Conservatives have a bit of an “image versus reality” problem on their hands.
It’s a problem to dominate and divide them during the next leadership contest. In short, there will be a lot of talk about taxes.
This is the reality that the aspirants to the leadership face: the party that wants to be seen committed to low taxes, which has been campaigning for decades with this ticket, is now taxing us with the highest rate since the end of the forties.
And this is a deeply uncomfortable place for many of them, especially in the face of the deepening crisis of the cost of living.
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In fact, very significant new taxes have been introduced under the Boris Johnson / Rishi Sunak regime.
A 1.25% increase in national insurance to help fund the NHS, a five-year corporation tax increase from 19% to 25% and a freeze on income tax thresholds, which caused more households to pay him, to name just a few.
In fact, the Institute for Fiscal Studies, a think tank on taxes and expenses, recently commented that Mr. Sunak had imposed, in just over a year, tax increases on a scale similar to those observed during the 10 years Gordon Brown was chancellor.
If you’re a low-tax Tory, this should hurt.
Image: Former Health Secretary Sajid Javid also says it will reduce corporate tax
The argument in favor of lower taxes is simple in economic terms. If troubled households are able to keep more money, not only will their pain be relieved, but they are more likely to spend that money on the economy, which in turn will encourage growth and help prevent recession that experts have. they have predicted that it will come.
It also makes political sense for conservatives and certainly appeals to their base.
Definitely, in recent months, there has been a feeling that Mr Sunak was not only aware, but was uncomfortable with the “high tax chancellor” label that followed him.
That’s why his most recent financial statements have been tied to tax cuts; a step to the threshold of national insurance, for example, eliminating from the tax a significant number of lower-income families, a reduction of 5 p. of the fuel tax and the promise to reduce income tax at the end of parliament.
While part of this was considered progressive, benefiting mainly the poorest households, the overall picture has not changed: we are living under one of the highest tax regimes in decades.
But the former chancellor has had pretty good reasons to raise taxes.
Image: Boris Johnson resigned as party leader last week
The inevitable reality, and the backdrop for the upcoming debate, is that it spent £ 400bn more than it had planned for 2020.
National debt is the worst it has been since World War II.
With the crisis of the cost of living as bad as it is and the NHS still faltering, there is frankly limited room for maneuver to cover this gap with spending cuts: taxes are the only real option.
It may seem like the worst of COVID has happened, but the pain of paying for it is just beginning.
In fact, a new OBR analysis has looked at how recent changes are likely to affect the long-term deficit in the UK.
He found that things like a reduction in the tax-paying population, the cost of zero-net policies and the cost of social care make this country’s total debt amount to about £ 37 billion more than it was before the pandemic.
And £ 37 billion is a lot of money to find if you also cut taxes.
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The question, of course, is who will primarily benefit from the tax cuts and whether they are the right measure to help people during the current cost of living crisis.
Some leadership candidates, for example, have pledged to reverse the planned corporate tax cut (the main tax that corporations will have to pay).
It is a valid measure when it comes to encouraging investment in the UK, but some will argue that it is not an immediate help for households struggling to pay their bills.
A reversal of the increase in national insurance may be more popular among voters, but recent changes in the threshold mean that poorer households will not pay this tax anyway, so a cut would benefit mainly the middle class. .
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There are many who argue that spending on the most vulnerable would have a greater impact right now and many more who want to see NHS waiting times.
The argument, in essence, boils down to a millennial economic debate: whether growth and prosperity, the way out of difficult economic times, is best forged with higher government revenue and spending in the here and now, or if this action simply drives up inflation and debt by consolidating and worsening problems in the coming years.
This debate has developed viscerally before, especially in the wake of the 2008 economic crisis. But the dividing lines at the time were predominantly between Gordon Brown’s Labor and David Cameron’s Conservatives, remember the motto of George Osborne / David Cameron. ” reduce the deficit “?
This time, the argument looks set to split the Conservative Party from within. Is the party still the pioneer of fiscal precaution or has a pandemic and an unprecedented cost-of-living crisis changed its tone?
Can it be both the party of low taxation and the prudent management of the deficit?
And how important is the problem of “image versus reality” to conservatives when faced with one of the most serious economic challenges of generations?