By Tim Montgomerie
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There's a week to go until the Budget and I want to revisit my recommendation that George Osborne delivers a shock-and-awe package of tax cuts.
The Chancellor should set himself seven overall objectives in the Budget:
- First he must not deviate from his deficit reduction goal. This means that all changes to tax must be self-funding. Some readers believe, like Arthur Laffer, that some tax cuts pay for themselves. Others (including myself) believe that tax cuts have fructifying effects but are not usually self-financing. What we believe doesn't matter much. Osborne (and Liberal Democrats) does not believe in Laffer or significant fructification. Nor does the Office of Budget Responsibility.
- He should cut spending more so that he can afford lower taxes. Throughout last week ConservativeHome teamed up with five of London's think tanks to outline something like £50 billion of possible spending cuts – some measures were more realistic than others. On Saturday Paul Goodman listed a very deliverable £10 billion package of further spending reductions. I think with a few tweaks that number could comfortably rise to £12 to £15 billion.
- Osborne doesn't need to overshoot his Budget target. January's data confirmed he was beating his deficit reduction goal by about £5 to £7 billion (Guardian and City AM). That money should go into the tax cut pot.
- He must enhance his tax cut pot by cracking down on tax dodgers. As Boris Johnson argued last week it is indefensible that super-rich foreign businessmen are evading stamp duty in Britain. Closing the stamp duty loophole and further action against avoidance could net another £2.5 billion for the Chancellor.
- He should ask people living in very large homes to pay a bit more into the Exchequer. Many people got very wealthy during Brown's boom years by simply owning property – especially in London. Those people should make a greater contribution to the nation's finances. As The Times argued in a powerful leader (£) last Wednesday we should tax wealth more and wealth creation less. This could be done by new, higher council tax bands and perhaps a special Capital Gains levy on house sales with a large value. Of the measures in my list this would not raise the most (perhaps £2.5 billion) but it would be the most politically sensitive. In a way I hope it would be politically explosive. I want a row. I want the Tory leadership to have its Clause IV moment. I want Cameron and Osborne to stand with the striving classes and against those who think the Conservative Party should be defending people with £2 million homes – bought for £500,000. That wasn't wealth creation but people who benefitted from a rigged property market. I'd trade a tax on property (which can't flee overseas) for reduced taxes on wealth creators (who can) any day of the week. I don't recommend that these property owners should have all or close-to-all of their capital gain taken from them. Of course not. But they should make a bigger contribution and there would be a powerful south-to-north and old-to-young redistribution effect here, too, as well as wealthy-to-working.
- Osborne should own his own specific tax cutting agenda and it should be targeted on strivers and business. By not making his own big speech on tax priorities the Lib Dems have been able to set the terms of the debate on tax. The Lib Dems own the £10,000 threshold policy despite the best efforts of some to prove that Tories have long argued for it. The public, however, are only likely to remember what Osborne announces on Budget Day. If he's big, bold and distinctive enough noone will remember what Nick Clegg and Lord Oakeshott argued about in Gateshead.
- He must announce a radical set of growth measures on regulation and infrastructure. I'll return to this final point on Wednesday.
In total my measures would give George Osborne something like £20 billion to £30 billion to spend on tax relief. It could include privatisation proceeds, too, for example of roads. The bulk of this money should go to the striving class. The people running out of money at the start of the month, not the end. People who will be worse off than their parents. People who can't afford to fill their petrol tanks. And, yes, people who wonder if the Conservative Party is on their side.
My very-back-of-the-envelope calculations suggest that this would give Mr Osborne enough revenue to immediately raise the starting income tax threshold to £10,000; cut 2p off the basic rate of income tax; introduce a tax break for married couples (more pro-poor than raising the threshold); freeze council tax for two more years; cut 3p off petrol duty; immediately fulfil the Chancellor's corporation tax mandate; avoid the need to take child benefit from 40p taxpayers; and abolish the 50p tax rate*.
There are economic debates about Keynesianism versus fiscal conservatism; about supply-side reform versus austerity… but there is also the economics of animal spirits and confidence. This would be a Budget that proved Osborne was determined to shake things up to help the British economy and every hard-pressed breadwinner. It's the kind of tonic Britain PLC… and the Conservative Party needs.
* Only within such a very big package of measures could abolition of 50p be contemplated.