Michael Brown: The real clash within the Tories is just beginning

The tussle over tax, delayed since Cameron's election, must now be played out


Both Tories and Labour are missing the point about tax. The simple verity of the Thatcher tax policies of the 1980s has not changed. Tax cuts lead to economic growth. Tax rises, however, reduce the impact of economic growth.

Yet both parties claim that the country cannot afford "unfunded" tax cuts. Labour says the Tories are still on their slash and burn policies that would, if they implement Lord Forsyth's tax commission proposals in full, imply a cut in public services of £21bn. But public services are not ultimately paid for by our taxes; they are actually paid for only by a growing economy.

George Osborne replies that any tax cut recommended by the commission would only be implemented with a commensurate rise in environmental taxes. This is just plain daft. It means that the tax burden under the Tories would continue to be the same as under Labour - nearly as high as in the days of Denis Healey.

But the question is not whether the country can afford tax cuts. The country can no longer afford to pay the taxes demanded by government from the population. Britain's tax burden is growing faster than that of any other European country, with middle-class taxpayers working nearly half the year for the state. Failure to reduce, simplify and make fairer the burden and collection of taxes is actually reducing economic activity, lowering economic growth - and even reducing the total amount of revenue collected.

However much both parties want to shy away from the Thatcher tax policies of the 1980s, the experience of that era continues to provide the only basis for future economic growth. At a time when our taxes - corporate and personal - are increasing, the rest of the developed world is going in the opposite direction. Which means that we are becoming progressively less competitive.

Perhaps the starkest comment in Lord Forsyth's report is the quotation from Charlie McCreevy, the EU Commissioner for the Internal Market and Services, who was previously the Irish Finance Minister. "Back in the 1990s, when I started cutting taxes, many people feared that the loss of revenue to the Exchequer would be massive and that the policy would have to be abandoned. But the opposite happened. Far from the policy causing an erosion of the Exchequer's revenue stream, reduced tax rates generated higher economic activity, greater taxpayer compliance and a surge in the tax take for the Exchequer."

This was precisely the experience of the UK during the previous decade under Thatcher, Howe and Lawson. After Geoffrey Howe reduced top rates and marginal rates of tax, revenue increased. And after Nigel Lawson's 1988 Budget reduced the top rate of tax to 40 per cent, the public sector borrowing requirement was converted to the public sector "debt repayment".

Both Labour and the Tories now seem to be stuck in the groove of "economic stability". George Osborne repeats the words as his central mantra. But there is nothing stable about economic stability. Such a policy is actually harmful to the British economy, impairing its competitiveness while reducing growth and opportunity for individuals and families. Without reform, according to Lord Forsyth, it will only get worse.

The political issues raised by the commission will spark a debate that can no longer be conducted behind closed doors. The right-wing groups comprising John Redwood's No Turning Back organisation, as well as the Thatcherite Conservative Way Forward - presided over by Lord Tebbit - will want to ensure that the uneasy truce with the Cameroons is broken. This tussle over tax cuts has been delayed since Mr Cameron's election, but will now have to be played out and resolved before next year's party conference.

Already, well-known right wingers such as Edward Leigh, Chairman of the Public Accounts Committee, and the Eurosceptic former minister David Heathcoat Amory have enthusiastically embraced the commission's proposals. Mr Cameron would be ill advised to write off these and others (probably a majority of the backbenchers) as Thatcherite dinosaurs that can simply be ignored. Expect to read of serious rows within the backbench 1922 Committee over the coming weeks.

Every Tory leader since 1997 has had to face a fork in the road after about a year in office. Mr Cameron made it clear in his party conference speech at Bournemouth that there would be no return to tax cutting unless it could be afforded. Last year's battle for the party leadership may be over, but the real battle for the soul of the party is only just beginning.


React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Guru Careers: Marketing Manager / Marketing Communications Manager

£35-40k (DOE) + Benefits: Guru Careers: We are seeking a Marketing Communicati...

Recruitment Genius: Commercial Engineer

£30000 - £32000 per annum: Recruitment Genius: Estimating, preparation of tech...

Recruitment Genius: IT Support Technician

£14000 - £17000 per annum: Recruitment Genius: You will work as part of a smal...

Recruitment Genius: Media Sales Executive - OTE £37,000

£16000 - £37000 per annum: Recruitment Genius: The ideal candidate will want t...

Day In a Page

Read Next
David Cameron has reiterated his pre-election promise to radically improve the NHS  

How can we save the NHS? Rediscover the stiff upper lip

Jeremy Laurance

Thanks to Harriet Harman, Labour is holding its own against the Tory legislative assault

Isabel Hardman
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers
The rise of Lego Clubs: How toys are helping children struggling with social interaction to build better relationships

The rise of Lego Clubs

How toys are helping children struggling with social interaction to build better relationships
5 best running glasses

On your marks: 5 best running glasses

Whether you’re pounding pavements, parks or hill passes, keep your eyes protected in all weathers
Joe Root: 'Ben Stokes gives everything – he’s rubbing off on us all'

'Ben Stokes gives everything – he’s rubbing off on us all'

Joe Root says the England dressing room is a happy place again – and Stokes is the catalyst
Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

Please save my husband

As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada