What are the British Conservatives up to?

[Peikko 1,575]

George Osborne has embraced the 50p tax as a central tenet of the "We're all in this together" theme. CoffeeHousers will be aware of my deep scepticism about this. It is justified on presentational grounds: if you squeeze the rich, and their pips squeak, it will create 'permission'(to use that Blairite phrase) to do the horrible things like deny pay rises to nurses and social workers. Ergo, presentation and economics are fused together on this issue, he says. Without popular support for the cuts agenda, it cant happen and the deficit won't be tackled. So the 50p tax should be judged not on its own merits, but on the grounds of its ability to unlock the ability for deeper cuts to be made.

At a CPS fringe event last night, there was plenty support in the audience for this principle. "Don't you think it is worth the price?" he said. My point: we don't know the price. Is it £800m, as the IFS says? £2bn? £5bn? The more it costs the Exchequer, the more nurses and social workers will have their pay squeezed and taxes increased. I put this to David Cameron in our interview last week: here is the transcript, with my comments in italics:

FN. Do you really believe the 50p tax will raise revenue?

DC: I think in the short term it will raise some revenue and that is why, in the short term, because of the scale of the crisis, we cannot promise to get rid of it, but it's a tax we don't like, it's a tax which should form up in the queue of taxes we would like to get rid of but we can't make an early pledge to do so.

FN: Given that no independent researcher has ever said it will raise revenue, everybody says it will lose it - the IFS say £800 million, other ones say more than a few billion…

DC: Well the Treasury, and they would claim that their figures have some worth, claim that and I think that it is believable in the short term that it will raise some revenue. As I've said, it's not something we think is a good idea but the scale of the fiscal crisis means that we cannot make an early pledge to get rid of it.

FN: Can I put to you that this suggests a worrying direction of travel? Many entrepreneurs are looking at you and asking 'what is this guy all about, what is his understanding of wealth generation'? Rich people are leaving this country right now, and not because of what Labour will do. They know there is going to be a change of government and they think the Tories are for whatever reason, political or otherwise, pursuing a strategy where the rich are regarded as ATM machines - cash cows to be milked.

DC: Look, what we have to convince people of is that we understand wealth creation, we understand what drives a strong economy, how to help people establish new businesses, to create the wealth, create the jobs that are going to take us out of this recession. I don't think though that anyone would be convinced if we made tax pledges that aren't deliverable and we made promises, particularly having identified the scale of this deficit, the scale that I do see as dangerous, having identified that all the efforts have got to go to dealing with that and therefore I don't think it would be realistic to make tax pledges we can't keep.

FN: But the 50p tax would lose revenue, not raise it, that will make the deficit worse, not better! Can nothing could change your mind about 50p, because this is a...

DC: Look. Clearly, Fraser, if you are proved right that it doesn't raise any money and the Treasury is wrong then that would be, as they say, a fact on the ground.

FN: Okay. It will be my challenge to you to change your mind about that.

DC: You don't have to persuade me that high marginal tax rates are a bad idea - I think they are a fantastically bad idea. Absolutely.

FN: But this could cost you billions.

DC: What I say is: if you're right, we'll see. If you're right - that it raises no revenue, even in the short term - then clearly it would be painless and advantageous to get rid of it at an early stage.

[Note: the lag on behavioural tax data is such that one cannot tell, in the short term, if it is gaining or losing. You can bet that the take from the richest will be shown to fall, along with their declared earnings (as it did in California in 2001/2). But how much of that will be due to the recession (or, in California's case, the dot-com crash) and how much due to a tax-induced behavioural switch? It takes years to untangle the data. And, by then, the golden geese have flown. Worse, emigration data is not collected in Britain. Studies into the impact of high taxes have to be conducted longitudinally - so Cameron could only know about the damage his 50p tax has done to his tax base long after the damage has been done and the poorest are shouldering a far greater burden. He's kidding himself if he thinks he will know, in office, about all these foreigners who are offski. I didn't say this in the interview, and moved on to another phrase he used recently.]

FN: You say recently the rich have to be seen to pay their 'fair share'. Right now the richest 1% pay 24% of income tax collected. Would you describe that as a fair share?

DC: Look, I want a system which raises money effectively. I remember particularly in 1988 when rates were cut away down to 40%, there was a great revolution on the left and people said this is completely unfair but the subsequent figures, I remember promoting them at subsequent elections, showed that actually better off people were paying not just more income tax but a greater share of the income tax, so you don't need to convince me about that. The sort of tax system that I believe in is one that's effective in raising revenue - rather than one that is trying to make a particular point.

FN: The lesson, surely, is if you want to have the rich bearing a greater share of the tax burden you must reduce their marginal tax rate. It's a paradox but that's what been proven. And you say you not only understand this, but advanced the argument yourself.

DC: I am a Lawsonian. But I believe fiscal responsibility must come first. We have this enormous problem with the deficit, we must deal with that and prove that we are fair in dealing with it. Over time that will enable us to reduce some taxes and particularly those taxes we think aren't effective.

[i dropped the subject here, although it really did strike me as an unresolved contradiction. Cameron appeared to be saying that he learned the lessons of the Lawson tax cut, which we looked at in this Coffee House post. So he is saying a) I know that high tax rates on the rich lead to small revenue but B) I'm going to do it anyway. I have made a pest of myself in this conference, trying to ask various Tory policymakers how they can resolve this. Oliver Letwin told me at a Politea fringe that "short term" is the key: that if they abolish the 50p tax early enough it will be a net contributor. I told him that was fascinating, and I hadn't seen the studies suggesting this. Could he point them out to me? I love asking this question of the Tories, because they always go quiet and say something like "our researchers will, of course, have done all this" - which, translated, means: "I haven't got a clue". Cameron pointing to the Treasury's research (which we're trying to get under FOI) seems to be about as far as it goes. The Tories are sold on the political attractions of the 50p tax, which I do not argue with. But little, if any, study seems to have been done into its fiscal impact. As far as I can determine, they have not commissioned (or even read) independent research into the effects of raising the marginal tax on the high paid - or sought to find out what the so-called elasticity (ie, tax-avoidance) effect might be.]

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Edited October 8, 2009 by Madame Cleo

[Peikko 1,575]

If you didn't like that one, how about this one?

Clever in its lack of cleverness. Cameron’s performance today was shrewd and unexciting, a speech of nursery-school simplicity. Large bland ideas, plain language. No detail. This was certainly no masterpiece. It didn’t have to be. Cameron’s in a holding pattern. Keep circling and he’ll land safely.

Before he arrived, William Hague frustrated the eager delegates with two corporate videos of more than ordinary dullness. The BBC, flouting its own policy of censoring political broadcasts, aired both of them on BBC Parliament (albeit with the sound turned down.) First, a surpise. No less a figure than Bono, the UN's top Guilt Ambassador, spoke to the Tories about debt relief. His message of mercy – the mercy lay in its brevity – got a rapturous sitting ovation. Then came a boring set of clips recalling Cameron’s greatest soundbites. ‘I want people to feel good about being Conservative again.’ Do you really? ‘Nothing and no one will stop us.’ Gosh. You don’t say. Exactly why the Beeb feels it has to censor these platitudes is a mystery. Perhaps it tickles someone’s sense of self-worth.

Then out came the man himself, in a darkish suit and a blueish tie. His only aim – to project an unexceptional dependability. Not hard. He succeeded.

First he declared war on parts of Afghanistan. Day One in Whitehall and he’ll establish a war cabinet. He set out his strategy for victory. Boost troop numbers, train more Afghans, and then blow the whistle and bring the good old British Tommies (and Tammies) home.

The body of his speech attacked an abstract enemy. Big Government. Cameron built this up as a sclerotic leviathan, a many-tentacled ogre, spawned by Labour, suckled by welfarism, and currently stalking the land stifling hope, blighting businesses, ruining lives and forcing job-seekers with sprained ankles to register for disability benefit. It even prompts frightened pensioners to email Tory Central Office with tragic-comic remarks. ‘We don’t watch crime drama on TV any more, we just look out of the window’. Big Dave promised to slay Big Government.

At times, just occasionally, a different Cameron spurts forth from the suave and faintly flashy facade. Angry, personal and vindictive.

His voice tightens, his lips purse. He jabs his finger and his eyes grow cold. In far off days he was said to be a bully. That seems plausible. When he spoke of the deficit, which is now larger than the Indian ocean, he reminded us that our interest payments alone will outstrip the schools budget.

‘I say to the Unions,’ he snarled irritably, ‘what is so progressive about spending more on debt interest than on our children stuck in poverty?’ He was incandescent that the Labour party had denounced his fiscal plans as ‘callous.’ ‘Callous?’ he shrieked, ‘Don’t you dare!’ He looked like someone who’d had an unpinned grenade stuffed down his boxers. Then out came the finger. ‘You, Labour, you failed!’ And he followed it with a tirade against the ills of big government which won him a noisy ovation.

If you’re a Tory, this sort of passionate outrage is bound to warm the blood. I just thank our lucky stars Cameron is a democrat. He’d be a pretty scary, and pretty effective, tyrant.

For most of the speech he settled into that strain of reassuring competence that so pleases the rosebeds and raspberry bushes of the English shires. The NHS would be safe. Quangos would be cut. Migration would be controlled. Bureaucrats would be defenestrated. On education he reminded us, ‘This is my child. This is what I pay my taxes for. Give the money to the head teacher and stop wasting it in Whitehall.’

He was keen to tell the delegates that the view from the summit of victory would be highly agreeable. Almost as agreeable as the sight of a personable young toff standing outside a large Georgian house in Downing Street. And to finish he gave us a sort of sermon on the mount. ‘If you’re frightened, we will protect you. If you start a business, we will help you. If you risk your safety preventing a crime we will be behind you. And if you endanger your life for your country, we will always follow you.’ Terrific. But the tone of that sounded extraordinarily familiar. It sounded like big government.

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I love UK journalism - it has it all and it's satirical in spades

[Trumplestiltskin 5,791]

50p tax - how would that work?

That's got to surely be a tough sell, given that Gordon Brown has raised taxes consistently (and precipitously) over the 12 years that Labour have been in office.

[Peikko 1,575]

Just before David Cameron came on stage they played a video looking back at his four years in charge of the party. It concentrated on the modernising moments — the huskie hugging, the efforts to get more women into Parliament and the rest. When Cameron did these things, some critics mocked them, claimed that they showed he was all style and no substance. But today we saw what those moments have made possible. Cameron devoted his pre-election conference speech to a classic conservative message, that the big state is the problem. Crucially, this message is getting a hearing. It is not being dismissed as those ideological Tories banging on again. Modernisation has achieved one of its principal purposes.

Earlier this week a senior shadow Cabinet member said to me that the Tories had to do three things in Manchester: show that they were the party with the best plan for paying down the deficit, that they were a modern party who would put the poor first and demonstrate their radicalism. Two out of these three goals have been accomplished. The Tories are now far ahead of Labour in the deficit debate even if they still have a way to go. Tory policies on education and Cameron’s impassioned attack on the obscenely high marginal tax rates faced by those moving from welfare into work showed that the party really does care about the poor. On the radicalism front, though, I felt less convinced. Tory schools policy is bold but on welfare there is still a way to go while the rest of the public services agenda is relatively threadbare.

The news that Iain Duncan-Smith will serve in a Cameron government is particularly welcome. At the moment the reality of Tory policy on welfare is less impressive than Cameron’s rhetoric on the subject. But one assumes that IDS would not have accepted the offer unless he had been assured that his ideas would in some way become policy. If a Cameron government does welfare and education reform and implements the growth agenda that I wrote about this week then it will be a transformative, Conservative government.

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[mawilson 2,133]

50p tax - how would that work?

I think it's a 50% income tax rate for high earners.

[Trumplestiltskin 5,791]

Anyone think that the Tories are not going to win the next election?

[Peikko 1,575]

It's hard to see them losing it, for sure.

[Trumplestiltskin 5,791]

I think there will probably be another landslide victory - 10-12 years of one-party rule.

Joy.

[Peikko 1,575]

I know. It's hard to know where the best route is for the electorate, particularly when the distinguishable difference between them is probably on the stance toward Europe with the Tories having their heads firmly buried in the glorious British sand.

[Trumplestiltskin 5,791]

Yeah but all of Europe is moving to the right these days - so I expect there will be a lot of fighting against Brussells in the years to come. Climate is right for the Tories brand of nationalistic jingoism.

Heaven forbid the UK will ever sign up to the single currency (whatever happened to Gordon Brown's economic "tests"?)

[Peikko 1,575]

No idea I don't think that any shift to the right in Europe will be lasting or particularly aggressive but Cameron does have some odd Euro bedfellows, to be sure.

I should say that's why Cameron has some odd Euro bedfellows, the right in Europe still embrace Europe and the Euro - except for the fringe parties, hence why Cameron is tucked under the sheets with this oddities.

[mawilson 2,133]

Heaven forbid the UK will ever sign up to the single currency (whatever happened to Gordon Brown's economic "tests"?)

Is it even possible now - isn't there a maximum debt to GDP ratio requirement?

60% if memory serves and the UK is close to 100% now.

[Trumplestiltskin 5,791]

The funny thing is - the $ to the Euro is almost 1:1 at the moment, and has been over the last few months.

[Peikko 1,575]

Ah, here's one of the Tory allies in Europe pieces. Doesn't pull any punches either

I am still not sure quite why the Conservative Party is determined to ally itself in Europe with the Waffen SS and Poland’s vigorous and exciting “No Yids or Queers” party. It has no need to do so. I assume Mr Cameron is at least mildly anti-SS and, while he might not in general like homosexuals or foreigners, has no wish to behave particularly nastily toward them. The Tories are in danger of making themselves look every bit as ridiculous over Europe as they looked in 1996, if for very different reasons. The party’s new allies, the Polish Law and Order Party and the Latvian Freedom and Fatherland Party (that has a nice ring to it, don’t you think?) are, from everything I can gather, at the least rooted in fascism, nor do they seem particularly quick to renounce fascism.[/b] It is not the slightest use Eric Pickles insisting that Latvians who fought for the Waffen SS – who were honoured by the party in question - were merely patriots and that to argue otherwise is a Soviet slur, because it is simply not the case. Further, presentationally, the words “Waffen SS” have, historically, tended to have a negative impact upon the British voter. The man in the street associates the phrase – perhaps wrongly – with all manner of bother, all kinds of horribleness. Also, it is the sort of phrase which sits uncomfortably with the notion of “caring Conservatives”, even caring Conservatives who are going to freeze the wages of everybody except bankers as soon as they take office. How did they allow themselves to get into this position, then? Either through stupidity or principle, one supposes. I am not sure which of the two is worse.

I love it.

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Edited October 8, 2009 by Madame Cleo

[Trumplestiltskin 5,791]

Well it's never been about substance as much as aesthetics - and the Waffen SS always did have the better looking uniforms