The monetarist view (conservative) that reducing the marginal rate of income tax will;
- encourage more people to seek employment
- persuade some people to work longer hours
- encourage the unemployed to seek work more actively as the income gap between after-work tax wage rates and unemployment benefit will have been increased
A lower marginal rate of income may also have the benefit of reducing the size of the black economy
Also cutting corporation tax would increase the funds firms have available to invest and will increase the financial incentive to invest, simplifying the tax system will reduce the time firms have to spend calculating their tax returns and filling out forms. Hence it will reduce the administrative costs. It may also encourage more people to set up their own business.
Monetarists favour cutting welfare payments and making the criteria for receiving the, more rigorous. They believe that this would reduce voluntary unemployment by, as with a cut in income tax, increasing the gap between paid employment and unemployment benefit and ensuring that those who do receive benefits are genuinely unable to find work. It is thought that if employment benefit is at a relatively low level the unemployed will seek work more actively and be less inclined to turn down offers of low paid employment. Unfortunately the last conservative government did not stay in power long enough to undo the damage done by the previous government in this respect as their policies had developed a % of the population completely dependant on government handouts and quite willing to sit back and do nothing . This had a plus side in keeping inflation down
Successful supply-side policies as well as increasing potential output can improve the performance of the economy by;
- reducing unemployment by increasing the incentive to work and by improved training and reduced trade union power, making workers more attractive to employers
- reducing inflationary pressure by raising the productivity of labour
- Improve the balance of payments position by increasing the price and quality competitiveness of UK goods and services
The use of non-interventionist supply side policies led to Britain having one of the strongest economies in the western world and a rising standard of living for people who were willing to work.
Then disaster struck. In 1997 the labour party gained power. By convincing the British middle class that they were a changed party and that they would stick to conservative spending plans for their first term in office and not raise direct income taxes and due to sleaze and corruption in the conservative party they were elected
The labour party got away with there first term in office by convincing people that new labour were in reality not far removed from conservatives in their thinking. This is almost completely wrong. On a whole host of issues from fox hunting to education to the role of the state, Mr Blair does not have the instincts of a tory
There is one area where Mr Blair is not only not a tory but actually old labour; taxation. Although since 1997 the government has fulfilled its promise not to raise income tax rates, it has introduced dozens of stealth taxes which, bit by bit, have added to the burden of ordinary families. We have had higher fuel taxes, extra tax on pensions, higher stamp duty and reduced allowances for company cars etc, etc
In good times – and until recently the economy has been growing rapidly for nine years (mainly due to the previous governments non-interventionist supply-side policies) these taxes, though irritating, were for many people offset by rising living standards. But growth has now slowed sharply, and some analysts fear that we may be facing a real and possibly prolonged recession. And it is at this very moment, as the good days are ending, that New Labour is introducing new taxes ( Keynesian interventionist policy) which will squeeze families –and in particular middle class ones-harder than ever before.
On top of this households face breathtaking increases in council tax. In April council tax bills are expected on average to rise by 13%. Scotland is getting of lighter with average rises of 5%- still more than twice the rate of inflation. Overall the council tax has risen by 56% since labour came to power. During that period , inflation has gone up by less than 20%. There has been no visible improvement in services indeed people can see services in all sectors of local government diminishing
New Labour is now as addicted to tax-and-spend as was old labour (Keynesian policy)
Their floating of their latest idea to raise taxes i.e. co-payment, where taxpayers will be asked to make extra payments for services which have previously been funded out of general taxation, top up university fees due to be introduced in 2006 are an obvious example of this. These measures introduced by Mr Blair(ludicrously described as a closet tory) himself shows people where he stands.
These new taxes hit everyone, but overall they bear down hardest on the middle classes. These are the very people who in 1997 and 2001 deserted the tories in their millions and voted new labour. Why the government should be penalising its new supporters is something of a mystery. The explanation, I think , is that beneath its makeover new labour, not excluding Blair, instinctively believes in high taxation every bit as much as old labour. All that has changed is the packaging.
What this means, is that after the reforms and improvements of the Thatcher years, many middle class families face pressures that are beginning to recall the seventies, stamp duty, National Insurance, frozen income tax allowances, council tax- wherever people look they see a government demanding a bigger and bigger slice. Nationwide congestion charges are the latest prospective scourge. New Labour think they are a good idea. They will cost many car owners hundreds of pounds a year in extra taxation
Middle income families who manage to save so that their children can be privately educated now discover that the educational establishment (left wing(Keynesian) in general) increasingly discriminates against them. More and more universities are raising the barrier for pupils who allegedly come from privileged homes but, in fact, often have hard pressed parents who are making enormous sacrifices. Bristo University has recently turned down Rudi Singh, whose AS level results were among the best in the country, because he happened to be educated in a private school. The governments attempts to discredit private schools through the exam marking bodies backfired when pupils mainly from public schools demanded to know why their results were so poor, this in my mind was an attempt to force their ideals on to people regardless of the effect on the students concerned
