No dramas please, Chancellor!

ONCE upon a time, the spring Budget was high theatre. The battered red box, the extra pennies on petrol and cigarettes, the earnest stuff from Gordon Brown about ‘prudence with a purpose’, the self-congratulation about the health of the economy... all the stuff that now with hindsight seems a bit absurd.

So it is rather a relief that next week’s Budget is now downgraded into a ‘spring statement’ and is really just an update on what is happening to the country’s finances.

Unfortunately, there is an alternative spur to political theatrics, the drama of Brexit. So we will get a ‘This will be the plan if there is a deal’ and a ‘This will happen if there isn’t’ message.

But – and this is the big point – either way there will be money to spend or taxes to cut. The Government’s finances are pretty much fixed. Thanks to strong tax revenues, the deficit will be close to £20billion. In an economy of more than £2trillion, that is around 1 per cent of GDP, the lowest in the G7 bar Germany (which is running a surplus), and maybe Canada. Given that there is some sort of slowdown happening in the world economy, the Chancellor would be wise to keep something back. But now is one of those rare chances to make serious improvements to the tax/spending mix. That is the real challenge for Philip Hammond. Yes, Brexit matters in the short run. Sensible spending and sensible taxation matter in the long.

Everyone will have their own tally of runners and riders. On the spending side there has to be more money for law and order and for schools, two current big political concerns. But spending has to be wise. As for the tax side, I would put simplification at the top. Anyone who has done a tax return will be aware of the extraordinary complexity of the system. We have had an Office of Tax Simplification since 2010, but also manage to have the longest tax code in the world. If there is scope for cutting taxes, which there will be, use it to get rid of complex taxes that don’t bring in much money anyway.

None of this is new. Take these two quotes by finance ministers, one on spending, the other on taxation. William Gladstone, who was Chancellor of the Exchequer in the 1880s before he became Prime Minister, declared that a Chancellor ‘was not worth his salt if he was not prepared to save what are meant by candle-ends and cheese-parings in the cause of the country’. In other words, you don’t spray money around on grandiose projects.

On taxation, it was JeanBaptiste Colbert, finance minister to King Louis XIV in France, who remarked that: ‘The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing.’ Please, Mr Hammond, think of candle-ends and of geese when you stand up and address the House on Wednesday.

ONE good example of the right way to direct Government spending is support for new technologies. One of the really interesting initiatives that the Government is making is in the gaps in the motor supply chain: battery and electric motor technology. The UK makes a lot of internal combustion engines: some 2.7million a year, compared with 1.5million cars. It seems inevitable that there will be a rapid global shift to electric vehicles. That leaves the country’s motor manufacturing business especially vulnerable.

Talks are going on now to see how public money can smooth the shift to electrics. The UK will not have the advantage of scale, nor realistically will Europe, for scale will be in Asia. (Half the world’s electric cars are sold in China.) But it could carve out niches in electric motor technology, and that is where public money should go to support.

Spending has to be wise...tax should be cut – and made less complicated

CASH is on the way out, as anyone who buys a coffee with a touch card knows. But what happens to those who, for whatever reason, don’t have cards or don’t want to use them?

Philadelphia has just become the first city in the US to insist that all its retailers accept cash, and it is doing so on social grounds. Lower income groups and immigrants are more likely to use cash.

Time to think of that here?