John Baron is MP for Basildon and Billericay.
Early March will see Rishi Sunak deliver this year’s Budget at an important juncture. A huge financial blackhole courtesy of much-needed Covid support packages presents stark choices.
If the left-leaning preference for higher taxes, and therefore slower growth, is to be avoided then the right savings need to be made to fund deserving causes.
He will not be short of suggestions – this piece is yet another suggesting the previously unthinkable, and that the culling of various white elephants would leave plenty of firepower in the Treasury’s coffers, with change to spare.
Even before the pandemic, talk of the budget deficit shrinking could not conceal the inconvenient truth that the UK (and developed world generally) was adding to its already enormous debt pile. The interest payments needed to service this debt totals more than the entire spending of some Government departments, including the Ministry of Defence.
Short of a globally-coordinated debt amnesty, this is a time for bold decisions if the country is to break free of the ‘Alice in Wonderland’ world of quantitative easing – which distorts prices and incentives, and stores numerous troubles. So what of the previously unthinkable should the Chancellor consider?
Cash should be banished. It is difficult to measure the extent of the black market but, given the apparent prevalence of cash transactions for work undertaken which is not declared to the taxman, it could be considerable. A significant one-off lift in the country’s GDP would result, and this would be followed by consistent increased tax returns thereafter. Technology now allows us to pay for everything, no matter how small the expense. If petty cash is deemed necessary, then only allow coinage in circulation.
Next, the myriad of quangos which has grown unchecked over recent decades needs be culled. Analysis from the Taxpayers’ Alliance suggests that tackling the web of quangos and related public bodies could save a significant proportion of the £206 billion these bodies currently cost in total. Even a modest reduction would save many billions.
Every new government boasts of plans for a ‘bonfire of the quangos’. With an 80-seat majority, now is the time to finally light the kindling.
In addition, as a long-term sceptic, I again urge the Chancellor to scrap High Speed Two. Advances in telecommunications which enable people to work as productively on the move as at the office have rendered it redundant, and the growth of home working during this pandemic should be the last nail in the coffin. Last year’s Oakervee Review stated that £9 billion has been spent so far, of which between £2-3 billion should be recoverable through land and property sales. Together with wind-up costs, this could result in savings of up to £80 billion – and perhaps more if cost estimates keep rising.
We should also explore whether to tax profits on home sales, or increase Stamp Duty, while ensuring fairness for those starting in life. This would also help to reduce income inequality over time.
Recent research by the Stockholm School of Economics explored why the ‘rich keep getting richer’ by measuring the performance of different income groups – such surveys being the most reliable globally because they report on total wealth, including house values. It found the top households did much better than the median not because of better investment strategies but because they could afford to take on more risk courtesy of, for example, a managed portfolio of different assets which has performed better than house values over time.
Such a tax would help to level the playing field between different types of investment, provided government also encouraged investment in pensions and ISAs.
This policy should be complemented by a significant reduction in taxes for a more productive part of the economy – the corporate sector, especially for smaller businesses given they tend to be more dynamic and employ more people. This would give entrepreneurs a welcome shot in the arm as well as attract further inward investment. We should not forget Donald Trump did not get everything wrong – his decision to slash corporation tax from 35 per cent to 21 per cent contributed to record tax receipts flowing into US government coffers.
Indeed, the Government should consider reducing taxes more generally. Evidence worldwide, as illustrated by the Laffer Curve, reminds us how tax reductions can increase the overall tax take – George Osborne’s cut of the top rate of tax raked in far more than Gordon Brown’s 50 per cent rate ever did. It also leaves more money in peoples’ pockets to spend as they wish.
The Chancellor should also use our new-found status and freedoms outside the EU to our advantage. If not already done, he should commission a wide-ranging review as to the new opportunities. Many of us suggested improvements to financial regulation during the recent passage of the Financial Services Bill, but there are many others. We should ensure our nimbleness outside the juggernaut of EU regulation is distinctive – our stealing a vaccine march on the lumbering EU shows what can be achieved.
As such, in addition to funding tax reductions, the Chancellor should increase still further the National Living Wage, and to keep increasing it well above inflation in the years ahead. This will boost the take-home pay of the lowest paid and make work more financially rewarding, while businesses would be compensated by the cuts to corporation tax. Together with a controlled immigration policy, it would also encourage higher research and development and so help productivity. Personal allowances should also be consistently increased ahead of inflation.
The Conservative Party is nothing if it does not deliver its One Nation agenda – a strong economy being a means to an end to better help those less fortunate. Such a policy would serve to reduce the state’s role in individual’s finances and reduce bureaucracy over time. It should also assuage concerns about any political fallout from placing higher taxes on residential property, if properly presented.
In pursuing the agenda, the Government should always aim to ‘level up’ rather than down. Otherwise, enterprise and entrepreneurship, key ingredients of a prosperous society, will wither and we will be the poorer for it. As such, it should consider spending even more on encouraging emerging technologies (such as artificial intelligence, robotics and fintech), renewables, and other innovations to ensure British businesses remain at the cutting edge of new developments.
A global Britain requires a vision not confined by the failed policies of the past. It is important to take the right turn at this juncture, as economic prosperity is the best way of moving the country on from the Brexit debate. It is also the best way of reducing the debt pile over time.
Some of these policies would be best introduced during the early period of an administration which boasts a strong majority – so this is the time for Sunak and Boris Johnson to step up.