Jeremy Hunt is Chancellor of the Exchequer, and MP for Surrey South West.
Election year is the time when the choice between the two parties crystalises into its sharpest form. If I were forced now to predict where that will end up, I would submit this: Conservatives proposing a path to lower taxes, and Labour pretending they wouldn’t raise them.
Nobody is disputing that the past few years have been difficult. Our response to a once in a century pandemic required almost £400 billion in extra borrowing. Just as we were counting the impact on the public finances, we had to step in again, with a further £100 billion to shield families and businesses from skyrocketing energy bills driven by Vladimir Putin’s invasion of Ukraine.
Two exogenous shocks in such close succession, with a government forced to respond to protect lives and livelihoods.
These were choices any Conservative can stand behind. The cost of inaction would have been far greater – thousands of viable businesses going under, a permanent hit to whole sectors of our economy. But that bill had to be paid.
Taking difficult decisions on tax was uncomfortable for any Conservative Chancellor, but sitting back and accruing an ever higher debt interest bill for our children would have been more uncomfortable still.
I say all this not just as a blind defence of Conservative policy, but to illustrate the difficulty of the fiscal choices that have been confronting us. To illustrate why the choice at the next election will be about taxes, and why Conservatives can win that argument.
Those difficult choices in 2021 and 2022 were the known economic backdrop when the Labour Party elected to release their much-vaunted pledge to spend an extra £28 billion every year in the next parliament.
If Labour had announced this in 2019, after Conservatives had successfully reduced the budget deficit to just 1.8 per cent of GDP from Gordon Brown’s high, it might have been written up as a legitimate expression of the left-wing desire to expand the state. To announce this in 2021, after the single biggest leap in our stock of debt since the Second World War and rising debt interest costs post-pandemic, can only be seen as a complete indifference to the debt interest bill we pass on to our children.
The £28 billion figure is often discussed without any fundamental interrogation of where it came from. This was Labour’s own assessment of the amount in public spending required for their ‘mission’ to decarbonise our electricity supply by 2030: £28 billion each year, £140 billion over a five-year parliament. The 2030 target and the £28 billion spending plan are not separate, they’re two sides of the same coin.
I, along with most observers, happen to think it a ludicrous underestimate. But it’s not some tradable, fungible aspiration. Each year without it is one that, by the logic of their own costing, makes it harder to deliver their 2030 mission. Starmer needs to explain: how can a government he leads deliver that mission without the profile of investment it said was so necessary in 2021?
I hope the British public get an answer. Because these are highly consequential decisions about the future shape of the British state. £28 billion is £4 billion more than the annual Home Office budget. Imagine the state adding a new UK wide police force each year in the next parliament (and then some). There is simply no way to do that without hiking taxes, or leaving debt interest to be the single biggest thing the state spends money on, and being forced to hike taxes. To pretend otherwise is dishonesty in the extreme.
That is not our choice. With inflation more than halved, and the public finances back on a sustainable path, this Conservative government has begun the work of bringing taxes back down again. Because let’s remember: Conservatives cut taxes when we can; Labour never will.
The Autumn Statement was the start: two percentage points off employee National Insurance, worth £450 a year to the average worker. And a huge tax cut on business investment, ‘full expensing’, which gives us one of the lowest effective corporation tax rates in the G7 and the joint most generous capital allowance regime of any major advanced economy.
Much has been said about the freeze to income tax thresholds. I haven’t sought to hide from it. The context I would point to is not just the huge extra borrowing we took on to protect families and the economy – which the Opposition didn’t complain about at the time – but one of the largest sustained above inflation increases in the thresholds introduced by Conservatives in the years prior. That period saw one of the biggest falls in personal tax as a share of average earnings since the 1980s, from 24 per cent to 19 per cent.
I recently asked my Treasury officials to do a detailed analysis of the correlation between taxes and growth, and the answer came back clearly – something we Conservatives have always known. Across the G7, across the G20, across the last 10 years or last 25 years: lower taxed economies have seen higher growth, and higher taxed economies have seen lower growth. It’s why we’ve brought taxes down, wherever and whenever we responsibly could. You can see it in our track record after our repair job on the public finances from 2010, and you’ll see it as we emerge from the turbulence of recent years. Not just because it’s right, but because it’s the only path to a sustainably higher growth economy.
That will be our stall come the election, but the other side of the debate is deliberately misty. Labour’s electoral strategy hangs on telling the public there’s no difference with the Conservatives on the economy, while Ed Miliband quietly promises their own side they’ll decarbonise the grid by 2030 at whatever the cost – as if policymaking exists in a silo, away from the macro economic reality.
Tell their activists the ends, but not the public the means. Our job is not to let them get away with it.
Jeremy Hunt is Chancellor of the Exchequer, and MP for Surrey South West.
Election year is the time when the choice between the two parties crystalises into its sharpest form. If I were forced now to predict where that will end up, I would submit this: Conservatives proposing a path to lower taxes, and Labour pretending they wouldn’t raise them.
Nobody is disputing that the past few years have been difficult. Our response to a once in a century pandemic required almost £400 billion in extra borrowing. Just as we were counting the impact on the public finances, we had to step in again, with a further £100 billion to shield families and businesses from skyrocketing energy bills driven by Vladimir Putin’s invasion of Ukraine.
Two exogenous shocks in such close succession, with a government forced to respond to protect lives and livelihoods.
These were choices any Conservative can stand behind. The cost of inaction would have been far greater – thousands of viable businesses going under, a permanent hit to whole sectors of our economy. But that bill had to be paid.
Taking difficult decisions on tax was uncomfortable for any Conservative Chancellor, but sitting back and accruing an ever higher debt interest bill for our children would have been more uncomfortable still.
I say all this not just as a blind defence of Conservative policy, but to illustrate the difficulty of the fiscal choices that have been confronting us. To illustrate why the choice at the next election will be about taxes, and why Conservatives can win that argument.
Those difficult choices in 2021 and 2022 were the known economic backdrop when the Labour Party elected to release their much-vaunted pledge to spend an extra £28 billion every year in the next parliament.
If Labour had announced this in 2019, after Conservatives had successfully reduced the budget deficit to just 1.8 per cent of GDP from Gordon Brown’s high, it might have been written up as a legitimate expression of the left-wing desire to expand the state. To announce this in 2021, after the single biggest leap in our stock of debt since the Second World War and rising debt interest costs post-pandemic, can only be seen as a complete indifference to the debt interest bill we pass on to our children.
The £28 billion figure is often discussed without any fundamental interrogation of where it came from. This was Labour’s own assessment of the amount in public spending required for their ‘mission’ to decarbonise our electricity supply by 2030: £28 billion each year, £140 billion over a five-year parliament. The 2030 target and the £28 billion spending plan are not separate, they’re two sides of the same coin.
I, along with most observers, happen to think it a ludicrous underestimate. But it’s not some tradable, fungible aspiration. Each year without it is one that, by the logic of their own costing, makes it harder to deliver their 2030 mission. Starmer needs to explain: how can a government he leads deliver that mission without the profile of investment it said was so necessary in 2021?
I hope the British public get an answer. Because these are highly consequential decisions about the future shape of the British state. £28 billion is £4 billion more than the annual Home Office budget. Imagine the state adding a new UK wide police force each year in the next parliament (and then some). There is simply no way to do that without hiking taxes, or leaving debt interest to be the single biggest thing the state spends money on, and being forced to hike taxes. To pretend otherwise is dishonesty in the extreme.
That is not our choice. With inflation more than halved, and the public finances back on a sustainable path, this Conservative government has begun the work of bringing taxes back down again. Because let’s remember: Conservatives cut taxes when we can; Labour never will.
The Autumn Statement was the start: two percentage points off employee National Insurance, worth £450 a year to the average worker. And a huge tax cut on business investment, ‘full expensing’, which gives us one of the lowest effective corporation tax rates in the G7 and the joint most generous capital allowance regime of any major advanced economy.
Much has been said about the freeze to income tax thresholds. I haven’t sought to hide from it. The context I would point to is not just the huge extra borrowing we took on to protect families and the economy – which the Opposition didn’t complain about at the time – but one of the largest sustained above inflation increases in the thresholds introduced by Conservatives in the years prior. That period saw one of the biggest falls in personal tax as a share of average earnings since the 1980s, from 24 per cent to 19 per cent.
I recently asked my Treasury officials to do a detailed analysis of the correlation between taxes and growth, and the answer came back clearly – something we Conservatives have always known. Across the G7, across the G20, across the last 10 years or last 25 years: lower taxed economies have seen higher growth, and higher taxed economies have seen lower growth. It’s why we’ve brought taxes down, wherever and whenever we responsibly could. You can see it in our track record after our repair job on the public finances from 2010, and you’ll see it as we emerge from the turbulence of recent years. Not just because it’s right, but because it’s the only path to a sustainably higher growth economy.
That will be our stall come the election, but the other side of the debate is deliberately misty. Labour’s electoral strategy hangs on telling the public there’s no difference with the Conservatives on the economy, while Ed Miliband quietly promises their own side they’ll decarbonise the grid by 2030 at whatever the cost – as if policymaking exists in a silo, away from the macro economic reality.
Tell their activists the ends, but not the public the means. Our job is not to let them get away with it.