For once, David Cameron was right
He may not be everyone’s favourite former Prime Minister (and think of the competition), but David Cameron was right on the money when he urged the Chancellor not to raise taxes in next week’s Budget. Any tax hike now would choke a recovery before it has even begun.
Speaking on CNN, Mr Cameron said increasing corporation tax “wouldn’t make any sense at all” before an economic recovery is further advanced. As former Conservative minister and noted Thatcherite Sir John Redwood said: “You can only have a chance of fiscal discipline if you rebuild the economy first.”
Mr Sunak may tell his fellows MPs he wants clear blue water between the Conservatives and Labour. But having outspent every previous Labour Government, that ship rather seems to have sailed. Hiking corporation taxes now would be the last thing the private sector needs after the disaster of the last year.
In effect, the Government would be punishing businesses for the State’s own profligacy. It is estimated that each percentage point increase in corporation tax raises £3.3bn, but that assumes the potential revenue-raising would override the negative impact on enterprise of hiking tax rates, especially now.
If commentators like Andy Haldane are correct that the UK is ready to experience a huge economic turnaround, then the last thing the country needs is to restrain growth before it has even begun.
Meanwhile, one would hate to think the Chancellor and Government were putting electoral considerations before the country’s economic wellbeing and the livelihoods of working people. The country needs growth before the Government can get revenue.
It should be noted that the Chancellor’s apparent desires would be flying in the face of international opinion, given that interest rates are at historically low levels.
Instead of hiking taxes, cutting onerous taxes on turnover would stimulate a private sector left to languish. Yes, that will lead to extra government borrowing in the near-term and interest rates may not stay rock-bottom forever. But right now, economic take-off is needed before pulling in the reins.
The country needs government support more than fiscal consolidation, while an expansionary fiscal stance is needed to offset the contraction in the economy triggered by the Covid restrictions.
We are told households are ready to spend and businesses are ready to invest. If so, then Government should get out of the way and let capitalism do the rest. Once economic order has been restored, then we can think about getting the books in order. The public gets this, so why doesn’t the Government?
If, as is suspected, support measures remain in place until the summer, that will be very much welcomed by battered sectors like hospitality. But a failure to bring consumers and commuters back in large enough numbers will threaten any prospect of recovery, with a possible spill-over effect across the wider economy.
This should be the Government’s focus now. If the Chancellor wants to be a friend to the private sector, he ought to encourage the PM to unlock faster and get Britain moving again, bringing commuters and consumers back as much as possible.
Now is not the time to prioritise fiscal discipline but the time to think creatively about harnessing the power of the State where it can be most effective, while unleashing the creative spirit of the British business community.