Lower taxation: The moral imperative

What do a rise in investment and a rise in tax compliance by businesses have in common?  Firstly, they are both happening in Britain today. Secondly, they are both a positive and inevitable side effect of free market favouring policies implemented by the previous Coalition government, namely lower direct taxation.

Since its formation in 1834, the Conservative Party has proudly worn the honour of being the party of low taxation. On occasion, however, the misfortune of sacrificing basic economic principles for the sake of political purposes or timing has been allowed.

During the first half of the Coalition government, trivial changes to tax, which raised the 40p threshold by only one per cent (less than the inflation rate), saw a 2014 estimation of 400,000 people dragged into the 40p rate. 400,000 ordinary working people needlessly punished.

The planned raising of the threshold for the 40 per cent is therefore very much welcome, though this is only a small step on the path to further liberation from an intruding government. Another essential part of the agenda is further reform of the welfare system to reduce the £87bn budget imbalance. Whilst this is surely a laissez-faire style policy, greater decline in tax burdens remain a rightful expectation of the electorate.

Whereas one might assume that the natural way to sell a political party as a moral, compassionate and vote-attracting brand would see plentiful proposals for higher welfare support, unlimited finance poured into the NHS, and promises of free childcare, there is in fact a strong case to be made for the morality of a freer market.

This morality is illustrated by fiscal responsibility and reduced government interference which will lead to greater prosperity and increased personal freedom. The financial crisis of 2007-08 might have brought such an economic system into disrepute but we must recognise and celebrate its predominantly beneficial influence in Britain.

A significant distinction between the two main parties in the run up to the election was their policies on taxation. Whereas former shadow chancellor Ed Balls laid out plans for a renewed 50p top rate of tax, the Conservatives made popular reductions in taxation whilst in government. Although this is fruitful economically, I would argue that such reductions do not go deep enough to show off the virtues of the free market or win the hearts of the disillusioned electorate and swing voters in the future.

Here, the Conservatives have an obligation to continue to emphasise their principles of low taxation. Britain’s corporation tax rate stands as a proud example of the positive side effects of lower taxation. A fall from 28 per cent to today’s 21 per cent has already seen higher growth and investment, and the 20 per cent rate will not only establish Britain as the country with the joint lowest corporation tax in the G20, but is predicted to see GDP growth of 0.6-0.8 per cent and investment growth of up to 4.5 per cent  in the long term.

It is evident that taxing corporations less, no matter how voters view it, means higher consumption and more jobs without necessitating bigger government. Inward investment especially must be remembered as something highly sensitive to intrusive government. For this reason, Britain must compete with other nations’ tax rates and cuts in red tape.

From 1997 to 2012, Britain plummeted from 4th position to 95th in the World Economic Forum’s tax competitiveness ratings. A major priority of the Conservative government must be to reverse this decline. If tax cuts truly do equate to £7.8bn savings for businesses per year by 2016-17, this will naturally equate to the business-friendly environment any economy desiring jobs and higher standards of living aims for.

Perhaps today’s most visibly moral example of low taxation, however, can be found in the increased personal tax allowance of £10,500. Affording working class families an £800 lower tax bill than they had under Labour is not only a popular policy but it also makes far more sense than continuously, and artificially, increasing welfare support or regulating higher minimum wage laws for those on low incomes. The benefits of this policy will be extended once those earning the minimum wage are lifted out of income tax altogether.

Assurances of an increasingly smaller governmental role in the post-2015 economy are certainly long overdue for libertarian and classical liberal voters. Furthermore, given archetypal Labour Party promises of endless money provided by the state (or rather, the taxpayer), it is about time that the Conservatives followed through on their pledge to let us keep more of our own money, and then boast about it loudly and proudly when it is achieved.

With that, I shall leave you with this quote from the IEA Reader’s Digest Condensed Edition of FA Hayek’s renowned bestseller, The Road To Serfdom:

“Well-intentioned socialists… …should be able to appreciate that reaching into one’s own pockets to assist one’s fellow man is laudable and praise-worthy. Reaching into another’s pocket to do so is theft and by any standard of morality should be condemned”.

Elena is a proponent of freer markets and a macroeconomics/IR enthusiast. She tweets at @elenaatt