William Wallace writes…Promises of tax cuts deny reality

Rishi Sunak reassured the Conservative Party conference on Monday: ‘Yes, I want tax cuts,’ though not until public finances have been ‘put back on a sustainable footing.’ That’s code for cutting public expenditure and public investment. The substantial proportion of Conservative MPs who believe in a small state repeatedly call for tax cuts without saying where they would cut spending. IN committing to balancing the budget Sunak is committing himself to cutting spending as well – or breaking the manifesto pledge not to raise taxes again. He will be well aware that Republican Administrations in the USA have repeatedly run rising deficits as they cut taxes but failed to cut spending.

Liberal Democrats should resist any temptation to criticise the Conservatives for raising taxes. We should condemn them vigorously for raising taxes unfairly – for hitting lower-paid workers through raising National Insurance while sparing higher earners. Fair taxation has to be progressive taxation, oriented to take more from those who have more. The UK is more sharply unequal in terms of both income and wealth than almost all other developed democracies except the USA. Repeating ‘give us tax cuts and a smaller state’ sweeps aside the social and economic challenges that the UK faces.

Like other developed democracies, we have a rising number of elderly people drawing pensions and using health and other public services. We have cut public spending on education and training well below comparable countries, with results that are apparent in our shortage of skills. We have invested too little in housing and public infrastructure for decades. Transition to a more sustainable economy, including moving toward net zero carbon emissions, will require major public as well as private investment. The UK has also invested much less in scientific research and development than other leading states. Boris Johnson has promised to make us ‘a scientific superpower’, but has not yet explained how that will be funded.

And then there is ‘Levelling Up’, which is becoming the defining measure of Johnsonian government – and the likeliest source of public disillusion at the gap between easy promises and poor delivery. Long-term reduction of regional inequalities cannot be achieved without higher investment in education, local as well as long-distance transport, the revival of local government and public services, housing and local enterprise. That’s a huge agenda, reversing decades of neglect by successive government, and requires a sustained increase in public spending.

So we should challenge any Conservative MP who calls for tax cuts, by asking him (the tax cutters are almost all men) what public services he would cut to match: pensions, or schools, or bus services, or investment in climate change? Many Conservatives would quietly like to cut the NHS, but dare not say so. Instead they talk about eliminating ‘waste’ in the NHS (and elsewhere in public services), without admitting that Germany and the Netherlands spend more public funds on health and social care than the UK. Most Americans pay far more out of their own pockets on health insurance than we pay towards the NHS – which is why US Republicans find it difficult to oppose the extension of federal Medicare.

Liberal Democrats should focus on where and how taxes fall on incomes, property and other forms of wealth – note, again, that Conservatives are talking about raising unreformed Council Taxes still further. And we should argue for a far higher proportion of public expenditure to be devolved to local government, rather than controlled so tightly by the Treasury in London; England is absurdly over-centralised, and we see ministers distributing funds in small packages according to political advantage.

We have to find a way of attacking the Tories for not spending on national priorities, for favouring the wealthy, their donors, the outsourcing companies which have profited so much from privatised services and invested so little – in water and sewage, gas storage, electricity, test and trace. The UK needs a sustained programme of higher public spending, at local, regional and national levels, to reshape our economy, grapple with climate change, and create a more equitable society.

William Wallace recognises that he is part of our public spending problem, drawing a pension and using the NHS more as he grows older. But he also worries about the quality of his grandchildren’s education, the low salaries their teachers receive, the poor quality and high cost of local transport in Yorkshire, the contamination of Yorkshire rivers by sewage outflows, and the struggles that face ordinary people in Bradford and elsewhere.

* William Wallace is Liberal Democrat spokesman on constitutional issues in the Lords.

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  • Lorenzo Cherin 6th Oct '21 - 4:15pm

    William Wallace is not part of our spending problem. He is helping provide a solution.

    In this piece I agree with it completely. The govt are either planning cuts in what they spend, because they are planning cuts in tax, or are planning nothing of the sort.

    Sunak is as slippery as Johnson, just nicer !

  • Tristan Ward 6th Oct '21 - 10:58pm

    Liberal Democrats should resist temptation to criticise the Conservatives for raising taxes.”

    Hmm. To the extent a “high tax party” label should be tied to the Tories I agree. But I think the idea that the only thing that needs to be done is “tax the rich” to raise the funds required for the (necessary) investment in public services Lord Wallace calls for is completely unrealistic.

  • Peter Martin 6th Oct '21 - 11:25pm

    If inflation becomes the problem that many think it will be then any government will be justified in either raising taxes or cutting spending by just enough to cool an overheating economy. But if the inflation spike is only temporary then they won’t be.

    That’s all there is to it. Balancing the budget can only happen under the same circumstances as previously. ie the Govt creates a credit boom. That’s unlikely to say the least.

    Even worse would be to push the responsibility on to the BoE who might decide to crash the economy by increasing interest rates sharply.

  • “ England is absurdly over-centralised, and we see ministers distributing funds in small packages according to political advantage.”
    To quote an example of this, very recently Grant Schapps took time to lambast my local Labour led council (Cheshire West) for not agreeing to a £5000 grant towards. £50,000 feasibility study to reopen a local railway station.
    Firstly this sort of decision (to reopen stations) should be devolved to councils.
    Secondly, didn’t the Transport Secretary have far, far bigger issues to worry about during the last few weeks!
    Also don’t think England is alone in centralisation, just look at the SNP.

  • David Garlick 7th Oct '21 - 9:59am

    Good read. I agree with WW.

  • David Evans 7th Oct '21 - 10:40am

    Hi Andy, Indeed – the “Why have you refused to accept £5,000 to carry out a study into which will cost you another £45,000 that needs to be spent urgently on something much more relevant to the immediate needs of your community?” is a typical snide question often put forward by snide politicians seeking out a cheap headline.

    I remember the offer of public money to carry out a feasibility study into re-opening a long closed facility that lots of people said they wanted reopening, but most of whom would never use (as they didn’t when it was open). Sadly the council accepted it because they hoped so very much it would might just reconcile the irreconcilable, despite several warnings. The study was carried out, full of nice words and (im)possible pipe dreams at huge cost, and that just stoked up the unreasonable demands that the white elephant be re-opened! The problem is still causing much heat years later, and a solution to satisfy all will never be found.

  • Like so many theories and policies, I believe our approach is too pedestrian. As in the old joke of the the Irishman, asked for the best route to Bally-somewhere: “Sure, sir, I wouldn’t be starting from here!”

    Wouldn’t we do better to have a look at most discussion about ‘Levelling up’, for example.? Establish a puzzled agreement that the rich are VERY rich, and the poor must be helped to be a bit less poor — but how can this levelling up be done? Now think, in roundish figures, how the gap might be narrowed, without endless and fruitless jiggling and juggling, by coming to a broad agreement that no family, say, ought to have to try to manage with less than £x p.w.

    And give that to them — not by means-testing, with all that unpleasantness and much expense, but by plainly and simply giving them that minimum income.

    And now, where is the money to come from? Easy: by taxing everyone who has more than that necessary minimum. To be truly helpful, make even those receiving my ‘Minimum’ pay some income tax, by giving the recipients a bit MORE than that ‘minimum’.

    NOW, *everyone* will be an Income Tax-Payer, and the only discussion remaining will be the relatively simple one (though doubtless politically contentious!), of deciding an acceptable formula for a simple ladder of Income Tax rates which will yield the funds for the Minimum Household Income first thought of. Parliament will simply announce the scale, based on a reasonable assumption that next year’s National Income will be the same as last year’s.

    Very many people will think this ridiculous. They are the ungenerous, and the unthinking, I believe. Sometimes they may be a majority — and we shall not know that till we have PR!

  • I’m not sure what “tax the rich” means, unless it simply means tax them more than we do at the moment! Taxing the rich on incomes is important, taxing the not so rich is important, taxing old people like Geoff Reid and William Wallace is important if they’ve got sufficient income to be taxed. Yes wealth is something different, land ownership is something else. However I regard progressive income tax as one of the basic building blocks of our civilisation and as such it should be celebrated.

  • Peter Martin 8th Oct '21 - 12:10pm

    There are some macroeconomic problems with a tax-the-rich policy on the grounds of a reduced propensity to consume. This leads some with similar economic views to myself to argue that we don’t need to chase after them for their tax payments with any great enthusiasm.

    I wouldn’t go along with that. However we are also up against the problem that the rich can afford good accountants. For example I’ve just read that Tony Blair and his missus managed to avoid stamp duty worth £300k + by a clever wheeze.


    On the other hand the very poor don’t have that much money to be able to pay taxes anyway.

    So that leaves those of us in the middle!

  • Peter Martin 10th Oct '21 - 12:10pm

    @ Lorenzo,

    “The govt are either planning cuts in what they spend, because they are planning cuts in tax….”

    The Tories will very likely be planning both cuts in spending and rises in rates of tax. The two aren’t directly linked so there is no causal relationship. There’s no ‘because’.

    Whether they are justified in doing that depends on if you believe the BoE who say that there is likely to be a more longer term inflation problem or the IMF who say that there is simply a short term inflation spike as countries recover from the Covid pandemic.

    They will know that these will be unpopular measures so they will at least be thinking about the possibility of calling a snap election so that they can delay the austerity until afterwards.

  • Laurence Cox 10th Oct '21 - 2:08pm

    What we need to emphasise is not higher taxes per se, but fairer taxes. I always use Harold Wilson’s ‘pound in your pocket’ argument. That pound buys exactly the same whether you earned it by working as an employee, or received it in rents or dividends, or by making capital gains. Yet the employee pays 33p in the £ above the income tax personal allowance, the landlord only pays 20p in the £, and on capital gains just 10p in the £ (18p on residential property). What we need is a simplification of taxation so all sources of income are treated equally.

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