Tax cuts vs Public spending: Danny Alexander’s comments flag up the Coalition arguments to come

by Stephen Tall on August 29, 2010

I’ve been critical these past few weeks of the news media’s obsessional search to put a cigarette paper between Coalition politicians: mostly these have been the product of journalists’ desperation to fill space.

But today’s interview in the Observer with Lib Dem chief secretary to the treasury Danny Alexander is, I think, significant for the future of the Lib/Con partnership.

… Alexander makes clear that total tax revenue will have to remain at least at current levels throughout the parliament to put the nation’s finances back in order.

“I think the tax burden is necessary as a significant contribution to getting the country’s finances in order,” he says. “So it will have to stay at that level for quite some time.”

Asked if a reduction in the overall tax burden would be possible once the nation’s books were back in order, Alexander adds: “You are asking me to take decisions for five years down the line now and I am not going to do that. What I want to see is a rebalanced and fairer tax system. That is what I think is most important.”

With plans already in place to reduce tax on lower earners, his comments appear to dash hopes of tax cuts for the better-off and middle classes until 2015 at the earliest.

Alexander argues that the twin goals of deficit reduction and fairness, as well as plans for a greener economy, are part of the coalition agreement and will drive decisions on tax. “The plan we set out is a plan to rebalance the tax system. We need the tax revenues from the taxes we are putting up in order to help us reduce the deficit.

“But we also want to rebalance the tax system so that particularly people on lower incomes keep more of what they earn of their own money when they go out to work so that they are encouraged to go out to work. In due course [we will be] looking at other ways to rebalance, looking at green taxes. It is about rebalancing.”

The next couple of years will, doubtless, be difficult ones for the Coalition: making cuts is never popular, and with the prospect of these being “deeper and tougher” than under Margaret Thatcher (© Alistair Darling) that has rarely been truer.

Yet reducing the deficit is such a no-brainer that – while there will be arguments at the edges – the fundamental purpose of the Coalition has a fiercesome internal logic, one which is understood by a majority of the public. Labour’s current opportunistic tribalism (let’s see if it survives a new leader) serves only to bind the Coalition closer together.

However, spool forward a three years to an economy which is (fingers crossed) growing healthily, a deficit that is being speedily reined in, and two governing parties preparing to face the electorate, and looking to ensure there is clear yellow/blue water between them… what then?

It’s clear from Danny’s interview what he believes the Lib Dem priority will be: not lower taxes, but fairer taxes – for example, shifting the burden from low-paid workers towards taxes on wealth and energy consumption. Hard to see the Tory right-wing – who have resentfully swallowed much in the past three months – embracing such a prospect.

This is the Coalition battle that will matter. It’s some time off being fought: but fought it will be.