Dr Daniel Pitt is an Honorary Fellow at the University of Buckingham.
Daniel Pitt’s ConservativeHome column is usually on a Friday and will continue to be so, but was moved last week due to Local Election coverage.
From now on we need to continue fighting for tax cuts and economic incentives for families.
Not tax cuts for their own sake or for what the Left erroneously call “trickle-down economics” and no which Conservative of any stripe has ever advocated for, but for human flourishing, which, after all, is what Conservatism is all about.
In the tax-cutting battle, we have to win the argument through both ideas and by showing that tax cuts work in practice.
As predicted, Labour policies have increased labour costs, increased compliance costs, and added more administrative costs to businesses. All of which have added further rigidity to the market and created further inefficiencies in the labour market, which are stifling growth.
Aristotle, in his Politics, provided us with an economic distinction between oikonomía (household management) and chrematistics (money-making). Unfortunately, too much of our economic focus is on the latter and not enough on the former. Labour, of course, does not believe in either. Sir Roger Scruton used to say that we need to put the oikos back into oikonomia, or the home back into economics, which is absolutely right. This must be a Conservative priority.
The great Tory Dr Samuel Johnson articulated a conservative truth that “to be happy at home is the ultimate result of all ambition, the end to which every enterprise and labour tends.” A conservative life is not merely about the art of earning and spending money. A conservative life is about creating a happy home life, and tax cuts can be a means to this.
Tax cuts will put more money in your pocket, but money is only the means. Indeed, we are taught in 1 Timothy 6:10 that “For the love of money is the root of all evil”. In other words, we should not treat money as the end goal. Yet, tax cuts are a way of promoting human well-being, and we need to fight for them.
Indeed, Margaret Thatcher wrote that she was “convinced that at the heart of the Conservative mission is something more than economics…there is a commitment to strengthen, or at least not undermine, the traditional virtues which enable people to live fulfilling lives…”
A sound economy is essential to prosperous communities, and an economic revival in Britain will need tax cuts to change behaviour through incentives, but this will require a cultural revival too.
A competitive property-owning market system is not cruel or uncaring. Actually, no other economic system better meets our needs, respects our liberties, and has the potential to create the Johnsonian happy home.
It is the lack of this system that makes individuals cruel and uncaring towards their neighbours because socialist economies are zero-sum and dog-eat-dog. People fight each other for an ever-shrinking socialist pie. If I may echo Churchill, the true evil is not profit as Marxists believe, but loss. Socialist economies are good at two things: loss and the equal sharing of misery.
Lowering taxes can be a win-win-win situation. It increases individual liberty, it benefits society as a whole and also can raise tax revenue. We can point to both theory and practice to back this statement up.
We can point to the Laffer Curve. In short, the theory goes that lowering tax rates can increase tax revenues. Why can it? According to the American economist Thomas Sowell, reducing tax rates makes “future prospects of profit look more favourable”, and these more favourable prospects lead to “more current investments that generate more current economic activity and more jobs.”
This sounds wonderful, but Conservatives also want to know that the theory works in practice, and on this front, there is also good news.
A new academic paper has analysed the impact of the abolition of the inheritance tax in Sweden on businesses. The paper has found that the abolition of this awful tax has led to “stronger growth” and “earnings power for private firms”. This is excellent stuff, but there is more. The paper also showed the “long-term benefits to society”, such as these firms paid more taxes when there is a successor in place, and this strengthened “recurring tax revenues”. There is still more; the paper states that businesses paid their staff more after the abolition of the inheritance tax.
I can also think of at least three examples in British political history of the Laffer Curve working in practice.
One of Britain’s greatest Prime Ministers, William Pitt the Younger, was Prime Minister twice, and held the role for 18 years and 11 months in total. He lowered taxes, which reduced smuggling and thus raised revenue. Pitt the younger was influenced by the works of Adam Smith and later Edmund Burke; both men thought alike on economic matters.
Smith thought that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice”. In the name of human flourishing and “the highest degree of opulence”, we must cut and make taxes easy again.
Professor Norman Gash, a biographer of Sir Robert Peel, wrote that “the world of Burke and Pitt remains as the great uplands from which the headwaters of Conservatism descended to the plains of Victorian party politics below.” This “plains” is my second example of the Laffer Curve working in practice. Peel’s reforms (before the Corn Laws) abolished 1,200 import and export duties on everyday consumer goods, which reduced the overall tax burden by millions of pounds, despite the reintroduction of income tax, and simultaneously achieved a budget surplus.
The third example of the Laffer Curve in action is the latter years of the Thatcher era. Yes, the right tax cuts work, but economics should not come at the expense of our morals, culture and heritage. In fact, they underpin the economy and make it flourish.
Burke argued that commercial activity needs to be embedded in pre-enterprise virtues, such as religious teaching and social attachment. Indeed, Friedrich Hayek also argued that a successful market economy would not function without moral beliefs.
We need tax cuts, we need to secure financial security and freedom, and fixing our cultural decline at the same time will have positive effects on both. The case for tax cuts is sound; we need to continue to make the arguments for them.