BORIS Johnson’s rumbustious speech at this week’s Conservative conference called for the Tories to commit to continuing tax cuts. That brings easy applause from a well-to-do audience, so long as no one stops to think what spending cuts would have to follow.
Or that less prosperous parts of England, like most of Yorkshire, will suffer more from continuing cuts in public spending than the southern counties which are the Conservative government’s homeland.
Boris told his audience that tax cuts would produce more revenue – an appealing formula first proposed to Republican policy-makers in Washington in 1974 by the economist Arthur Laffer. The ‘Laffer Curve’ suggests that cuts in tax on companies will free their directors to increase investment, so raising production, efficiency and profit, and eventually bringing in more revenue to the state.
US Republican administrations since then have repeatedly cut taxes on companies and the well-off, creating rising budget deficits, and President Donald Trump is following his predecessors. Britain already has one of the lowest corporate tax rates in Europe, though this hasn’t led to higher investment. Many Conservatives, nevertheless, want to bring the rate down further.
The coalition that took office in 2010 inherited a wide deficit, and recognised that a squeeze on spending was unavoidable to rebuild the economy. At Liberal Democrat initiative, some taxes were cut, but these were focused on personal income tax aimed at the poorest taxpayers. The accumulated deficit has now been brought under control, and Philip Hammond as Chancellor would like to ease the pains of austerity. But the right-wing of his party, the free marketeers who believe that Brexit plus deregulation will allow entrepreneurs to transform our economy without state intervention, are determined to block his efforts.
Bear in mind how deep the spending cuts have been, and where current projections for continuing cuts will take us. Spending on education has been held level, while costs have been rising; state schools have had to cut staff and increase class sizes. Welfare benefits have been slashed, with Universal Credit being introduced partly to economise further; as a result, homelessness has shot up, and food banks have to cater for more struggling families.
Police budgets have shrunk by over a third. Prison spending has been slashed, and prison riots have become more frequent. But it’s local authority budgets which have suffered most, with many councils forced to find savings of 40 per cent or more.
However Liz Truss, now Chief Secretary of the Treasury, said cuts in Government grants to local authorities were freeing councils to raise more revenue themselves, and would therefore shrink further. That’s fine for Surrey and Hampshire, with high rateable values to gain revenue from, to cushion them from lower transfers from the Treasury. It’s far more difficult for councils in poorer areas, like most local authorities across Yorkshire, where local homeowners and businesses cannot easily pay more.
Bradford has just closed most of its remaining public toilets, ending a basic provision that began as a health measure 150 years ago. Across the county, children’s services have been reduced, care for the elderly is struggling, subsidies for bus transport are shrinking and services therefore disappearing.
Libraries, museums, youth clubs and children’s centres have lost their grants; many have closed. To force local authorities in the less prosperous parts of England to ‘stand on their own feet’ financially is to condemn them to drop further beyond the far richer South East.
The UK contains one of the richest regions within the European Union, in Greater London and the South East, and several of the poorest. It lacks any agreed formula for redistribution between wealthier and poorer regions. Scotland, Wales and Northern Ireland benefit from ‘the Barnett Formula’, a mechanism that guarantees a proportion of financial transfers from London. The English regions have no such guarantee. One of the most politically sensitive annual negotiations in Federal Germany is over Finanzausgleich: the ratio through which the richer regions contribute to the economic and social development of their poorer neighbours. Within England, we lack any similar process for negotiating how to share domestic spending.
Now many Conservative council leaders are warning against further cuts. Opinion polls now show majority support for higher taxes, as the public recognises what damage continuing cuts are inflicting on our social fabric. There is, of course, a link with divisions over Brexit.
The vision of a post-Brexit Britain that Boris Johnson conjures up, that Liam Fox dreams of and that right-wing think-tanks promote is of a free market Britain resembling the Republican-run United States, turning its back on the welfare societies and economic regulations of continental Europe.
The gap between the richest and the poorest states within the US also yawns wide – as does the gap between the richest and poorest Americans. It’s not a model that has much to offer Yorkshire.
Lord Wallace of Saltaire is a Lib Dem peer. He was a Minister in the 2010-15 coalition Government.