The case, and Conservative obligation, for lower direct taxation

Thursday, October 2, 2014

 

What do a rise in investment and a rise in tax compliance by businesses have in common?  Firstly, they are both happening in Britain today. Secondly, they are both a positive and inevitable side effect of free market favouring policies implemented by the Coalition, namely lower direct taxation. Since its formation in 1834, the Conservative Party has proudly worn the honour of being the Party of low taxation. On occasion, however, the misfortune of sacrificing basic economic principles for the sake of political purposes or timing has been allowed.

 

During the first half of the Coalition government trivial changes to tax, which raised the 40p threshold by only 1% (less than the inflation rate), saw a 2014 estimation of 400,000 people dragged into the 40p rate. 400,000 ordinary working people needlessly punished. David Cameron’s proposal at the Conservative Party conference of a £50,000 threshold for the 40% rate, up from £41,900, is thus welcomed, though debatably only a small step on the path to further liberation from an intruding government. This year’s annual Conservative Party conference also saw the Chancellor announce that further reform to the generous benefits system will be made by a (hypothetical) 2015 Conservative government, to reduce the £100bn budget imbalance - a marginally laissez-faire style policy; however greater decline in tax burdens still remain an important issue for many potential voters.

 

Whereas one might assume that the natural way to sell a political party as a moral, compassionate and vote-attracting brand who would see through proposals for higher welfare support, unlimited finance poured into the NHS, and promises of free childcare; there is in fact a strong case to be made for the morality of a freer market. A morality illustrated by fiscal responsibility and reduced government interference, thus increased personal freedom. The financial crisis of 2007-8 may have brought such an economic system into much disrepute; however we must recognise and celebrate its predominantly advantageous uses in Britain.

 

With relatively centrist policies being adopted by both the Labour Party and Conservative Party as of late, it can often be hard to distinguish between the two dominant parties of Britain. This, one might argue, is where taxation can make a significant distinction for voters. While Ed Balls, Shadow Chancellor, has laid out plans for a renewed 50p top rate of tax, the Conservatives have already made prominent reductions in taxation whilst in government. Although this is fruitful economically, it can be argued that such reductions do not go deep enough to show off the virtues of the free market, or win the hearts of many of the disillusioned electorate. Here, the Conservatives have an obligation to emphasise their principles of low taxation, as the soundtrack to their 2015 election campaign if needs be. Britain’s corporation tax rate stands as a proud example of the positive side effects of lower taxation. A fall from 28% to today’s 21% has already seen higher growth and investment, and a promise of 20% will not only establish Britain as the country with the joint lowest corporation tax in the G20, but is predicted to see GDP growth of 0.6-0.8% and investment growth of up to 4.5% in the long term.

As a whole, it is all too evident that taxing corporations less, no matter how ‘evil’ many voters may view them to be, sees opportunities of higher consumption and jobs, without necessitating bigger government. Inward investment especially must be remembered as something highly sensitive to big government. This is due to the fact that Britain must compete with other nations’ rates. From 1997 to 2012, for example, Britain plummeted from 4th position to 95th in the World Economic Forum’s tax competitiveness ratings. If tax cuts truly do equate to £7.8bn savings for businesses per year by 2016-17, this will naturally equate to the business-friendly environment any economy desiring jobs and higher standards of living aims for.

 

Perhaps today’s most visibly moral example of low taxation, however, can be found in the increased personal tax allowance of £10,500. Affording working class families a £700 lower tax bill than they had under Labour is not only a popular policy that the Coalition should be proud to boast about, but it also makes far more sense than continuously, and artificially, increasing welfare support or regulating higher minimum wage laws for those on low incomes.

 

Assurances of an increasingly smaller governmental role in the post-2015 economy, if the Conservatives hold government, are certainly long overdue for libertarian voters. Furthermore, given archetypal Labour Party promises of endless money provided by the state (rather, the taxpayer), it is about time that the Conservatives emphasise their pledge to let you keep more of your own money, and keep emphasising it for that matter. With that, I shall leave you with this quote from the IEA Reader’s Digest Condensed Edition of the renowned bestseller, The Road To Serfdom.

 

Well-intentioned socialists… …should be able to appreciate that reaching into one’s own pockets to assist one’s fellow man is laudable and praise-worthy. Reaching into another’s pocket to do so is theft and by any standard of morality should be condemned”.

 

By Elena Attfield

 

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