We need bold thinking on post-brexit taxes

Philip Hammond, the Chancellor, seems determined to ensure Brexit is accompanied by financial pain for the country. Just last year he told a German newspaper that when the UK left the EU it could become an offshore, low-tax economic powerhouse on the Singaporean model. Now he is letting it be known that a no-deal departure will mean fiscal retrenchment, even though the public finances are in a better state than for years. Indeed, even an agreed withdrawal that finds favour in Parliament will almost certainly entail tax rises because Mr Hammond has to find some £20 billion promised to the NHS and the first chunk of the £39 billion committed to the EU.

The Chancellor indicated yesterday that one source of revenue will be fuel duty, which has been frozen for eight years. He told MPS the policy must be “looked at again” – a certain indication that it has been targeted by Treasury officials. Mr Hammond said maintaining the freeze would cost £38 billion over the next three years – “twice as much as we spend on all NHS nurses and doctors each year”.

Of course, it is not “money lost” because lower fuel prices reduce costs for motorists and businesses and benefit the economy overall by increasing activity, creating jobs and boosting incomes. Low taxes usually do as well, but this view has rarely found favour in the Treasury.

Since the Government has no Commons majority the chances of being defeated on such a measure must be high. But it is emblematic of the sort of unimaginative thinking that risks undermining, almost wilfully, the opportunities Brexit offers. It is rumoured that Mr Hammond has pencilled in his Budget for the end of October, earlier than expected, in order not to clash with the final stages of the Brexit negotiations in November. But this should be a Budget for Brexit with radical ideas. For instance, why not rethink the tax regime? Most motoring-based revenue comes from fuel duties and VAT but the greater efficiency of engines means the take per vehicle is declining. It will fall further as people switch to electric vehicles.

One alternative would be to privatise the road network and charge drivers for use on a per mile basis, removing all motoring-related taxes. Most drivers would pay less and the sale could bring in £150 billion to spend on the roads and other public programmes. Think again, Chancellor.