Lady Godiva famously rode her horse through the streets of Coventry naked. What is less well known is that she did it to cut tax. After appealing to her husband to reduce the town’s oppressive taxes, the count promised the countess to comply with her wish on one condition: she must ride through the town without clothes.
Taxpayer groups from across the country will be taking slightly less drastic action this week to achieve the same goal. A group called Tax Pledge 2005 is being launched to clarify a vital point in the election: would your MP vote for or against further tax rises? Supported by the TaxPayers’ Alliance and IsItFair, the campaign is asking candidates to sign a simple tax pledge.
It reads: “I pledge to the taxpayers of my constituency and to the British public that, if elected to the next parliament and except in the event of a national emergency, I will vote against all increases in tax rates unless accompanied by an equal or greater reduction in the overall tax burden within the same proposals.”
The campaign is launching at an apt time. Until last week conventional wisdom was that tax rises had not significantly dented the government’s popularity because average household incomes after tax and benefits had risen every year since the recession of the early 1990s. This notion was smashed with the publication of official figures showing that average household incomes fell for the first time in almost 15 years, following Gordon Brown’s tax-raising 2002 budget.
Between 2002-3 and 2003-4 the average family income dropped from £409 to £408 a week, or £52 in the year. For high earners, the impact was more dramatic. A couple with two earners and two children on a combined income of £60,000 lost £841.25, or 1.9% of their income. The Institute for Fiscal Studies (IFS) attributes the drop to the 1% increase in National Insurance rates in the 2002 budget, the decision to freeze personal allowances, and council tax increases.
The government’s tax increases are hitting people’s pockets and opinion polls show that people are becoming more concerned about tax. However, people are confused. Arguments over “£35 billion cuts”, “66 tax rises” and “£10 billion black holes” are ignored as people are turned off by politicians bickering.
The tax pledge campaign is designed to clarify where candidates stand. The responses of candidates to the pledge will be noted on the website www.taxpledge.org.uk. Candidates who want a higher tax burden will not sign the pledge, but those who believe that the burden is either sufficient or too high will, hopefully, sign.
The idea is not new; taxpayer groups across the world have long used it to identify taxpayer-friendly candidates. The Taxpayer Protection Pledge was introduced in the United States in 1986.
We envisage that the pledge will be monitored by independent economic analysts. If a chancellor in the next parliament, for example, wanted to shift the burden of taxation from direct to indirect taxes or introduce a flat tax, groups such as the IFS would calculate what effect this would have.
If it reduced the tax burden or made no net change, MPs who had signed the tax pledge could vote for it with a clear conscience. Taxpayers will therefore be able to judge politicians on the basis of such impartial opinions.
There are taxpayer-friendly MPs in all the major parties and we would encourage them to be bold and show their constituents where they stand on further rises. Paradoxically, there should be no problem for Labour candidates. Brown insists that although the total amount of money collected in taxes will rise over the next parliament as economic growth reaps higher receipts, no increase in tax rates is required to meet his golden rule.
So far, Labour will not commit itself to not raising tax rates. Tony Blair has guaranteed that a re-elected Labour government would keep the basic and top rates of income tax unchanged, but this guarantee does not extend to National Insurance contributions, income tax thresholds or other taxes. For Labour to rebut the Conservative allegation that it would introduce “third-term tax rises”, its candidates should sign the pledge.
Liberal Democrat candidates will find it most difficult. The party’s alternative budget contained a series of tax cuts, including lifting the threshold for stamp duty and cutting road tax for smaller and cleaner vehicles, but also proposed several tax rises. The introduction of a local income tax would mean higher council tax bills for middle-class families. The Lib Dems are also proposing a 50% top rate of income tax for those earning more than £100,000 a year.
If the net effect of the Lib Dem proposals was “fiscally neutral” — not increasing the overall tax burden — then Charles Kennedy and his candidates could sign the pledge. Unfortunately, according to the IFS, taxes would be £4 billion higher in 2007-8 with Vince Cable as chancellor, compared with a re-elected Labour government. We are still hopeful, however, that some Lib Dems will sign the pledge because it is for candidates, not parties, to support.
As for the Conservatives, Michael Howard talks about “66 tax rises” since 1997, but taxpayers remember that he was a senior member of John Major’s government that brought in “22 Tory tax rises”. To give his attacks on Labour more credibility he should pledge clearly that the Conservatives will not increase tax rates should he become prime minister. This is well within party policy because the Tories have committed themselves to £4 billion of tax cuts in their first budget. Conservative candidates should therefore sign the pledge so voters know precisely where they stand.
Tax will be one of the big issues in the general election and voters should be able to ask their candidates whether they have signed the tax pledge. They deserve an unambiguous answer.
Matthew Elliott is chief executive of the Tax Payers’ Alliance, the independent grassroots campaign for lower taxes
