If the UK Independence Party wants to be taken seriously as a credible political organisation, rather than written off as an assortment of immigration-obsessed fruitcakes (© David Cameron), it must accept the same level of scrutiny of its proposals as the mainstream parties. Sadly for Nigel Farage and his colleagues, that scrutiny finds UKIP wanting when it comes to economic policy.
Let’s say this for the party – it has at least attempted to set out the broad principles of its programme well in advance of the election campaign.
Last September, economics spokesman Patrick O’Flynn laid out some of the principles UKIP will fight for. These include a cut in the top rate of income tax from 50% to 40% and a reduction from 40% to 35% for those earning between £42,000 and £55,000 a year.
He also advocates the abolition of inheritance tax and populist measures on VAT. In particular, O’Flynn suggested a higher rate of VAT for luxury goods such as expensive shoes and handbags, and the abolition of the tax-free shopping scheme that enables foreign nationals to reclaim VAT on goods they take home.
There are a couple of problems with these ideas. Most fundamentally, the numbers don’t add up: UKIP is promising to pay for its income tax reductions through cuts in the overseas aid budget and savings realised from the UK’s withdrawal from the EU. But even if you accept that these measures would raise £17bn – the EU savings in particular look debatable – that’s not sufficient to finance the cut in higher rate tax UKIP wants, particularly given the inheritance tax revenues it also proposes to forego.
The other weird thing about the UKIP economic programme is that it doesn’t appear to do anything at all for the party’s target voters. The constituencies in which UKIP has performed best – including Clacton, Rochester and Heywood – share a common characteristic: voters’ incomes are predominantly below the national average. So how come the party’s flagship policies are targeted at people earning much more? In the case of inheritance tax, this is currently payable on the estates of just one in 20 relatively wealthy people.
Perhaps UKIP is putting its faith in Thatcherite ‘trickle-down’ economics, the theory of which is that when the finances of the wealthiest people improve, the benefits trickle down to everyone else because the rich spend more. But if so, it should know that the majority of economists and politicians are turning their back on the trickle-down theory, for the simple reason that policies based on this argument, wherever in the world they’ve been applied, have contributed to record levels of inequality rather than greater prosperity for all.
As for those VAT plans, the so-called handbag tax was dead in the water within 48 hours of O’Flynn announcing it, torpedoed by Farage himself. And while you can see the appeal of dumping the VAT-free shopping scheme, if you believe in trickle-down economics when it comes to income tax, why not with VAT? The point of the scheme is to encourage foreign shoppers to spend more in the UK – and the retail sector, rightly or wrongly, believes it works.
So much for the detail – it doesn’t stand up to close attention. That leaves the big picture – most obviously the giant elephant in the room. UKIP insists its determination to pull out of the EU won’t jeopardise trade between the UK and the bloc, or deter international companies from basing their European headquarters in this country. It may just be right – but if so, almost every business and business group you care to mention, from Goldman Sachs to the CBI and from the Institute of Directors to Ford, will have to eat their words.