Cameron Pledges to Enshrine Five-Year Tax Freeze in Law

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David Cameron promised to enshrine some of his tax pledges in law, a reflection of both the tightness of next week’s general election and the current lack of trust in British politics.

A “five-year tax lock” would ensure no increases in income-tax rates, value-added tax or national insurance, which together account for two-thirds of government revenue. The move is symbolic, as it could be repealed by the same parliamentary majority that would be required to change any of these laws.

“This promise is made because unlike in 2009, 2010, I’ve seen the books,” Cameron said at a campaign event in central England Wednesday. Before the last election, Cameron said he had “absolutely no plans” to raise VAT, only to announce a 2.5 percentage-point increase to 20 percent a month after his coalition government took office.

Steve Barrow, head of G-10 strategy at Standard Bank, said in a research note that a new law “could cause monumental damage if it has to be defied in the event of a deterioration of the economy.” He said it showed the Conservatives were “the more desperate party” as the May 7 election draws closer.

When the Conservatives were in opposition in 2009, they mocked the then Labour government’s proposal of a Fiscal Responsibility Act that set targets for deficit reduction.

No Penalties

George Osborne, now chancellor of the exchequer, told Parliament at the time: “No other chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own budget.”

He also pointed out that the law represented “a constitutional first” by imposing no legal sanction if the goals were missed. The Conservatives confirmed Wednesday that their own proposed law would likewise lack any punishment for those breaking it.

With just over a week to go, the Conservatives are neck-and-neck with Labour in the polls. That would result in a hung Parliament in which Ed Miliband’s opposition Labour Party would have more chance of forming a government.

In an effort to break through, Cameron is spending the week pushing a series of economic messages. Data Tuesday showed the economy in the first quarter grew at the weakest pace since 2012.

‘Keep It’

“We know it’s your money, not government money. You’ve worked for it, you’ve earned it, you should be able to keep it,” Cameron said. Labour would “reach into your pay packet and cut your pay,” he told an audience at Sertec Ltd., a auto-parts supplier in Coleshill, in the swing seat of North Warwickshire.

Cameron’s chances of staying prime minister depend on Tory candidates holding or winning seats like North Warwickshire. The Tory majority there is the smallest among the 40 seats the party is pouring resources into defending. A local poll in July by former Conservative deputy chairman, Michael Ashcroft, found an 11-point Labour lead.

Miliband promised Tuesday to raise tax credits in line with inflation every year if he wins the election. Labour has also promised not to increase value-added and income taxes or national insurance, a levy on payrolls.

Asked about the Conservative tax plan, Miliband was dismissive. “Their desperate last-minute gimmick merely highlights what they have left out,” he told reporters in London. “No protection for family benefits.”

Fiscal Rules

In 2010, Osborne introduced fiscal rules, one of them committing the government to eliminating a record structural budget deficit by the end of a rolling, five-year period. At the time, that in effect meant by the end of the current parliament.

It never worked out, as Europe’s debt crisis engulfed economies across the region. In the 2014-15 fiscal year, the structural deficit was estimated by the Office for Budget Responsibility at 2.5 percent of gross domestic product. A new fiscal charter announced by Osborne in December commits to erasing the deficit over a three-year rolling horizon.

“They legislated in this parliament to balance the books by 2015 -- the legislation didn’t make much difference there, did it?” Labour’s economy spokesman, Ed Balls, said of Cameron’s tax pledge. “People aren’t going to be fooled a second time.”

Under Pressure

In a sign of the pressure Cameron will be under from his own side if he can’t secure a clear victory, the Conservative 1922 Committee, which represents rank-and-file members of Parliament, has convened a meeting for the Monday after the election to set ground rules for any coalition, the Financial Times reported. That could restrain Cameron in coalition talks.

The committee aims to ensure “backbenchers” will have a role in determining the shape of the next government, after they were excluded from coalition talks in 2010, the FT said.

“There’s no point in forming a coalition or coming to any arrangement in which parties aren’t comfortable,” the committee’s chairman, Graham Brady, said in March.

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