In a series of articles published this week in the IEA journal Economic Affairs *, four leading economists** criticise the Conservative leadership for failing to support policies to cut taxes and public spending.
The authors praise the recent report of the Conservative Party Tax Reform Commission, led by former Cabinet Minister Lord Forsyth, as a serious and economically literate analysis and a solid and impressive piece of work. However, the policies recommended by the report have largely been rejected by the Conservative Partys big-government appeasers.
David Camerons refusal to take account of the substantial dynamic benefits from tax cuts - rising revenues as a result of higher growth, increased labour supply, reduced emigration and less tax evasion - is described as absurd by Professor Patrick Minford. Minford welcomes the Commissions arguments for taking account of the dynamic benefits of tax cuts but suggests that the ground was cut from under the Commissions feet by the party hierarchy before it could report.
The Conservatives have also failed to address the problem of churning. Professor Tim Congdon points out that about 8% of national income is taken in taxes from individuals and then returned to the same people through public spending on welfare benefits. There is no redistribution involved. In an ideal world churning should not exist, since it unnecessarily increases the economic damage caused by taxation.
According to Congdon, David Camerons rejection of the Commissions modest proposal for a £21 billion tax reduction reinforces the message that todays Conservatives have lost the intellectual momentum given them by Lady Thatcher in the 1980s.
, Vol 27, No. 2, Institute of Economic Affairs, £7.50.
**Patrick Minford, Professor of Applied Economics at Cardiff Business School; Professor Tim Congdon, IEA Economics Fellow; Professor David B. Smith and Dr Eugen Mihaita, University of Derby.