Friday, September 22, 2006

Osborne & Forsyth Need to Sing from the Same Hymn Sheet

Allister Heath writes in today's Spectator that there's a looming clash between George Osborne and Michael Forsyth over his interim Tax Commission report. Osborne is reportedly asking Forsyth to tone it down, as it apparently proposes £19 billion of tax cuts over a five year period. Read the full article HERE. Here's an extract...

Its 40 proposals include cutting the basic rate of income tax from 22 per cent to 20 per cent, slashing corporation tax from 30 per cent to 25 per cent (and eventually to 20 per cent) and scrapping the 10 per cent starting rate of income tax. The draft even calls for a cut in the top rate of tax as a longer-term aspiration. In a blow to Cameron, and contrary to media reports, the Commission won’t propose any countervailing new green taxes, nor does it address council tax reform.

The poor would pay significantly less tax, with the starting 10 per cent rate of income tax scrapped and hence no income tax payable on the first £7,185 of earnings. There would also be a revolutionary reform of inheritance and capital gains tax; the two levies would be merged. Primary homes would become totally exempt from inheritance tax while the rest of a deceased’s estate would be eligible only for a reformed capital gains tax. This would impose either a 20 per cent or a 40 per cent tax on gains on assets handed down; the rate would be reduced by a tenth every year so that no tax at all would be payable on assets held for a decade.

There would also be help for families with transferable personal allowances, for couples with a child under the age of five, making it less costly for one of the parents to stay at home. Currently parents earning £50,000–£60,000 are still eligible for family tax credits; the Commission wants to ensure that these taper off at a significantly lower rate. It also wants to scrap tax credits for film production and for research and development. Stamp duty on share transactions would be abolished; however, the Commission will not propose to undo Chancellor Gordon Brown’s destructive raid on pension funds.

Contrary to speculation, the plan doesn’t endorse a flat tax. In conversations with Forsyth, Osborne has made it clear that he is especially opposed to the Commission’s proposed reduction in the basic rate of tax. Osborne is concerned that it would be portrayed as helping the rich and the middle classes. Even more controversially, Osborne wants the Commission to consider a £1 billion employee national insurance contributions hike by extending the income range on which they are payable by £5,000.

Osborne and Cameron will have to tread carefully as the radicalism of the Forsyth Commission chimes perfectly with increased unease over tax among Tory backbenchers. Many who had reluctantly begun to accept the Cameroonian view that tax cuts are political suicide are now changing their minds again. Backbenchers have told me that a TaxPayers’ Alliance/ICM poll, splashed on the front page of the Sunday Times last month, created a stir by demonstrating a growing public appetite for tax cuts when sold the right way; they also report that their constituents are increasingly angry about the gross waste of taxpayers’ money that has become the hallmark of Brown’s public sector.

The sentence which leaps out at me from this is this: In conversations with Forsyth, Osborne has made it clear that he is especially opposed to the Commission’s proposed reduction in the basic rate of tax. Osborne is concerned that it would be portrayed as helping the rich and the middle classes.

Excuse me? How can a reduction in basic rate income tax be seen as helping the rich?! I respect Allister Heath but I simply cannot believe that George Osborne would have said that. And since when was it a crime to help the middle classes?

There is a lot of good stuff in what Michael Forsyth is proposing - some of it already adopted by the Liberal Democrats. We have to be brave in this area. No one is going to vote for a mushy status quo. We've got three years to sell a comprehensive package of tax and spending reform. We don't need all the detail now, but we do need to know that the Party leadership and its Tax Commission are united in its aims.

15 comments:

Benedict White said...

Iain, If we cut taxes for the poor, by raising tax allowances, we don't get credit for that, we et lanbasted for taxing the rich less (which is a side effect). They are gits those Labour folks.

We cut the lower rate of income tax and people thought we did that to help the rich. Go figure?

cassilis said...

Ah... the age-old 'Tax' question.

I accept Iain that no one will get excited about the 'mushy status quo' but Osbourne, Cameron et al are just anxious to get things the right way round and it's not clear if Forsyth has done that.

Debates on taxation hinge on the legitimacy issue. Blair's political genius has been to associate public spending in the minds of the electorate with 'schools'n'hospitals' alone - so any politician who proposes reduced public spending is easily labelled as an enemy of these noble causes.

What I'm desparately hoping Cameron can do is broaden public awareness of what our money is spent on ('Real Nappy Officers', 'Diversity Co-ordinators' etc.) and then point out that we can protect worthy public spending and still reduce tax by withdrawing funding from some of these dubious areas.

Praguetory said...

Osbourne - you were banging the drum for flat tax a couple of years ago. GET COHERENT. LESS TAXES FOR ALL.

Anoneumouse said...

What's this 'we'

I think you mean individual parliamentary candidates have to persuade their potential constituents, that what they stand for, is worth voting them in to a parliamentary seat

It is the 'we', that is the reason why people are turned off politics.

.

Red Mist said...

Oh Cassilis - just when I was starting to believe you might have something sensible to say you go and reduce a potentially sensible debate on tax to the usual right wing diatribe/scare mongering about waste of tax payers money on figments of your imagination or things which have absolutely no impact on the overall tax burden for a single individual let alone the country as whole. Come on give us the benefit of your wisdom and tell us exactly how much doing away with "Real Nappy Officers" will put back into our pockets?
I would also be interested to see what constitutes your list of "worthy public spending".

wonderful for his age said...

Iain, you wrote, "We don't need all the detail now, but we do need to know that the Party leadership and its Tax Commission are united in its aims".

We don't have a Party 'leadership'.
We have a Party 'followership' (of fucus groups). One can't unite the unknown views of tomorrow's fucus groups with anything. The spivs and spinners running the shop are only interested in what they have to do and promise in order to get elected. Underlying Conservative beliefs and values are not on their radar.

Ming seems to be the only one of the three prepared to lead rather than 'follow the fucus'. I'm begining to find him rather refreshing in an understated kind of way.

Scary Biscuits said...

IMHO, the Tories should simply copy the Lib Dems on this one. They have cut taxes for the poorest without being lambasted for helping the rich. Unlike them though we wouldn't need to balance it with ridiculous commie-green taxes to keep spending up. We could simply save a few billion with a one clause bill to abolish VAT fraud - something Gordon Brown hasn't done anything about for 5 years because it keeps his corrupt palls in Europe happy.

i spy strangers said...

Forsyth for Leader - now that Eric Forth is (sadly) no longer with us.

cassilis said...

Red Mist - I'm sure we can use our own blogs for our little debates but I'll beg Iain's tolerance for one small retort..

In a 2003 report from the Adam Smith Institute (http://www.adamsmith.org/index.php/publications/details/costing_jobs/) Jonathan Woolham identified a yearly cost of c.£800m on the basis of a one month review of the Guardian's Society supplement. Even this figure isn't the full cost because it doesn't take into account NI contributions etc.

The point is a simple and not particularly radical one - not all public spending is worthwhile.

pakman said...

Living in the only part of the kingdom with a land frontier with a low corporation tax rate state I'm all for the Forsyth proposals in that respect. Sad to hear the flat tax is on the back burner though.

Robin Hoodie said...

The British public are beginning to see the failure of a bloated public sector having been hosed with money taken from "decent, hard working families" and are ready to listen to the alternative argument of a lower burden of tax on incomes.

Real Conservatives (and there might actually be some within the Parliamentary CP,) cannot credibly argue for maintaining the current burden of taxation on the public. For god's sake, even Ken Clarke accepts the overall level of public spending is too high and damaging the economy.

I look forward to the publication of the Commission's report.

The Remittance Man said...

Red,

Ah, a variation on the classic leftie retort. Instead of scaremongering about losses of "frontline" workers you attempt to ridicule that loss by claiming its effect would be minimal. In so doing you expose one of the great failings of the modern public service; its gross inefficiency.

There may only be a few thousand Real Nappy Officers" and I agree that firing them, while pleasurable, would not produce great savings. But you forget one thing:

For every "frontline post" there is a small platoon of safety officers, HR officers, accountants, payroll clearks, performance managers, welfare coordinators, training facilitators, etc. Most of these logistics tail positions are superfluous to the provision of services.

Every useless member of that multitude gets a fat salary; generous, taxpayer guaranteed pension and all sorts of other bennies we in the private sector haven't seen in decades. In addition to their direct costs every one of those useless mouths needs office space (rent, heating, lighting, tea allowance, office managers, cleaners, etc).

Quite frankly we could leave the RNOs in place if you want, though I personally can't see why one would. The real saving will come from sending the armies of paper pushing office squatters out to find real jobs.

Now think broader than just the RNOs. Consider the LEAs, Dept of Health, Dept of Industry, in fact think of every department of state. Do you see the potential scale of the savings?

tapestry said...

Moving 1 to 2 million employees out of the public sector, saving the billions wasted in the health service, tackling the billions lost to tax fraud, the billions wasted in Brown's tax credit system, will take time.

the private sector will need to be released from the burden of regulation if it is to absorb the numbers coming out of the pubic sector.

it will be necessary to deregulate first. then move the employemnt load out from the public to the private sector.

tax can nearly halve over time, but it will happen in stages depending on how bad the mess is that labour have created by the time they lose power.

deregulation is to the key. that will require withdrawal from the eu if it is be achieved.

tax inevitably gets pushed down the list until the building blocks of rescuing Britain from its current disastrous state have been implemented.

1. eu withdrawal.
2. deregulation.
3. moving employment out of the public sector.
4. huge growth in private sector.
5. large scale reduction in taxes.

Cicero said...

Interesting convergence in the argument- Forsyth and tax cutting Lib Dems, Osbourne and mushy Labour...

JT said...

"Osborne has made it clear that he is especially opposed to the Commission’s proposed reduction in the basic rate of tax. Osborne is concerned that it would be portrayed as helping the rich and the middle classes."

Who else does he think will vote Conservative if the rich and the middle classes don't?