William Wallace writes.. .Tax Cuts versus Public Investment and Services

The Conservative Manifesto confirms that they have dug in on tax cuts as their core offer to the voting public.  They know that this is an illusion, on which they would not be able to deliver if they won.  Opinion polls show that most of the public don’t think it’s realistic.  An IPSOS poll in early June found 68% of the public describing public services as ‘underfunded’ – confirming similar responses in multiple polls over the past year. 

Labour have been so frightened of the Daily Mail that they have committed themselves to holding almost all major sources of revenue to current levels.  They promise instead to fund increased spending out of future growth – a dubious prospect when UK growth is currently minimal and the global economy is being hit by wars in Ukraine and Israel and by the threat of a China/US trade war.  This has made the campaign so far surreal, with the Institute for Fiscal Studies (and the Institute of Government, and BBC Verify) pointing out the widening gap between promise and necessity, and with both major parties refusing to engage on where future cuts must fall.  Happily our manifesto has focussed on fair tax rather than low tax, and received compliments from the business pages for daring to do so.

Any of you who may be going to meetings with Tory candidates in the next three weeks can have a field day over the gap between rhetoric and reality.   Sunak’s party have promised to raise defence spending by 0.5% of GDP, and attacked Labour for its more cautious half promise.  Given the re-emergence of Russian threats to Europe and the current weakness of UK armed forces, such an increase is irresistible. So ask the Tory candidate what other budgets they will cut to fund this significant increase?  Education, when teachers are leaving in increasing numbers, universities in danger of bankruptcy, and apprenticeships less than half of what our economy needs?  Justice and prisons, which are already buckling from court delays, prison overcrowding, and probation understaffing?  Local government, where budgets have been squeezed to the point where key services are disappearing?  Or maybe the NHS, of all things?

Low taxes, and a smaller state, have been core assumptions of Conservative ideology since Sir Keith Joseph persuaded Margaret Thatcher to accept Friedrich von Hayek’s anti-statist philosophy, as propounded by the Institute of Economic Affairs and its fellow travellers in the USA and UK.  The Thatcher government managed to hold taxes down by using North Sea oil revenues to fund current spending – unlike in Norway, which created a sovereign wealth fund from this additional revenue stream – and by selling off state assets.  Privatization brought in receipts to the Treasury, offsetting current spending more than long-term investment.  By now even two buildings on the monarch’s state route to Parliament – Admiralty Arch and the Old War Building – have been sold off, one to a Spanish the other to an Indian company.   Public investment has been lower than in any of our major competitors except the USA for several decades.

Small-state Conservatives imitate US Republicans in wanting to hold down taxes so as to force public services to shrink.  They won’t admit that successive Republican Administrations have run substantial deficits, since cutting taxes has proved easier than cutting spending.

Labour’s reluctance to admit in its turn that long-term socio-economic challenges and Britain’s accumulated backlog in public investment are more likely to require higher spending in all circumstances except a remarkable surge in economic growth risks becoming their ‘tuition fees’ moment: the broken election pledge after coming into office that the Daily Mail and other critics will seize on as betraying public trust.  Liberal Democrats in opposition must push for wider tax reform – desperately needed instead of twice-yearly changes to our over-complicated taxes for short-term advantage – and a longer-term framework for investment and spending programmes.  That will require changes in the way Parliament scrutinises budgets and spending, more radical than any leading Labour politicians are yet ready to consider. Hopefully our larger body of MPs will push the new government hard to introduce a more intelligent approach to raising and spending public revenues.

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

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4 Comments

  • Steve Trevethan 14th Jun '24 - 4:00pm

    Thank you for a most relevant article!

    Might L.D. H. Q. find the attached article of help in enabling our party to present better alternatives to the now evidently failed and, zombie-like, still failing Neoliberal/Austerity fantasy of Mr. von Hayek and his accomplices and gullibles?

    https://www.taxresearch.org.uk/Blog/2024/06/14/there-is-a-magic-money-tree/

  • Peter Hirst 15th Jun '24 - 2:06pm

    Why is there is so little talk on reducing the glaring inequality in our country? To build growth we need to invest in skills training, infrastructure improvement and efficiency. The funding for these measures could come from a wealth tax or similar measures.

  • Christopher Haigh 17th Jun '24 - 12:12pm

    William Wallace, thanks for another super article to read. I think Hayek was just a Libertarian and not a rational economist. Joseph was known as the mad monk and destroyed the wonderful post war consensus that we had in those days..

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