David Maddox: Contemplating cutting taxes further

Nick Clegg's call for the threshold where income tax is paid to be raised to 10,500 pounds was welcomed by Mr Cameron. Picture: Robert Perry
Nick Clegg's call for the threshold where income tax is paid to be raised to 10,500 pounds was welcomed by Mr Cameron. Picture: Robert Perry
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For the UK coalition partners to gain from a recovering economy, they may have to cut taxes further, writes David Maddox

FORMER President Bill Clinton’s famous line “it’s the economy, stupid” has been a mantra for winning elections in democracies around the world.

But in the UK it appears that getting the economy into good shape may no longer be enough for a government party or parties to hold on to power.

Just look at the statistics. All the figures in the UK are good. Unemployment is falling, GDP is growing, car sales are up, house sales are up, interest rates are low, and businesses are reporting better times. Yet somehow the Tory and Lib Dem coalition partners do not seem to be winning the political debate or setting the mood music. Instead, it is Labour’s message on the cost of living which appears to be resonating much more strongly with the public, even though most of them would not trust Messrs Miliband and Balls with the economy.

The reality is that while the economy is improving, most people are not feeling it in their own pockets, largely because inflation on essentials and a falling value in wages is pushing up the cost of living. Most of all, the energy bills debate, ruthlessly used by Labour, has focused minds on how people feel they are not keeping up with rising prices.

In some ways, this is not new. Strong economies do not always win elections, and weak ones don’t always lose them. Just ask John Major, who achieved the biggest vote for any party in 1992 when the economy was doing badly, and then suffered an appalling drubbing at the polls in 1997 during a boom.

As political advisers in Tory central office, David Cameron and George Osborne both cut their political teeth during the Major years and both are well aware that the cost of living debate could be their undoing, especially as Labour only needs 35 per cent of the vote to win a majority – while the Tories need to win by more than ten points.

Unfortunately for them, they have yet to find a response to the energy bill problem, apart from calling Labour’s policy a con. They cannot admit defeat and adopt Labour’s policy of freezing prices, so they need to find an alternative way of helping with the cost of living. From their briefings and statements, and with the Autumn statement ahead, it is clear they have just one option – tax cuts. Raising the tax threshold has been hugely popular and put money into people’s pockets, which is why both the Lib Dems and Tories are trying to take the credit for it.

There is now more than a strong hint that the policy will be extended on 5 December, when Mr Osborne gives his Autumn statement. Lib Dem Deputy Prime Minister Nick Clegg’s call for the threshold where income tax is paid to be raised to £10,500 was welcomed by Mr Cameron, and various Tory figures have been wading in on income tax cuts over the last week.

It seems unlikely the Tories will agree to Mr Clegg’s demands for a windfall tax on the rich, so tax cuts will have to be matched with more spending cuts – which is likely to mean welfare.