Monday, 5 April 2010

Why the Tories are wrong about tax cuts

Over the last few months a dividing line has been drawn between the tories on the one hand and the lib dems and labour on the other hand with respect to "cutting the deficit".

The tories are proposing sharp and wide ranging cuts as soon as they enter government. Lib dems and labour are taking a longer term view, preferring to spread less severe pain over a longer period. While the lib dems have been a bit quiet on the specifics, labour has said it will halve the deficit over four years. While the labour approach is far from being "right", the tories are so far off the economic barometer it's scary.

Firstly, We have already seen in previous recessions that rapid cuts lead to prolonged recessions. So why do the Tories think it would be different this time around? It's certainly not clear to me, but maybe I'm just a bit slow. However, when we consider how the tories responded initially to the banking crisis we can see that it was at odds with every single western nation's response (with the possible exception of Ireland, and we all know how well that's going!). So why would anyone believe the Tories have it right just a few months later? They are either going to have to work a lot harder to convince people that their plans for the economy (and their calculations) add up, or they are going to have to change tack in a big way.

The thing that worries me most about the Tory plans is that they hurt the most vulnerable, especially when it involves increases in VAT or other such inequitable flat taxes. But maybe this is secretly part of Tory policy? Bolster the wealth of the already wealthy while taking a little bit here and there from the lower socio-economic classes until they are so deflated the concept of social mobility looks like a dot on the horizon. While the tories make arguments for fiscal responsibility, which seem to be convincing a lot of the electorate, the reality is that they are paving the way for even greater inequality, even greater self-interest and even less (of the much needed) positive reform of the workings of parliament, the house of lords and our democracy in general.

The question is why do we need rapid, swingeing cuts? Surely the state will still be here in 50 years time? Why not spread out our repayment schedule allowing us to protect our most important services (health, welfare, education) while at the same time making these much vaunted "efficiency savings". If the £10 billion annual efficiency savings could be made we would be well on our way in a few short years to stabilising the nation's finances. So again, why rush it? The Tories have yet to provide a good, clear and honest answer to this simple question. Will we get this answer in the run up to the election? don't bank on it!

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