Nick Clegg yesterday made a speech detailing how the Lib Dem’s would restore the nations finances. There is little detail in the proposals – never a good sign – but a few thoughts on the suggestions that were made.
The Lib Dem’s argued that those with the broadest shoulders would continue to carry the greatest burden of £8 billion of tax rises which, combined with £16 billion of spending cuts, would balance the books by 2017/18. A ‘high value property’ tax would bring in £1.5 billion and a crack-down on tax avoidance would raise a further £6 billion.
Danny Alexander also repeated the controversial line that the Coalition had halved the deficit over the course of this parliament. This is only true as a percentage of GDP; the deficit has fallen from £153 billion (in 2009/10) to £97 billion in 2013/14. That is not ‘halved’, as I said last month.
£4 billion of the Lib Dem savings would come from the welfare budget, which probably doesn’t go far enough. The welfare budget has risen from £111 billion in 2004/05 to £164 billion in 2013/14, and measures to get this budget under control are no bad thing, but more can be done to sharpen incentives to work and save taxpayers’ money at the same time.
On their ‘mansion tax’, which is definitely not the same as the one they had dropped previously, the important questions will be asked about how much revenue will be raised and its market distorting effects. But the ultimate problem is that, like income and inheritance taxes, a tax intended to soak the rich will eventually be paid by families further down the income scale. If thresholds are not raised with inflation (or indeed are lowered) many homeowners will be dragged into paying this pernicious tax.
Clamping down on tax avoidance is a poor and very unreliable way of raising revenues. How can you punish someone who is acting within the boundaries of the law set by politicians themselves? HMRC are investigating many schemes which are seen to be outside of the intentions of the law, and that is taking time. But quite simply, we must simplify the system and eradicate almost all loopholes and exemptions.
As the Archbishop of Canterbury said recently: “Somebody said the other day that the tax system is of biblical proportions; well the Bible is only 1000 pages, how many tax systems are only 1000 pages?” He has a point.
Clegg said that “in the second half of the parliament we will be getting the national debt down and putting money back into the public services”. Well, in the financial years 2018/19 and 2019/20 whoever is in government will pay off £160,336,000,000 of the national debt, according to the Debt Management Office. That is the nominal value of the gilts which mature in those years. Whether or not the Public Sector Net Debt reduces by this amount depends on whether we still need to borrow.
Relying on things like a mansion tax and anti-avoidance measures is very shaky indeed. And the IFS reckons that about £6 billion of spending cuts are missing. Jonathan Isaby, our Chief Executive, explains in this video that we need more honesty from our politicians about what exactly they intend to do to mend the public finances.