No ‘Tax lock’ would be sensible economics.

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April 26, 2017 by Paul Goldsmith

tax lock

Back during preparations for the 2015 General Election, there was a hole in the ‘media grid’ political parties use to make sure they have a different story for every day. Ameet Gill, David Cameron’s Head of Strategic Communications at the time and speaking on BBC Radio in October 2016, takes up the story of how the Tories filled that gap one day: “We did the five-year tax lock. It’s when we committed to put in legislation that we would not increase taxes. It was probably the dumbest economic policy that anyone could make, but we kind of cooked it up on the hoof a couple of days before, because we had a hole in the grid and we needed to fill it.”

The Tories promised no increases in income tax, VAT and National Insurance over the next Parliament in their manifesto. That commitment was made law in November 2016, specifically excluding the self-employed from the National Insurance bit.

In March’s budget this year, Chancellor Phillip Hammond tried to raise National Insurance for the self-employed, and was buried under an avalanche of opprobrium as he had ‘broken a manifesto promise’.

The problem, of course, as we all know, is that the 2015 Conservative General Election manifesto was written as a different type with a completely different set of political circumstances. It didn’t mention Brexit, and it certainly had very little in it to deal with the uncertainty Brexit will bring. Theresa May called the June 8th election to give her a mandate to deal with that uncertainty as Prime Minister. To be able to deal with uncertainty she, and her Chancellor will not be able to have their hands tied. All policy options must be on the table.

So, there may be a need to raise taxes. There may be a need to raise spending. There may also be a wish to cut both. The problem is that the Conservative manifesto from June 2015 was full of ‘locks’ and political gimmicks from a party that just wanted to stay in Downing Street and were prepared to do anything they could to achieve it. This time, it’s different. Theresa May, to give her the benefit of the doubt, is fully aware of the challenge she has delivering Brexit in a way that will benefit the country long-term, and she needs to have the flexibility to do what she needs. Even if it means raising taxes. If high-earners leave the country after Brexit, she may need to spread the ‘tax base’ more by bringing more people into income tax bands. She may want to put a higher rate on higher earners to cut taxes on ‘ordinary working people’. At the moment, she can’t do anything.

Of course, Labour immediately called Hammond’s raising of this issue a ‘Tory tax bombshell’. The Daily Mail called it a ‘U-turn’ and blamed it for ‘slashing’ their poll lead in half. Many pointed out that in opinion polls people ‘supported’ the tax lock. Here is where I need to point something out I will return to a lot about the use of opinion polls.

Imagine I walked around a turkey coup and polled them on whether Christmas should not happen, then reported the findings as “this is a popular policy”. That is the same as when pollsters ask any member of the electorate whether any tax should go up or whether any government spending should be increased. So when ‘support’ for the tax lock in the 2015 manifesto is reported to be high, my comment on that can only be ‘well, duh!’.

The thing about opinion polls is that it all depends on how the question is asked. This is particularly true with tax and public spending. Ask about them separately, you get one answer. Now put them together. Instead of “do you agree with the tax lock, meaning VAT, income tax and NI won’t be raised over the course of the next Parliament?” try “do you agree with the tax lock if it means that education budgets will keep being cut?”. Concentrates the mind doesn’t it. Same the other way. Ask “Do you want more money for the NHS?” and people will say “Yes”. Ask “Do you want more money for the NHS if it means you have to pay 1p in the pound more in income tax?” and you may get a different answer.

The general consensus about the 2015 General Election manifestos, particularly that of the Conservatives, is that they were not about governing. They were full of commitments that could be negotiated away in the event of a hung Parliament. The ‘Price of Victory’ for Cameron was that he couldn’t negotiate anything away. Not his EU Referendum commitment and not his tax lock.

If Theresa May is creating a manifesto for governing, she will need to create one that she can deliver. She needs to create one that gives her flexibility. Even at the cost of a few seats. No more locks.

 

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