We CAN cut tax if we tackle our public spending, writes DANIEL JOHNSON

We CAN cut tax – if we tackle our ballooning public spending like Mrs Thatcher did, writes DANIEL JOHNSON

Next year, the tax burden as a proportion of GDP will reach a peacetime record of 37.5 per cent – a shameful betrayal of everything that Tories are supposed to believe in.

Jeremy Hunt and his Prime Minister Rishi Sunak would no doubt argue that, in the wake of a pandemic and with a European war driving up energy prices, desperate times call for desperate measures.

But what is missing from the Sunak-Hunt high-tax model is any serious attempt to tackle our ballooning public spending, now running at some £1.2trillion a year, or £42,000 per household.

It has risen as a share of national income from 40 per cent in 2014-15 to more than 47 per cent in 2022-23.

Mr Sunak’s insouciance in the face of such alarming figures is the opposite of Margaret Thatcher’s approach

But what is missing from the Sunak-Hunt high-tax model is any serious attempt to tackle our ballooning public spending, now running at some £1.2trillion a year, or £42,000 per household

Mr Sunak’s insouciance in the face of such alarming figures is the opposite of Margaret Thatcher’s approach.

She was horrified by the scale of the public spending she inherited from her Labour predecessor James Callaghan and eventually won the Cabinet power struggle between the ‘Wets’, who opposed her hard line, and the ‘Dries’, who supported it,

Her second Chancellor, Nigel Lawson, managed to cut spending as a proportion of GDP by no less than 8 per cent between 1983 and 1989, while raising income tax thresholds and cutting both the basic and higher rates.

This seemingly miraculous achievement was made possible by the new policy of privatisation, reducing the size and role of the state by selling off enterprises such as BT and British Gas, while simultaneously cutting waste in what was left.

Liz Truss and her Chancellor Kwasi Kwarteng tried to emulate Thatcherism with their tax-cutting mini-Budget and came badly unstuck. But the reason it caused panic in the markets was that the ‘unfunded’ tax cuts Mr Kwarteng announced were not balanced by lower expenditure.

Liz Truss and her Chancellor Kwasi Kwarteng tried to emulate Thatcherism with their tax-cutting mini-Budget and came badly unstuck. But the reason it caused panic in the markets was that the ‘unfunded’ tax cuts Mr Kwarteng announced were not balanced by lower expenditure (pictured: Bank of England)

Lord Lawson was able to slash income tax in his 1988 Budget only because the Thatcher government had kept spending under tight control. The biggest departmental cuts were not to health and social security, but to housing, trade and industry, and transport.

Mrs Thatcher and her Chancellor kept the public sector borrowing requirement (PSBR) firmly in check. They also stood firm against strikes, above all the coal strike, which were designed to bring down the Government.

While the current administration is making commendable efforts to stand up to strikers in an array of sectors from the health service to the transport network, its record on tax remains lamentable.

This sticks in the craw, particularly as many tax increases hit hardest those least well-equipped to shoulder a higher tax burden as the economy faces both a recession and an energy crisis.

Mrs Thatcher and her Chancellor kept the public sector borrowing requirement (PSBR) firmly in check

Take Mr Hunt’s van tax, for example. Basic rate taxpayers who use a company van for personal journeys will find that the £720 they already pay on what the Government classifies as a benefit in kind will rise by £72 in April – a 10 per cent hike.

Higher rate taxpayers will pay an extra £144, twice as much more. And the Chancellor’s decision to freeze thresholds, despite double-digit inflation, means that millions more will be drawn into the 40 per cent higher rate tax bracket.

For those with children, especially larger families, an additional headache is the child benefit change, which removes this allowance from anyone who earns £50,000 or more.

The Institute for Fiscal Studies calculates that some families will face a marginal tax rate of up to 75 per cent, while the Resolution Foundation says that some single parents could be hit by an effective tax rate of 96 per cent.

And Mr Hunt’s new taxes don’t only affect individual taxpayers, but small businesses too

And Mr Hunt’s new taxes don’t only affect individual taxpayers, but small businesses too. Corporation tax, for example, kicks in at 19 per cent even for companies with profits of less than £50,000 per annum. For larger businesses with profits of more than £250,000 a year, the tax rate will rise to 25 per cent next April. Companies with profits between £50,000 and £250,000 will pay tax on a sliding scale between these two rates.

High taxes and low growth are a toxic combination, because they inevitably act as a disincentive to work hard in the present and invest in the future.

I’m not suggesting that Messrs Sunak and Hunt are relaxed about high taxes merely because they are both personally wealthy. Indeed, high earners will pay a 62 per cent marginal income tax rate on earnings over £100,000.

But it seems to have slipped the minds of both the Prime Minister and the Chancellor that Conservative governments are elected to keep taxes low and let people spend as much of their hard-earned money as possible.

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