Monday, 23 March 2009

Cameron must hold his nerve against the free market fundamentalists

I welcomed David Cameron’s speech, given last week, in which he acknowledged that it might not be possible to deliver tax cuts early in a Conservative administration. In the wake of his address, however, a degree of controversy has enveloped Tory thinking on the economy, focussed particularly on two contentious tax policies.

Although Ken Clarke’s remarks, which appeared to contradict his party’s pledge to raise the threshold for Inheritance Tax, have attracted headlines and speculation, they represent the less telling aspect of the debate. Iain Dale urges Clarke to accept that his comments constitute a ‘gaffe’. The Conservative party still intends to commit in its manifesto to a £1million minimum for Inheritance Tax.

More fundamental is the argument about 45p tax, for those who earn more then £150,000 per year, and whether Conservatives should reverse that Labour measure when they come to power. It reflects something of a long-standing fault-line in the party, between ‘One Nation’ conservatives, prioritising a coherent society, at ease with itself, through a commitment to social fairness, ‘progressive ends by conservative means’ is Cameron’s favoured formulation, and those with a more ideological commitment to the free market.

There is an argument to be made that the 45p rate will be counterproductive and will inhibit the economy’s recovery. Some of the calmer proponents of this view offer a persuasive case. Less compelling is the type of rhetoric which asks, why if Cameron is cautious about taking a hatchet to the public sector, and why if he does not believe that tax cuts should be the immediate and overwhelming priority of government, is he in the Conservative party at all?

That is to diminish and dismiss the communitarian strain of conservatism, which has always maintained redistributive taxation is a valid means to nurture a society at ease with itself and which contributed to the post war consensus as regards the welfare state. Cameron has resurrected a strain of conservatism which was neglected during the 1980s and 1990s and breathed new life into its philosophies. It has come under attack, but the Conservative leader should stick with it.

Of course Cameron remains essentially a fiscal conservative, and, to that end, he stresses the imperative of curtailing borrowing. He seeks, as well, to deliver streamlined, efficient public services and augment them with flourishing, contributing organisations drawn from civil society and the voluntary sector. That is all to the good, but Cameron also recognises the corrosive effect on national morale that delivering a tax cut to the extremely wealthy would have. Those who earn enormous wages can afford to pay a little extra into the public purse, especially in straightened times. Perhaps, as the economy recovers, that small burden can be lifted. But it should not be a pressing priority to lift it immediately.

Although a responsible, thriving market, based on free but regulated trade, can complement a functioning and prosperous society, it is wrong to submit to an ideological belief in its innate benefits. If the conservatism which Cameron’s Conservatives articulate is doubtful that the free market offers a panacea, and insists that its rules should not represent an absolute, intractable doctrine, then it is grounded in a classic tradition of conservative scepticism.


john problem said...

What courage Cameron will need to accept the poisoned chalice that will be his in 2010. It really is going to be the world's worst job - reversing all the idiosyncratic things our leaders have done over the last decade. It will age him. The media will have its own opinion on every step of the way. We shall slip down the world leagues even further, no matter what is done. The descent into bananadom is unstoppable, alas.

Seymour Major said...

I hope you dont regard me as a "free market fundementalist" after you read this comment. Tax policy is always a balancing exercise. We want to get down the national debt but we dont want a brain drain either.

The top earners in the Country can put up with a few years of hardship but tax policy must not undermine the kind of investment which is needed to generate economic growth.

When Margaret Thatcher came to power, the top rate was 83%. It was not immediately brought down to 40%. What Cameron needs to do is to keep telling the people that the tax rate will be down to 40% eventually and then execute that promise before the end of the Conservative first term.

Chekov said...

Seymour - I certainly wouldn't wish to imply that 45p tax is the acid test for free market fundamentalism. I'm talking about a broader trend within the party which seeks to assert free trade ideology in every circumstance. There is an argument to be made for dropping 45p tax, as I've intimated. I actually acknowledge that it may be possible to remove it at some point in the future.