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Tax vs Spending: What's more moral for the global economy?

31st OctoberThis week the prime minister said the government had a ‘moral duty’ to cut taxes.  Dr Gerard Lyons explains that low taxes do matter but the moral case should be less about tax rates and more about the social contract.

Government should have a number of economic aims. One should be to keep taxes as low as possible. It is in this context that the Prime Minister's comments this week about the moral case for lower taxes make interesting reading. Since the party conferences, clear blue water has emerged between the policies of the major parties. A commitment to cut taxes would add to that divergence. 

The moral case for lower taxes appears to rest on the idea that people are better at spending their own money than governments. Yet, at the same time, it should be stressed, there clearly is a moral case for the government to spend in areas where it needs to, whether it be in terms of providing necessary infrastructure, or in terms of a workable social safety net. Perhaps, when considered this way, the moral case should be less about tax rates and as much about the right social contract. 

Tax v Spending: what’s more moral for a global economy?

This week the prime minister said the government had a ‘moral duty’ to cut taxes.  Dr Gerry Lyons explains that low taxes do matter but the moral case should be less about tax rates and more about the social contract. 

Government should have a number of economic aims. One should be to keep taxes as low as possible. It is in this context that the Prime Minister's comments this week about the moral case for lower taxes make interesting reading. Since the party conferences, clear blue water has emerged between the policies of the major parties. A commitment to cut taxes would add to that divergence. 

The moral case for lower taxes appears to rest on the idea that people are better at spending their own money than governments. Yet, at the same time, it should be stressed, there clearly is a moral case for the government to spend in areas where it needs to, whether it be in terms of providing necessary infrastructure, or in terms of a workable social safety net. Perhaps, when considered this way, the moral case should be less about tax rates and as much about the right social contract. 

Since the war, the fundamental question has not only been to get the right balance between spending and taxation but about positioning the UK economy in the changing world economy.

I prefer to look at this in economic terms.  There are clear economic differences on this topic, but in a globalised world economy there is a need to compete. This does not mean a race to the bottom. We can compete on price or on quality although in reality we need to do both. This requires innovation, investment, infrastructure spending and the right incentives. Creating an enabling environment where people, especially young people, can get jobs and where they are regarded for work is essential to any successful economy.  In this global economic context, low taxes make economic sense.

An End to Consensus! What the NHS needs is a focus on outcomes

Friday 24th October:  This week Simon Stevens, the Chief Executive of NHS England, has called for an extra 8 billion public spending for the NHS. He also proposes ways in which savings can be made including curbing hospital admissions. Westminster’s three main parties have embraced the proposals but not that for extra spending. But, as Dr Tony Hockley explains, what is needed is to shift the focus to outcomes. As Dr Hockley writes, consensus won’t change the NHS.

Consensus won’t change the NHS

The publication of NHS England’s “Five Year Forward View” on Thursday morning received a warm welcome all round. It was interpreted by all sides in the health arena as a ringing endorsement of their own positions and interests.

The truce, however, was shattered before lunchtime. The Labour Party demanded a Commons statement on the independent review, and as soon as the Health Secretary uttered the words that he was “hoping for a more measured debate” the shouting started afresh. Once again the British obsession with structures and ownership rather than outcomes quickly poisoned the debate. Herein lies the core problem that the NHS must face.

The NHS funding boom of the Blair Government demonstrated that more funding is neither the solution to the problems behind the comparatively poor achievements of the NHS, nor to its cultural struggle to become patient-focused. It is an irony that a tax-funded service that is largely free to users fails in the domains that intuition would suggest should be its strengths.

Health inequalities are severe and increasing. Britain is now set to overtake the US in the incidence of TB, for example, and has a shameful record on other preventable diseases associated with poverty. Geographic variations in life expectancy remain huge.

Substance not Sham! A firm policy on EU renegotiation is needed...

Friday 17th October: As MPs vote to give a second reading to a private members bill on an EU-UK referendum, the Foreign Secretary, Philip Hammond has announced that his party is ‘lighting a fire’ under the EU by pledging a referendum. Martin Howe QC considers the Conservative position on UK-EU renegotiation and shows what is needed to show voters that the exercise is not a sham.

Douglas Carswell's by-election win at Clacton demonstrates the importance which voters attach to the UK's relationship with Europe. It is no longer possible, if it ever was, for sneering metropolitan political commentators to say that Europe is a weird obsession of a minority of political activists which does not matter to ordinary voters.

Two weeks ago at its party conference, the Conservative policy adopted a new and radical policy on human rights. It is not yet realised in the media and by the country how far this policy will change things and how it will change our relationship with Europe. It will mean, if the Conservative Party wins a majority at the next election, that the judgments of the European Court of Human Rights will be treated as advisory only. If the Council of Europe does not like this arrangement, then the United Kingdom will simply exercise its treaty right to withdraw from the European Convention on Human Rights.

Instead of being dictated to by the court at Strasbourg, rights in this country will be based on the historic fundamental rights enshrined in our law from Magna Carta onwards, to which will be added the text of the European Convention on Human Rights. But that text will be interpreted by our own courts under the ultimate supervision of our democratically elected Parliament. There is nothing wrong with the text of the Convention itself as a reflection of our fundamental rights and values, once the added doctrines and downright distortions of the Strasbourg court have been stripped away.

David Cameron's Tax pledge

Friday 3rd October: The Prime Minister promises tax cuts by 2020, but do the figures add up? Here, Professor David B Smith,suggests the economic picture is not what it seems and there is much to make up.

Measuring the results, not the motives

One of the key insights in Adam Smith’s 1776 Wealth of Nations was the idea that the actions of people undertaken for self-centred reasons could still produce a socially optimal outcome: i.e., it was the consequence that mattered, not the motivation. Mr Cameron’s 1stOctober pledge at the Conservative Party conference to raise the personal income tax allowance to £12,500 and to raise the threshold for the 40p rate to £50,000 – but, significantly, not until 2020 – may have come from deep personal conviction, or simply been a ploy to bolster his personal position as party leader and buy votes ahead of the May 2015 general election.  However, Mr Cameron’s motives are not relevant to the economics of the proposed tax cuts, nomore than is Mr Miliband’s jibe that the offer was a “vague, pie-in-the-sky commitment”. Certainly, the Coalition government‘s decision to tackle the unprecedented fiscal crisis itinherited from Labour by increasing tax probably set back the current recovery by a couple of years – while not leading to real aggregate spending cuts, at least, where vote-buying public consumption was concerned. In fact the latest UK national accounts show that the volume of general government current expenditure was 4% higher in 2014 Q2 than when the Coalition gained office in 2010 Q2, although the much smaller volume of general government capital formation (one of the measures for wealth acquisition) has fallen by 24.8% over the same period.

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