Monday, March 23, 2009

Scorched earth spending

Incidentally, while we’re talking about tax, the mistake that the Conservatives appears to have made with regards to the top rate of 45p is to talk about it at all.  Danny Finkelstein sets out the problem beautifully here.

Let me begin my argument with the central inescapable fact in British politics.

There IS NO MONEY. The next Conservative Government will spend its entire period in office making hard decisions. It will not have to choose between hard decisions on tax and hard decisions on spending. It will have to do both.

It’s going to be this salient point – the coffers are empty and need to be recharged – that dominates British politics for the next decade.  When Cameron and Osborne took charge of the Tory part they were working under the illusion (a near-universal illusion) that the economy was reasonably settled, and that the size of the state could be managed down gently without bruising too many people as a result.  That option no longer exists.

The budget needs to come back into balance – or at least make significant moves in that direction.  As such not only will spending have to be cut, dramatically in some areas, but state income will have to rise.  There is a legitimate argument about how best to do this, and a good case that higher top-rates of income tax are an inefficient and small-scale way of doing this, but the problem for the Tories is at least partly presentational.  Spending cuts and tax rises will hurt.  Even if tax rises are minimised (and spending cuts therefore maximised) this will hurt.  As the Fink says:

We've looked at the books. We can see that there is no money. Gordon Brown has left us with unimaginable debt and his forward plans are unaffordable. We have hard decisions for years to come. We have abandoned many of our plans for public spending. We are going to cut Labour's plans down and services will feel the pinch.

We're sorry, but we can't help it. We'll get things going when we can.

Oh, but just as a start we don't need the £2bn that Gordon Brown was going to raise from people who earn more than £150k. We will find that by cutting spending even more. Vote Conservative.

It’s not an attractive position is it?  The Tories have been forced into this position by the Government’s shameless political posturing.  They haven’t implemented a higher top rate – they won’t have the chance to.  They haven’t identified where cuts in spending will fall – they won’t have to.  Labour have, in essence, ordered and eaten an enormously expensive meal and plan to run away before the bill arrives.  They are currently ordering Tokay and VSOP brandy on our buck, and noisily demanding how on earth the Tories plan to pay for it all.

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