Magazine article The Spectator

The Candidates Insist That the Polls Are Wrong. Perhaps We're Not a Nation of Mandies

Magazine article The Spectator

The Candidates Insist That the Polls Are Wrong. Perhaps We're Not a Nation of Mandies

Article excerpt

A party that has been in power for 18 years has a problem in drafting its manifesto. If it produces bold new policies, it will be asked why it has taken so long to come up with them; if there are no fresh ideas, it will be accused of staleness. The staleness charge was made by some of the journalists who attended the Tories' manifesto launch on Wednesday. On Sky TV immediately afterwards, Peter Riddell said that the Prime Minister had sounded like a chief executive delivering his annual report. That was intended as a criticism, but when the company is doing as well as UK plc is at present, it could be taken as a compliment.

Mr Major was promising a whole range of incremental improvements on present policies: more privatisation, greater efficiency in government, an intensified drive for higher standards in education. None of this is exciting, and some of it - especially education -- should have been a higher priority much earlier. But it is all practical, sensible stuff. Mr Major wants the state to do less and do it better. His economic policies can be summarised as Fabian Thatcherism. If re-elected, he aims to ensure that year by year the Government will own a smaller percentage of the nation's wealth and spend a smaller amount of its income.

These pledges aroused some scepticism at the manifesto press conference. It was pointed out that according to the figures in the Red Book - the Treasury's projections of future expenditure and revenue - the tax burden would increase over the next few years. This is an accurate account of the Red Book's contents; it is also misleading.

The Red Book assumes unchanged tax rates. But as real incomes rise in a growing economy, unchanged tax rates would bring in more revenue, so that tax rose as a percentage of GDP. But this does not mean that the government intends to increase the tax burden. On the contrary, it means that there is scope for tax reductions.

As Mr Major made clear on Wednesday, all his tax proposals for the next Parliament are based on affordability; they are aspirations, not pledges. On the face of it, he is committing himself to some ambitious aspirations. Public borrowing is to be eliminated, despite the estimate of L19.2 billion for 1997/8, the standard rate of income tax is to fall by 3p, and there is to be a new system of transferable tax allowances, at a cost of 1.2 billion. There will also be additional concessions on capital gains tax and inheritance tax, plus annual increases in expenditure on health.

This is an expensive package, with a total cost of over 25 billion. That might seem incredible, and so it is. It is too pessimistic.

In 1997/98, tax revenues are expected to be around 300 billion. If the economy grows by 10 per cent between now and 2001/2, that figure would rise by 30 billion if tax rates are unchanged; more than enough to fund all of Mr Major's aspirations. But on present trends, 10 per cent is too low a figure. Twelve per cent is by no means unattainable. The Prime Minister's aspirations all assume firm control of public spending, which is set to rise more slowly than the national income will grow, and hence consume a diminishing proportion of GDP. But 12 per cent growth plus all the aspirations would still allow total spending to rise by almost 10 billion.

Government estimates of future tax revenues are always unreliable. They tend to underestimate the effects both of a recession and of healthy growth. In the early 1990s, the public sector borrowing requirement (PSBR) kept on exceeding expectations, which is why the government was forced to increase taxes. …

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