29 November 2019

Whoever you vote for at this election, it will mean higher taxes


It’s election time. We’ve had a referendum on leaving the EU, but no majority in parliament to make it happen. The Tories are led by a popular leader, adored by the party’s grassroots, who has committed to delivering Brexit come hell or high water. Labour are behind, with Corbyn written off, and a Marxist policy platform which would make Michael Foot blush. The Tories are promising a load of left wing policies too, including direct intervention in the market, certain it’s what they need to win in the Labour heartlands.

For 2017, read 2019. It feels like we’re stuck in a terrible ‘Back to the Future’ instalment: the characters are different, but the plot hasn’t changed. Like all good time travel sagas, politics is riddled with unintended consequences. And the experience of 2017 should tell us there are some huge consequences coming for taxpayers after December 12.

After the election, Theresa May’s government implemented a series of big state, high tax policies. Promises of no strings attached cash for the NHS; new regulations on net zero; tax cuts shelved and the creation of more quangos. After his surprise non-loss in the election, Corbyn shifted even further to the political left, doubling down on his nationalisation plans. All in all, the 2017 election result was terrible for people who believe in a small state.

The nature of modern campaigns is to make people aware of the consequences of political decisions. That’s what groups like ours exist to do: spot an issue, move it up the agenda and push for change. Some are better at it than others. For example, in polling conducted last year, Hanbury Strategy found that the environment languished down at the bottom of the list of issues which voters said were important to them. After a relentless campaign of media attention, heavyweight support, stunts and direct action, eco-activists have managed to put green issues firmly on the political agenda. Now politicians of all stripes are at pains to trumpet their green credentials.

Another one is crime. In the same poll, it was right there at the bottom. But a powerful and serious campaign, kicked off by Labour at the last election, has seen a spike in concern about police cuts, and the Tories respond with unapologetically tough law and order policies.

Most successful of all, of course, has been the campaign to get us out of the EU. An issue which barely troubled the scorers a decade ago has been transformed, by the likes of Nigel Farage and many others, into the all-consuming political issue of our time.

Taxation and the size of the state may be the next item to surge up the list of concerns.

That same polling from 2018 shows taxation at about the same low level as crime and the environment. The challenge for the Taxpayers’ Alliance, therefore, is making the public aware that the consequences of this election, whoever wins, is likely to be a bigger state with higher taxes. A report from the Resolution Foundation found that government spending is rising once again, and likely to head back towards the heights of the 1970s over the coming years. The Conservatives’ recent spending review suggests state spending could be 41.3% of GDP by 2023, while Labour’s spending plans could take it to 43.3%. This compares to the 37.4% average throughout the noughties. Based on the manifestos, Labour are working towards a German-sized state, while the Tories’ plan looks more Dutch.

Unsurprisingly we see this mirrored by the tax burden, which at 34.6% of GDP has already reached a fifty-year high. It is likely to increase further. For example, with the postponement of the corporation tax cut, the tax burden may rise to 34.9% in 2022-23, which will be very close to the level of 35% from 1969-70. It only needs to be another £4.6 billion higher in 2022-23 to make it bigger than any year since 1950, when it was 35.6%. The Lib Dem proposal, to stick a penny on income tax, would take you comfortably into that territory.

We are perilously close to breaking new records on the level of the tax burden and the size of the state. The UK state already spends more in relative terms than the US, Korea and Ireland.  Both groups like ours, who favour lower taxes and a smaller government, and groups like the Resolution Foundation, who don’t, have been pointing this out.

Other countries enjoy a robust debate about the size and shape of government – just look at the fierce arguments in Sweden about income tax rates. But British taxpayers are presented with something of a Hobson’s choice: Boris Johnson will see taxes increase and spending shoot up, while Jeremy Corbyn has £1.2 trillion worth of unfunded spending rises just waiting to become unimaginable tax hikes for everyone. Whoever you vote for, you’ll get higher taxes, the question is just about how high.

We should all be aware of the threat of socialism by stealth. Whether it is the 2008 financial crash, the continuing failure in the housing market, or the concerns of working class communities in the Midlands and the north, politicians of all stripes are automatically assuming that capitalism is to blame and socialist policies must be the answer. The Conservatives are now even talking about introducing new state aid rules to help struggling industries – one of the hallmarks of an interventionist economy.

But our landmark polling, released recently, could not have been clearer: ordinary voters do not want a high tax society. Working class taxpayers back bold tax cuts on both household income and business. The data reveals that around 6 in 10 voters on lower incomes strongly favour cutting the basic rate of income tax down to 15p in the pound, compared to less than half of middle class voters. Despite a widespread belief in Westminster that working class voters are ‘anti big business’, in fact they are more than twice as likely as professional voters to back cutting corporation tax to 12.5%, the same level as Ireland’s. Focus groups from Walsall, Stoke and Bristol showed that working class voters are ahead of the politicians and understand the importance of businesses as big employers. Voters unsurprisingly have a keen understanding of the consequences of whacking up taxes.

That should give the political parties pause for thought. Typical taxpayers aren’t daft. They’ve wised up to the lessons of 2017, knowing full well that sixth-form socialist policies from Labour – and a poor imitation from the Conservatives – are not what an over-taxed country needs.

The TPA will keep pointing out that the consequences of big spending and higher taxes are not good for prosperity, wealth creation or economic freedom. But if politicians don’t listen, they may find that an unintended consequence of this election is that taxpayers simply won’t vote for them.

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John O'Connell is chief executive of the Taxpayers' Alliance