Healey's legacy and Howe's concession: income tax cuts in 1979 and 1980.

Abstract

Income tax cuts of the 1979 Budget have been commonly considered as a starting point of the supply-side tax cuts that were the centrepiece of the Thatcher government's economic policy. Recent studies reveal how the policy was formed inside the Conservative Party in opposition. However, the budget-making process after the party came to power, which has been disregarded, demonstrates that these income tax cuts were far more complex. Conservatives' traditional incentive arguments were intensified by Labour's tax increases in 1974, and the Conservative Party in opposition stressed the importance of tax cuts for a free society. However, from 1977, Labour's Denis Healey cut income tax for lower-income earners, mostly influenced by the temporary economic recovery and the pressure from poverty lobbies and the Trades Union Congress (TUC). The income tax cuts package of the 1979 Budget not only included the Conservatives' package but also had to incorporate income tax cuts by Healey, and Geoffrey Howe significantly modified the scale of increases in personal allowances for a 'better balance' during the 1-month budget-making process. Income tax cuts under the first Thatcher government were a much more fluid policy than widely believed and were formed by various economic and political factors. This article examines how the different tax packages interplayed in forming income tax cuts during 1979-1980 and provides a different perspective on the Thatcherite tax policy.