The Tories must go for broke in this Budget – what have they got to lose?

A graphic showing blue graph lines coming out of a red budget box
No more tinkering around the edges please Credit: Telegraph

This is a do or die moment for the Government – they should learn from Donald Trump and go big or go home

To be credible, governments need to be consistent. Those that chop and change rarely last for long. Yet despite the merits of setting the compass and sticking to it, there comes a time in every administration’s affairs when it must radically change tack if it is going to survive.

This is one such moment. So deep is the sense of drift, backbiting recrimination and crisis in Theresa May’s cabinet that a mere reshuffle, however wide-ranging, is no longer sufficient. It would be cosmetic applied to a crumbling facade.

For help, Mrs May and her Chancellor could usefully look to Donald Trump’s America

To stand any chance of renewal, Mrs May needs something fundamental – a clear dividing line with Jeremy Corbyn’s government-in-waiting.

As was all too apparent in Mrs May’s speech to the CBI annual conference this week, there is no such differentiation as things stand. Her defence of capitalism was half-hearted and unconvincing. Like Corbyn, she appeared to accept there is much wrong with it. The difference, it sometimes seems, is only one of degree.

For help, Mrs May and her Chancellor, Philip Hammond, could usefully look to Donald Trump’s America, widely derided though it is. A year on from his election as President, there is at least one thing that can be admired – his strongly pro-business, deregulatory and tax cutting programme.

Remarkably for someone who is condemned as a “demagogue” and a “populist”, Trump manages not just to “get away” with this seemingly unfashionable and politically incorrect agenda, but plausibly to champion it as a key plank in his “make America great again” ambitions.

While America debates how to cut taxes, in the UK it’s how to raise them, overtly in Labour’s case so as to punish the rich, or surreptitiously in the Government’s in the hope that nobody notices. While Britain obsesses over the pitifully thin “exposé” of nefarious tax avoidance supposedly revealed by the so-called Paradise Papers, America is acting against the problem at source, by reducing its own tax rates so as to destroy the incentives.

Donald Trump: the scale and ambition of his tax plan is impressive. May would do well to learn from it Credit: Charles Rex Abrogast/AP Photo

The UK Conservative Party claim to be tax cutters by inclination, and to be fair, there have been some limited examples of it in the past seven years of Tory-led government. But the overall tax burden has been on the up, and there are no plans to ease it.

Tax receipts are around 37 per cent of GDP in the UK, and that’s where they are expected to remain for the foreseeable future. This is not particularly high by the standards of other advanced economies, but nor is it particularly low. At 35 per cent for Australia, 34 per cent for New Zealand, 32 per cent for the US and 26 per cent for Ireland, other English speaking nations tend to be quite a bit lower. Theoretically, then, there is plenty of scope for tax cutting.

Yet in practice, the Government is constrained not just by the reality of a continued deficit, but also by its own self-imposed fiscal targets, which require a balanced Budget by the mid 2020s. This might not seem a particularly challenging goal – it’s a lot looser than it used to be – but it gives very little scope for tax cuts unless paid for by further, swingeing reductions in spending.

Nobody much cares about fiscal discipline any more, even if they should

Tories make a virtue of their supposed fiscal discipline, which for electoral purposes they contrast with the ruinous profligacy of Labour spending plans. But as was evident from the results of the last election, that narrative is wearing thin.

Nobody much cares about fiscal discipline any more, even if they should. Even the markets seem to take every breach of the targets in their stride.

As for Mr Trump, he cares not a fig for what the economists and the think tanks say about his tax plan, published late last week. There is good reason to question both its detail, and with the US economy already at full employment, the economic rationale of its timing.

Yet in its sheer scale and ambition, it’s impressive. And it is what Republican Presidents do. When in opposition they are fiscal hawks, but when in power, they turn into pump-priming Keynesians.

What Trump is doing with his $1.5 trillion tax plan is renewing America’s credentials, after years of erosion, as a relatively low-tax, business-friendly jurisdiction where entrepreneurs can flourish and largely keep the rewards.

There is plenty in the Trump plan you would not want to duplicate in Britain, where there is in any case no need for the radical overhaul of corporation tax so urgently required in the US.

But with the economy slowing and investment stalling, the need for action to ready the nation’s tax competitiveness for a post-Brexit world is obvious.

The Chancellor worries about the deficit, and if he lets rip, what it would do to the country’s fiscal credibility. But he should ask himself this question; what, given the current parlous state of affairs and the Corbynite real deal in fiscal irresponsibility waiting in the wings, has he got to lose?