Tax is 'the' election issue

In 1997, New Labour pledged to match the Tories’ spending plans for the first two years, and went into both that and the 2001 election promising not to raise income tax.

But while the party is expected to maintain that pledge, chancellor Gordon Brown refused to rule out increases in tax at the end of last year, telling Radio 4’s Today programme that to do so would ‘not be responsible’.

By contrast, shadow chancellor Oliver Letwin ended the year making ‘cast-iron’ promises to reduce the tax burden for low and middle-income workers, in a Budget to be held one month after the Tories gain power.

Income tax thresholds, council tax, inheritance tax and stamp duty were reported as key targets. The Tories are also likely to set out policies to prevent the process by which those on lower incomes find themselves dragged into paying income tax. Letwin said he would resign if he failed to meet the pledges, whatever and whenever they might be (the detail is yet to come).

The Tories clearly believe they can win votes from Labour in the area and never miss an opportunity to accuse Brown of introducing 66 stealth taxes, amounting to an extra £5,000 per household per year since Labour came to power in 1997. They also argue that tax credits are too complicated.

Reflecting this focus, conservatives.com ranks action on tax as top of its pledge list. By contrast, tax gets one mention in Labour’s list of its top 50 achievements at labour.org.uk, and there is no direct reference to it on the front of the ‘our policies’ section.

But there are signs that majoring on tax could prove a dangerous policy. A YouGov poll in December found that Tory mud-slinging has so far failed to stick, with more people believing that Labour could provide better value for money (31%) than the Tories (27%).

Even more worrying for Letwin is the fact that the majority of those polled would prefer to see extra money spent on public services (53%), rather than tax cuts (36%).

The poll also revealed that the Tories face a major challenge to convince the electorate that proposals to cut taxes are feasible. Fewer than one in five (17%) believe the party would succeed in reducing the burden. Almost two-thirds (63%) refuse to buy the idea that cuts could be made without damage to public services.

There may be grounds for this cynicism. In Brown’s characteristically bullish pre-Budget report he contradicted experts whose analysis suggests there is a £10bn black hole in the public finances. If Brown was proved wrong, it would become increasingly hard for him to avoid tax rises, or for a Tory government to deliver cuts without hitting public services.

Even though tax is likely to be a defining issue, it is worth remembering that the parties are competing on a narrow centre ground. Estimates suggest Labour’s expenditure is unlikely to be much more than 2% greater than the Tories. Consequently, a lot is being made of value for money, with both Brown and Letwin loudly announcing plans to ‘slash and burn’ bureaucracy.

July saw Brown launch his comprehensive spending review, promising ‘savings’ of over £20bn a year and the shedding of 100,000 civil service jobs.

For their part, the Tories have identified £24bn of ‘savings’ in a study by David James, but the figure is expected to rise to £35bn as several key departments are yet to be assessed.

The Tory attitude is that of the hard taskmaster, while Labour attempts adopt a cruel-to-be-kind manner.

Expect to see tax and lean government in the newspapers during the run up to the election almost as frequently as features on ‘shedding those Christmas pounds’.