Page last updated at 14:51 GMT, Wednesday, 4 November 2009

Unspeakable horror stalking Whitehall

Patience Wheatcroft is a former editor of The Sunday Telegraph newspaper and current editor-in-chief of The Wall Street Journal Europe. She is also one of four high-profile panellists taking part in Newsnight's Politics Pen.

Here Ms Wheatcroft outlines how she believes taxation could help save the UK economy.


Patience Wheatcroft
Ms Wheatcroft has been assessing the public's ideas on taxes for Newsnight

An election manifesto that promises to raise taxes for the majority of people does not normally lead to an overwhelming victory in the ballot boxes.

So perhaps it is not surprising that over the weekend Prime Minister Gordon Brown's henchmen were letting it be known that he was contemplating using the forthcoming Pre-Budget Report to promise to spend yet more billions of pounds of our money.

The nation's borrowing is now so great that the prime minister may reason that taking on a few billion more will not matter.

He has long abandoned any mention of prudence and it is left to his chancellor, Alistair Darling, to deal with the grim reality of the numbers.

What is important to the prime minister is that he is able to position himself ahead of next year's election proclaiming that voters have a choice between Labour's spending and Tory cuts.

UK rating threat

Yet the public knows that the cuts must come. The credit rating agencies may not have acquitted themselves well in the run up to the financial crisis, but they still have clout and the prospect that they will downgrade the UK's rating is a real, and frightening, one.

Gordon Brown
Labour has to send a message of choice over its spending or Tory cuts

With a deficit now forecast to hit £175bn this year and probably already racing ahead of that number to something closer to £210bn, the country has to curb its profligacy.

Spending cuts will only be part of the remedy. No-one taking a serious look at the bloated public sector could fail to spot the scope for serious savings.

In any budget of £700bn, it has to be possible to shave off a significant amount and to do so without actually harming the front-line services that matter.

But to fund the services judged essential and to begin to rebuild the country's finances, the government will have to find ways of increasing its income.

Stunning figures

Tax rises are the unspeakable horror that stalks Whitehall. Politicians and civil servants know that they must come, but there is no appetite for mentioning them.

Viewers move centre stage as Politics Pen returns

With the economy in such dire straits as it now is, it might seem positively perverse.

On the day we began recording Newsnight's Politics Pen, the Office for National Statistics produced figures which were stunning in their reflection of our economic plight.

Despite Mr Brown's confident assertions that there would be signs of growth by the end of the third quarter, the numbers showed a sixth successive quarter of falling growth.

Instead of the widely predicted increase of 0.2%, GDP had actually fallen by 0.4%.

The statistics are prone to revision and optimists blithely predict that the final figure will look prettier, but that negative number is in tune with much of the anecdotal evidence.

Green shoots are not much in evidence. And if business is failing to prosper, then the government coffers will take a further hit.

No luxury of choice

This is not an auspicious background against which to be looking for tax rises.

On the contrary, it is easier to argue that the government should be cutting taxes. Lower corporate taxes would provide business with an environment in which it can thrive, and thus eventually generate more revenue despite a lower rate.

And, in theory at least, cutting personal taxes should encourage the spending that fuels business.

But whatever the theory, the country does not have the luxury of choice. The debt that has been amassed has to be paid down.

The urgency of the situation provides an unarguable case for doing that which governments have been too squeamish to do, the drastically scaling back of generous public sector pensions.

No area of public spending should be immune from the scythe.

Urgent need for cash

That is the easy part. Much harder is deciding where the tax rises should be. The government has already acknowledged that its VAT cut must be restored and, in January the rate returns to 17.5%.

Canary Wharf
A windfall tax on banks would chime with public mood

Then comes the increase to 50% for those earning over £150,000 a year. That will still leave the next chancellor of the exchequer with an urgent need for cash.

A windfall tax on banks may remain a temptation and would chime with the public mood.

Retrospective taxes, however, should not be encouraged. Instead, perhaps the emphasis should be on taxing spending.

This does not need to be a regressive move - instead, level it at the luxury end of the market, where an extra purchase tax of a few per cent would barely be noticed.

Such a move would be in tune with the age of austerity to which we are all headed. But much more pain is to come.

The next edition of Newsnight's Politics Pen will be broadcast on Wednesday 4 November 2009 at 10.30pm on BBC Two.



SEE ALSO
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