We have the freedom now to lower taxes and raise public spending
In an ideal world there would be a little more time to prepare. His appointment wouldn’t be surrounded by controversy. And the global economy wouldn’t be on the edge of a coronavirus-triggered downturn. When Rishi Sunak rises to deliver the first proper Budget of the Johnson administration in just three weeks’ time he might have hoped for slightly calmer circumstances.
Even so, he should ignore that. The political weather is always stormy. In truth, there will never be a better moment for bold, reforming radicalism.
If he wants to, Sunak could deliver a Budget speech that would reshape the economy for a generation. Like how?
Here are five places he could start.
First, a programme of massive simplification. Over four decades of meddling, fiddly changes, the British tax system has become a masterclass in pointless bureaucratic complexity.
It needs a brutal slimming down. In the US Donald Trump insisted two regulations were repealed for every new one passed. We should go one better – and scrap three taxes for each new one. There are dozens of minor tax reliefs, usually introduced to grab a passing headline or two for some long-forgotten autumn statement, that could be swept away. And then the Chancellor could move on to some really big ones, such as abolishing inheritance tax, merging tax and national insurance, and scrapping the broadcasting poll tax (otherwise known as the BBC licence fee).
Second, cut taxes. Our biggest problem is that we have too many taxes that clutter up the system, and
get in the way of rational decision making. But the second biggest problem is that taxes are simply too high. When we cut capital gains tax, revenues went up, and corporation tax has been steadily reduced with no loss of revenue. There are plenty of taxes we could still cut, and more money would come in. Such as? Reducing the top rate of tax would almost certainly boost revenues. And so would cutting corporation tax to 10 per cent, making it the lowest rate in Europe, not least because it would create a massive boom in investment.
Third, let the regions flourish. A campaign to level up the regions with London and the South East is absolutely the right thing for a Conservative government to do. It will spread wealth around the country, reduce the dependence on London and raise living standards for everyone. Targeted public spending is part of that. But the real solution is to encourage businesses to move into and expand in areas such as the North East and Wales. Scotland and Northern Ireland already have their own taxes, and Switzerland varies its taxes by canton, so why not the English regions as well? A zero rate of corporation tax, or lower National Insurance charges, would draw companies into those areas at hardly any cost to the Treasury – and it would create a far less centralised country as well.
Fourth, promote enterprise. Even if no one has really noticed, the UK has become a far more entrepreneurial country in the last 20 years, with record levels of start-ups. And that is without any real help from the Government (and a lot of pointless regulation getting in the way). If we actually encouraged entrepreneurs we could do even better. In the US, Trump has made a huge success of tax-free enterprise zones, often just covering a few blocks of an otherwise prosperous
city. We could easily copy the success of that. At the same time, we could give tax breaks to micro-enterprises – that is companies with fewer than 10 staff – to help them through the difficult transition from start-up to stable employer. In the medium term, it will more than pay for itself.
Finally, spend and spend. After 10 years of first a coalition and then a Conservative government, the public finances are back in respectable shape.
There is absolutely no sign of interest rates going back up to the five or six per cent levels that used to be normal. The result? A developed country with a stable government and its own central bank can borrow quite a bit more than we used to think was possible. Deficits of three to four per cent of GDP are not going to turn us into Venezuela and there is no point in pretending they will.
The Chancellor should ignore the ingrained caution of his Treasury officials, and borrow more than planned. The money should be used to finance tax cuts, which will pay for themselves within a few years, as well as higher public spending, especially on health, social care, and a massive programme of infrastructure spending.
The Government has a huge majority. The Opposition is in disarray. It has liberated itself from the shackles of the European Union. The moment is surely there to be seized – if Sunak is willing to be bold enough.
‘After 10 years of coalition and then Conservative government, the public finances are back in respectable shape’