidemics, gaps between rich and poor and a lowest common denominator public life) but without their national sparky resilience. I’d rather we moved our society closer to Germany’s frankly.
LL – and we have the relatively high taxation of European countries without their excellent public services.
“Poverty, poor health, poor education and massive social inequalities, the highest per capita prison population in the world,”
Yes, you are free to fail as well as to succeed.
“I’d rather we moved our society closer to Germany’s frankly.”
This is the point, for while we hold opposite opinions we do represent the extremes of the argument, with the vast bulk of the british people sitting somewhere in the middle, being too ornery to accept the conformism of a true social democracy, and, a little bit terrified of the consequences of american style freedom.
We are already higher than our historic norm so they only way this trend is going is back down, thank god, i guess what i desire is that the trend overshoots the norm in the other direction, even if only by a little. As said, if we get an average spend across the cycle of 36% of GDP i shall be delighted, as long as it is an acknowledged aim to see spending as only one third of GDP at the height of the cycle.
well, jedi, i’d like to know what you propose to cut that would shave 3-5% off the public sector’s share of gdp. any first thoughts?
well, it would start with the foriegn aid budget and completely avoid defence. 😉
but it would in my opinion lead to faster growth and thus government spending would recover it’s nominal level within a couple of parliaments and increase from there on in.
so you’d cut the forign aid budget? well, leaving aside the utter callousness of that first cut, that would save a whopping 0.7% of GDP. Only another 5% to find! By ‘completely avoid defence’, do youmean you wouldn’t cut it or you wouldn’t spend anything on it? If the latter, i’m not sure that that is at all practical. leaving aside the geopolitical ramifications of having no defence budget at all – for the first time in our history and indeed the firast time in global history a state had had no defence (barring WW2’s losers who cam undert the USA’s shield) , you’d still have to pay unemployment benefit to, what, 200,000 ex service personnel? Is there anything more serious to meet your desire of a small state?
i’m afraid i would go for the utterly callous option of reducing (not eliminating) the aid budget, yes.
and by “avoid” Defence, i mean avoid cuts in Defence. 2.0%, the NATO minimum, is already too small.
by the end of this parliament we will be heading back to ~37% of GDP, that is the trajectory of the cuts already implemented, two or three percent more should be hard to manage.
Vote for me. I want to take the food out of the mouths of starving children so I can buy more guns.
i know, i’m so nasty! 🙁
i have always voted on three priorities:
1. Defence
2. The get-out-of-my-way factor
3. Europe
it is up to the parties to decide where they wants to stand on those issues.
jedi – i think the libdems are fairly clear where they stand on all three, and that’s why i’m confused as to why you’re here and not on conhome.
perhaps because i am not tribally attached to any party.
perhaps because i have a deep admiration for the ‘culture’ of liberalism, and what it has achieved in days long past.
perhaps because i hope that that which i admire in liberalism may once again inspire a liberal party capable of ruling.
1. Defence
Lib-Dem policy is currently a dreary shower of hand-wringing nonsense, but there is nothing to say that the reality of ruling a country in an adversarial system won’t sharpen up such flaccid thinking.
2. Negative liberty
The liberals were once the home of negative liberty, my freedom to do as i please with in the {limited} constraints of the law. Wrecked by the failed attempt to be holier-than-thou than the labour party. Now that labour has painted itself into an authoritarian and fiscally incompetent corner, i hope there is room for classical liberalism to flourish once more (no doubt with the necessary genuflection to social democracy).
3. Europe
I don’t have to do anything here, as the EU is destroying itself by setting in place a structure destined to be hated by all as it implements contentious policy in the absence of an assent by a non-existent Demos. If lib-dem’s were continuing in their noble calling of opposition then the idiocy could continue, but the reality of power has bitten and the party will move to adopt a more popular position.
So why am i here?
Because i am confident that there is something worthwhile in the lib-dem’s, which may or may not prove to be still-born, but i cannot stand aside when so much good may be achieved.
That is why.