Are we about to see a real free marketeer in downing street? | thearticle

Those of us who can remember the heady days of the 1980s, and can even hazily recollect the grimy misery of the 1970s, will recall the clear divide between the political parties. Labour was

for putting taxes up. The point of the Conservatives was to bring taxes down. The divide was pretty extreme – especially for the rich. During the 1970s Labour Government there were lots of

tax increases from Denis Healey, the Chancellor of the Exchequer. “I warn you, there are going to be howls of anguish from the rich. But before you cheer too loudly let me warn you that a

lot of you will pay extra taxes too,” he declared at a Labour Party Conference in 1973, before Labour swept to power. He put up the top rate of income tax to 83 per cent. Indeed once an

investment income surcharge was applied, it reached 98 per cent – the sort of penal rate that might be expected from a Communist country. Rather than howling, the rich could not be heard –

they had gone abroad to look for conditions more encouraging for wealth creation. Geoffrey Howe’s first budget in 1979 saw the basic rate of income tax cut from 33 per cent to 30 per cent.

The higher rate went down from 83 per cent to 60 per cent. Nigel Lawson was even bolder. His 1988 Budget stood out – the top rate of tax went from 60p to 40p and the basic rate from 27p to

25p. Lawson used to completely abolish one tax a year in 1985, for instance, he got rid of the Development Land Tax. What was the trick? How was it all paid for? Was it by brutal cuts in

public spending? Or an irresponsible binge in public borrowing? Neither. Spending was kept under control but rose in “real terms” even allowing for inflation. The budget went into surplus –

prompting the “Public Sector Borrowing Requirement” to be renamed the “Public Sector Debt Repayment.” The secret was unleashing enterprise to allow a growing economy. What is unfortunate is

that under Lawson’s successors we have rather lost our way. Much of the rest of the world has embraced Thatcherism – and prospered as a result. We have not exactly abandoned it but we have

languished and become a bit left behind. Lawson’s successors John Major, Norman Lamont, Ken Clarke, Gordon Brown, Alistair Darling, George Osborne and Philip Hammond have all tinkered

around. There have been lots of “stealth taxes” which have an obvious political temptation but which have made taxes more complicated as well as heavier. Every year, the Adam Smith Institute

calculates the number of days the ‘average’ person (more on that later) would have to work just to pay off their taxes. This year, every penny the average person earned up until May 29th

went straight to the taxman. The Institute says: “Since 1995, the trend has been for parties of all stripes to increase the total tax burden.” Might this be about to change? If you can get

beyond the media focus on Brexit and drug-taking one can see that the leading contenders for the Tory leadership are staunch tax cutters. We read that Boris Johnson, the front runner, “plans

to slash income tax for three million people by hiking the 40p rate threshold from £50,000 to £80,000.” Sajid Javid‏, the Home Secretary is on the same wavelength. He proposes scrapping the

45 per cent top rate tax and tweets: “Tax policy shouldn’t be about virtue signalling. If cutting tax rates means the rich will pay even MORE in tax, paying for more nurses, teachers and

police, what’s wrong with that?” Michael Gove wants to abolish VAT and replace it with a “much lower” Sales Tax. Jeremy Hunt promises to cut Corporation tax to 12.5% if he becomes Prime

Minister. That is the same as the level in Ireland, where setting it so low has proved a great spur to economic growth. Then we have Dominic Raab, a staunch free market radical, who wants to

cut the basic rate by a penny a year. Matt Hancock proposes £5 billion of tax cuts for small firms. What of the risks? Andrea Leadsom is cautious about whether tax cuts would get through

Parliament. Such votes might be tight, perhaps some tax cuts would be voted down. But there is only way to find out. The context is that most MPs don’t want an early General Election. The

DUP certainly don’t want a Corbyn Government. Tory MPs don’t wish to antagonise their constituency associations and face deselection. Then there is the charge of financial imprudence. Here,

the politically riskiest tax cuts – the ones on the rich and on business – are financially the least risky. That is because they would probably result in greater revenue to the Exchequer as

a result of “behaviourial change”. Economists invariably get their forecasts wrong. The tax cutters who can also come up with spending cuts do have greater credibility than those who

entirely rely on increased economic growth. On the other hand, there is a duty to balance the risk. What of the (very considerable) risk that certain taxes are set are at such high level

they are endangering our public finances? This mission to allow people to keep more of their own money will not be easy. A lot of the arguments about incentives, the need to reduce the size

of the state, and personal liberty have ceased to be central to our political and economic discourse. But in a few short weeks we will probably have a Prime Minister and a Chancellor of the

Exchequer who have undertaken to pursue that mission. It will be the first time for 30 years that we will be in that position. Long overdue and very welcome.