Tuesday, 16 September 2008

A silly time to promise tax cuts?

Nick Clegg’s stated desire to cut tax for low and middle earners and to finance these cuts by freeing his party from certain public spending commitments has met with a predictable response. Left wing commentators complain that the Liberal Democrat leader is jettisoning principle and flirting with Thatcherism, meanwhile right wing analysts believe that Clegg’s proposals are mere sophistry and would not deliver meaningful tax cuts at all.

The Liberal Democrats are seeking to present themselves as a tax cutting party for two principal reasons. Firstly, the party is seeking to reposition itself in line with prevalent public opinion and move demonstrably away from Labour, a party which is perceived as statist, centralising and wasteful of public money. Clegg wishes to carry a convincing fight to Labour at the next General Election. Secondly, with the Conservative Party increasingly buoyant, Lib Dems must protect seats they currently hold, which may be threatened by a resurgent Tory Party. The perception is that tax cuts appeal to voters who may consider shifting allegiance next time.

What Clegg cannot know is whether the economy will continue to spiral downward or whether the current panic can be arrested at the level of high finance. In any case, there is an argument that recession has already arrived. Unemployment is rising, bankruptcies are increasing and if high financial strife filters down into more quotidian sectors of the economy, the situation will become steadily worse. Is it, in a time of such turbulence, either tenable or advisable to be offering tax cuts?

George Osborne, a man who has a realistic prospect of putting in train the economic policies which he lays out over the next few years, has promised no such thing. Whilst the Shadow Chancellor would like to cut tax in principle, he acknowledges that any Conservative government is likely to begin its life hamstrung by Labour’s mismanagement of public finances and curtailed by world wide economic difficulties. If unemployment is high, and both the work force and employers are feeling the pinch, necessarily the public purse will come under increasing pressure at a time when the government is simultaneously struggling to maintain tax yield. Under these circumstances, delivering tax cuts would be an impossibility.

After 11 years of Labour the United Kingdom’s electorate may be heartily sick of authoritarian, centrist big government, which has taxed and spent, to little discernible effect, but in times of economic downturn people also seek security. If circumstances are to become considerably more straightened, people’s priorities will lie less on enjoying unencumbered the money which they have earned, and more on the security which the state provides should money be less plentiful.

At a point when the public might start to increasingly examine opposition parties’ ability to afford social security, as well as their ability to offer a different style and outlook to Labour, perhaps Nick Clegg’s adoption of tax cutting rhetoric might do more to persuade voters that the Lib Dems are not a serious contender for government, and less to sway their support behind that party.

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