One Tax at a Time: Andrew Griffith Sets Out a New Tory Economic Doctrine

Finito World

The Shadow Chancellor’s promise to abolish at least one tax in every Conservative Budget sounds like classic Tory conference fare – but we shouldn’t dismiss its ambition out of hand simply because the last Conservative government did less than it might have done on tax. Behind the slogan lies a more interesting attempt to redefine the party’s economic philosophy around work, incentives and simplification.

And, of course, there are worse ways to announce your arrival as Shadow Chancellor than by invoking Nigel Lawson. Andrew Griffith, appointed to the role in Kemi Badenoch’s reshuffle last month, has used his first Conservative Party Conference in the job to make a striking promise: if the Conservatives return to government, it will be his ambition to abolish at least one tax in every Budget.

His “personal north star”, he says, will be “lower, simpler and fairer taxes”. Those of us dreading our various upcoming HMRC deadlines will feel pleased to hear that – though the pleasure is mitigated somewhat by a glance at the opinion polls with their current Burnham bounce seeming to embed ever higher taxes for the foreseeable future. After years in which Britain’s tax system has tended chiefly to move in the opposite direction, the political appeal is obvious. But the more interesting question is whether Griffith is beginning to articulate something more substantial than the customary Conservative promise to tax less.

For there is a crucial qualification attached to his pledge: taxes will be cut “only when we can afford to do so”. The memory of Liz Truss’s short premiership still hangs over Conservative economic policy. A party wishing to regain a reputation for fiscal competence cannot plausibly promise large tax reductions without explaining what happens to borrowing and spending.

Griffith’s answer is the Conservatives’ “golden economic rule”: at least half of every pound saved by government must go towards reducing the deficit, with the remainder available for tax reductions and measures intended to promote growth.

This means that the emerging argument is not simply for lower taxation. It is for a smaller, simpler and — its advocates would say — more economically rational state.

The tax system and work

For Finito World readers, one aspect of this agenda deserves particular attention: incentives to work.

Britain has accumulated a bewildering collection of thresholds, tapers, allowances and withdrawn benefits which mean that the headline income-tax rate can bear remarkably little relation to the actual financial consequences of earning an additional pound.

The Conservatives have already identified one conspicuous example. At present, crossing the £100,000 earnings threshold can cause working parents to lose childcare support, creating a cliff edge at which a promotion or salary increase can leave a household surprisingly little better off — and in certain circumstances worse off once childcare costs are considered.

Badenoch has promised to remove that cliff edge, arguing that government should not punish people for working harder or accepting promotion. That is an important principle.

A tax system does more than raise revenue. It creates incentives. It tells people, sometimes inadvertently, whether to work another day, take a promotion, invest in a company, improve a property, hire another employee or start a business.

Griffith appears to want Conservative tax policy to be judged partly by this test.

His targets therefore include taxes and regulations which he believes distort economic behaviour. He has promised to abolish Labour’s High Value Council Tax Surcharge on homes worth more than £2 million, arguing that it would discourage improvements and distort the housing market. The Conservatives also intend to scrap Extended Producer Responsibility rules on packaging and pursue a much wider programme of deregulation.

The direction of travel is unmistakable.

But what gets cut?

There is, however, a difficulty which has frustrated Conservative chancellors for generations. Everyone enjoys abolishing a tax. Far fewer people enjoy abolishing the spending which the tax finances.

If Griffith is serious about deficit reduction and tax cuts, the arithmetic will eventually require the Conservatives to say considerably more about the size and functions of government. That may prove politically harder than identifying unpopular taxes.

It is one thing to announce that a levy is economically inefficient. It is another to tell voters which benefits, departments, programmes or public bodies will disappear to pay for its abolition.

Indeed, the Conservatives’ plans already indicate the scale of the undertaking. The party is proposing major reductions in welfare spending and a substantial pruning of the regulatory state, while Griffith’s conference speech envisages abolishing Natural England and the Environment Agency and transferring their functions into Defra.

Critics will reasonably ask whether this represents genuine efficiency or merely moves responsibilities around Whitehall. Labour, meanwhile, has an obvious line of attack: the Conservatives were themselves in government for 14 years, during which both taxation and the complexity of the state increased considerably.

That history cannot simply be wished away.

A Lawson strategy?

Griffith’s invocation of Nigel Lawson is therefore revealing.

Lawson’s great tax reforms were not simply exercises in cutting rates. They were concerned with simplification: removing distortions, broadening bases and creating a system in which economic decisions were made for commercial reasons rather than principally for their tax consequences.

That is a more intellectually interesting inheritance for today’s Conservatives than indiscriminate tax cutting.

Britain does not necessarily need a Chancellor who can announce the largest possible reduction in taxation on Budget Day. It needs a government capable of asking, repeatedly and rigorously, whether the tax system encourages the activities on which prosperity ultimately depends: work, investment, entrepreneurship, hiring and productivity.

There is even something to be said for Griffith’s apparently modest formula of abolishing one tax at a time.

The British tax code did not become complicated overnight. Governments of every stripe have added exemptions, surcharges, tapers, levies and special cases, usually for individually defensible reasons. The cumulative result is a system which can become hostile to precisely the behaviours politicians claim to want to encourage.

A Chancellor who spent five years methodically removing the worst distortions might ultimately achieve more than one who arrived at the Treasury promising revolution.

But Griffith’s promise will only acquire credibility when the other half of the equation becomes clear.

Which taxes would go first? How much would their abolition cost? Which spending reductions would finance them? And would those spending cuts survive contact with voters?

Those are questions for another day — and, presumably, another Budget.

But after years in which British politics has often treated taxation chiefly as a question of how much more revenue can be extracted, Griffith is at least asking a different question:

Which taxes would Britain actually be better off without?