Matt Kilcoyne is Deputy Director at the Adam Smith Institute.
First impressions matter. In fact, it takes only a tenth of a second for someone to make their judgement of you, but that first impression can last a lifetime. Rishi Sunak is unknown to most people beyond Westminster – but he has the opportunity to make his mark in his first Budget next month
Not being known outside the bubble is, in this case, a blessing. The new Chancellor gets to start from scratch — but he should remember this is the moment he’ll be known for forever.
Sunak has to impress to the public that there’s some meat to the mantra of Boris Johnson’s “levelling up” agenda. He has to show that the UK economy can weather any forthcoming shocks from the Eurozone or Asia because of the coronavirus shutdown. That there is a plan to ensure that we can make the most of the opportunities of Brexit.
For my part, I hope that the Chancellor and the Prime Minister should do more than reach for the taxpayers’ credit card. They must think about what the Government can do to reduce burdens on families and businesses that create the wealth Whitehall loves to spend. Fortunately, there are some pretty good ideas out there that can do all of this.
If the Chancellor wants to ‘level up’ Britain and address our productivity crisis, the first thing he should do is Abolish the Factory Tax — the inability to immediately write off investments in machinery and buildings.
Our businesses are well placed to invest in machinery and buildings. Britain’s share of private investment in fixed capital has been the lowest in the G7 for over two decades. This is a major reason why productivity growth was just 0.3 per cent a year for the last decade, and why weekly wages have only just scraped above pre-crisis levels. Abolish the Factory Tax, and the Government will be seen as rightly investing in Britain’s workers – the grafters who recently gifted the Prime Minister his majority.
The Corporation Tax cut that Johnson has shelved would still be a good idea too, particularly as China’s factories remain closed, and the EU continues to be belligerent. The reductions so far have been behind the jobs miracle, and our sustained growth beyond rival economies on the continent.
Scrapping this planned cut might be seen as a way to appeal to a wider base, but it wants its wages to rise, and for families to have careers in world-beating industries. We all want a deal with the EU – but we should also be prepared to send a message that these islands will be the most competitive place to build a business in Europe.
For those of us on the free market side of the Conservatives, the first impression of this Government has, in part, been one a little too eager to spend like there’s no tomorrow. But the first impression of the new Chancellor’s motivations is pretty good. The reported intention of replacing business rates, hated right across the business world, with a form of a land value tax is a policy that should be pursued. A lower burden for high street businesses should be coupled with reforms to a planning system that is pushing up rents and undermining communities by limiting retail to only a small sliver of space on an outdated high street model.
It’ll also very much help remove the risk of an imposed Digital Services Tax that was already starting to crop up as an issue in trade deal talks with the USA. The Americans rightly, in my opinion, see the levy as a tariff on a few specific American companies consumers love to order from.
The Adam Smith Institute has been saying since the early noughties that National Insurance was a form of income tax. It’s exceptionally welcome that Johnson wants to increase the threshold to £9,500, with an ultimate ambition of reaching £12,500.
But the new Chancellor should try to impress upon the public that the ‘People’s Government’ is on their side, and follow the Taxpayers’ Alliance request to raise the threshold to £12,500 in one go. If the Chancellor wants to be really radical, he could abolish the antiquated NI system altogether and combine it with income tax to reduce the administrative burden for businesses while reducing taxes on the worst off.
Stamp Duty should be scrapped or radically reduced. Britain’s worst tax costs house sellers £12 billion and the wider economy an extra £10 billion. Stamp duty has created a roadblock to people moving from one part of the country to another to find work, trapping people in low pay and preventing them from advancing. If we’re going to create new centres of enterprise and build up the country people will need to move jobs and homes. It is stamping on the ambition of our people.
There’s one more thing that has been missed in Westminster since the election. Yes, people in the blue wall seats lent Johnson their vote. But they didn’t do so to be patronised with spending pledges that have little to do with their everyday lives: if that’s what they wanted they could have voted for Jeremy ‘Free Broadband’ Corbyn.
They want a government that is on their side. Johnson could win praise from his new voters by freezing fuel and alcohol duties. He could also side with families in need of a holiday or businesses wanting to do deals right around the world by cutting air passenger duty: Extinction Rebellion be damned. It would show that the Government is listening to the fact that they’ve had enough of being patronised and want to live their lives the way they choose. After three years of squabbling over Brexit, I imagine there’s a few Brits out there in need of a hard earned pint and a family holiday to Malaga — they’re not to be sneered at, but cheered.
These policies would be transformative for Britain and be the rocket under the economy that voters so desperately want to see. Right across the country millions of Brits would have the first impression of the new Chancellor seared into their memory as a visionary that has their back at the time they need it most.