David Morris is Member of Parliament for Morecambe and Lunesdale.
When Governments are faced with a challenge, they always dream up new taxation. It’s very rare that taxes go down.
But sometimes Governments get creative with taxes that already exist, and evolve them into something that seems to provide a ‘eureka’ solution to solve the problems of public funding. We saw this to great effect in the 1980s and as a result, transformed our country.
Value Added Tax (VAT) was brought In when the UK joined the then Single Market. The percentage rate has fluctuated over the past four decades, but it nonetheless remains a fundamentally European tax that undoubtedly will be investigated with interest by the Treasury during the Brexit negotiations.
In the recent general election the Conservatives were punished in the ballot box for the disastrous social care policy announced in the manifesto. The policy amounted to an asset tax. Education fees also became a political football with the Labour Party, who initially brought in the policy, offering an un-costed free-for-all to students past, present, and future.
No one had the foresight to look at the injection of cash a reformed VAT could bring into the economy, and services in the public sector, when we exit the EU. Whilst VAT is not a tax we can scrap, as that would cause galloping inflation, it is a tax that we will soon have the power to reform.
Currently, VAT amounts to nearly £18 billion of our contributions to the EU. But soon it will no longer be going to Brussels’ coffers.
In the Brexit settlement we could agree to continue sending a portion over a period of years that will not harm the UK economy or interests within Europe and still use the rest to add considerably to the extra £2 billion the Government is putting into social care. The rest could be allocated to vital areas such as the NHS and education, again without costing taxpayers an extra penny.
This way the Government could still reduce the deficit, adhering to the same fiscal policies it has followed previously, and balance Britain’s books. Thus a reformed VAT could be the answer to austerity.
It could also be tapered to help SMEs expand and create more jobs and wealth, as we are soon to be free of the EU’s VAT threshold directives. This was an idea I floated at great length when I was David Cameron’s first and only Adviser for the Self-Employed.
On the subject of Brexit, it’s inevitable we will be agreeing some kind of arrangement ensure future trade with Europe. Could VAT be part of that equation? Even if we do spend some of the proceeds on social care and education, there will be more than enough left over to smooth the path to a soft Brexit.
Some taxes are created, some evolve, but all are required to run our society. Maybe this proposal, once fine-tuned, will be the answer to some of the pressing challenges facing the Government and the country.
I don’t believe in throwing money at a problem. I believe in investing in a solution, and I think a reformed VAT could be part of the answer to austerity and and key to our future prosperity – without costing the taxpayer a penny more.