John Moss works with 3rd Party Ltd to organise campaigns across the UK.
“The Government should do something!” Whenever there is a crisis, or something fails, or a disaster occurs, natural or man-made, our gregarious human instincts look to the collective for solutions. It is in-bred in humanity to organise in groups so this is understandable.
To some, that might suggest that the march of socialism is unstoppable, with ever more provision for all, directed by the government and paid for by our taxes. The post-WW2 consensus was certainly that. Governments changed, but the state ploughed on to ever more unsuccessful heights.
Then the Thatcher governments broke with that consensus, with significant and far-reaching consequences. She directly addressed the issues of the day, but with radical solutions borne of deep analysis of the root cause of our malaise.
Many current Conservatives claim to be her heirs. Unfortunately, they then have tended to do Heathite things – and turn away from the sort of reform that might actually deliver results.
The Labour government that is almost certainly coming is pledged to expand the state. Therefore, it will employ more people at the expense of private sector taxpayers (there is no net contribution of tax from public sector employees). To do that it must increase debt or taxes, or both.
Not because it wants to; I accept Rachel Reeves is genuine in her aspiration not to raise taxes. But their programme for government requires it.
So does that of the Conservatives, with one difference. Buried deep in the Conservative mindset is an understanding that taxes come from those employed in the private sector, or the profits it makes – and that growing the private sector faster than the state sector creates the headroom for reductions in the overall tax burden.
George Osborn called it ‘sharing the proceeds of growth’, and he was right. A long view back over the period from 2010 to 2019 shows a very slight difference between the long-term growth of the private and state sector.s The deficit fell steadily, as did the overall burden of tax.
But this was in a time of benign economic circumstances. The economy was recovering from a significant downturn. Interest rates were at historic lows (which or course led to house price and rental increases far beyond reasonable), and there were few international wars to drain the reserves.
But not much changed. Aside from Sir Iain Duncan Smith’s welfare reforms and the slight liberalisation of education provision under Nick Gibb and Michael Gove – both of which are clear successes – the ship of state sailed on mostly undisturbed by radical reform of the sort Thatcher had delivered.
In fact, many of the 1997-2010 Labour government’s changes were left in place and some further, decidedly un-Conservative things were done too.
Now even those few modest changes are set to be reversed. Labour plans to heavily penalise those who invest their own money in their children’s education suggest an area where they might go further.
If attacking those who make provision for themselves and their families is seen as safe ground, will they further tax asset sales and inheritance? Might they resort to raising taxes on pension income and look at further distorting the income tax regime to punish private landlords? All are likely as they grow the state, and that larger state needs feeding.
But will anything change? Goodwill from those employed by the state, so clearly lacking as the coalition and Conservative-led governments have sought to tackle problems, may be restored. Those angry with current policies may resort to the courts less when the government changes. But a larger state is unlikely to be a game-changer in a country where nothing seems to work.
Our party will no doubt seek a new leader. The electorate will barely register the change as they give Labour the benefit of the doubt and a very likely a second term. Then we may do that again. New leaders may promise renewal, fresh ideas and exciting policies. But will they really espouse change?
I hope they do, and I hope they embrace a simple idea, but one which hadn’t been popular for perhaps 30 years: helping, not taxing, those who take responsibility for themselves.
Yes, the government has a role, but so do individuals. So if you can take responsibility for yourself, perhaps we should not regard you as privileged or rich enough to tax more. Maybe we will celebrate the fact that you are helping the state by easing your burden on it. Not only celebrate it, reward you for doing it.
I call this the partner state. We already have this in tax relief on contributions to a pension. It’s the best return on investment anywhere: 25 per cent first year interest! It’s good for employers too. In return, you’re not (hopefully) going to need benefits when you get older.
A genuine partnership of the state, incentivising individuals to take responsibility for themselves – and thereby getting something in return.
We should go further. Care costs will be a growing nightmare for many and especially for the state, which many expect to pick up the bill. The government, rightly seeks a solution which doesn’t come from general taxation like the NHS. If we are to avoid going down that route, we need a similar offer.
Not everyone will need to pay care costs. So this is an appropriate product for insurance, if you are young enough. Dilnot suggested a cap on costs – again something insurance would be relatively easy to provide for.
But where is the proposal for tax relief on care insurance to cover that maximum the state might ask you to contribute before it picks up the bill?
Of course this would be more difficult for those who are later in life and in need of care now, but they too could be helped in other ways.
The forced sale of a family home is often a further cruelty layered on a family dealing with the mental and, or physical decline of a loved one. Why not let them keep it, but rent it to their local council to offset care costs, without taxing them on that rental income?
Similarly for those above an age when insurance is no longer a practical solution, why not create a Care ISA and allow up to £100,000 to be deposited from, say, the sale of a property. If not used, that fund ought to pass free of Inheritance Tax to your family.
We could also restore tax relief on private medical insurance and one-off payments up to an annual maximum. We could stop taxing it as a benefit in kind when provided by an employer too, treating it the same as an employer pension contribution.
We might also recognise that parents who educate their children privately are taking a cost away from the state. Again an annual tax rebate, in recognition, would appear logical, as would no longer penalising people who use their own money to provide homes for others through a more punitive tax regime than is applied to other forms of investment.
All these things would do something else inherently Conservative too. They would grow the non-state sectors in these areas and drive private sector growth from the investments they incentivised; they would deliver more choice and competition, increasing quality and controlling prices as a consequence of that competition.
And this new, larger private sector would generate more private sector jobs and profits for the government to tax – at a slightly lower rate. Proceeds of growth – shared.
The post John Moss: Only a stronger private sector can generate the taxes both parties need to maintain the state appeared first on Conservative Home.
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Author: John Moss
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