As the country slips into recession, leading experts told the Daily Express the Chancellor may have still enough headroom to knock £20billion off the collective tax bill and should take further measures to boost the country. Here are their suggestions to get the economy growing again.
Julian Jessop is a fellow at the Institute of Economic Affairs, is calling for a raising of income tax thresholds, a cut to stamp duty, inheritance tax and the tourism tax. He writes:
The amount of headroom we actually have for tax cuts is little more than guesswork.
The Office for Budget Responsibility’s estimates are based on speculative forecasts, incomplete modelling and arbitrary fiscal rules.
A bolder Chancellor would scrap this framework and start again, but that’s not going to happen. We are, therefore, stuck with “abacus economics”.
Rather than cut an existing tax, Hunt’s first decision is whether to cancel a planned tax hike. The OBR assumes an extra £6billion from the Government’s stated policy of increasing fuel duty in line with inflation and the reversal of the “temporary” 5p cut.
Extending the current freeze would eat up a big chunk of the Chancellor’s £20billion headroom.
Which other taxes to cut depends on what he is trying to achieve. If the aim is to boost spending, the support should focus on poorer families.
Hunt could either raise thresholds to take more people out of income tax altogether, or cut National Insurance contributions on lower wages.
If this is more about improving the “supply side” of the economy – the incentives to work, create jobs or invest – tax cuts should target the high marginal rates faced by many other households, and the rising burden on businesses.
Stamp duty, inheritance tax and the “tourism tax” should all be on the chopping board, too.
Darwin Friend, research director at the TaxPayers’ Alliance, wants cuts in income tax, stamp duty and inheritance tax. He says:
After 14 years and seven Chancellors, the Tories risk going to the country with a record high tax burden.
They have few opportunities left to be bold and change direction. But what should they do with this limited time?
The first priority has to be a cut to income tax, which is something we have been campaigning for.
Workers desperately need a break. Cutting 2p off National Insurance, announced on January 6, was a positive. However, with tax thresholds frozen, it’s giving with one hand to take with another.
Lifting those thresholds and taking a penny off the basic rate would make a difference. It would also incentivise work, which is vital given the numbers currently not in employment.
Secondly, we hope that Jeremy Hunt targets stamp duty, which is one of the nastiest taxes. It doesn’t raise much in the grand scheme of things, but makes it far more costly to move.
That means people finding it difficult to downsize later in life and young families struggling to buy a place that is big enough.
The housing crisis is a major drag on the economy. Scrapping stamp duty would seriously help.
If the Chancellor really wants to be bold, then cutting inheritance tax would really put clear blue water between the Conservatives and the rest.
Passing on your wealth to your children is one of the most natural human instincts.
We should bear in mind this is the money that is left after all the other taxes an individual pays throughout the course of their life.
READ MORE: Be bold, Jeremy. Britain needs a tax cut NOW
Patrick Minford, professor of applied economics at Cardiff Business School, Cardiff University, is calling for cuts in corporation tax and income tax. He writes:
Growth must be the Chancellor’s focus in his upcoming budget. To get that, he must cut taxes, especially on entrepreneurs.
That means cutting corporation tax and the high marginal tax rates on income now stifling incentives to innovate and so raise productivity and growth.
Economic theory is clear on this: innovation requires effort and risk and to spur it on, profits must result from it.
Tax on this profit and burdensome regulation that increases the cost of change will then reduce innovation, as it is now doing, quite contrary to the announced intentions of this Conservative Government.
There is much evidence backing this basic theory. We saw how former Prime Minister Margaret Thatcher’s reforms boosted growth.
Hunt has shown that he understands the importance of lighter regulations, as his
Edinburgh reforms aim to unlock investment and turbocharge growth.
Now he must show he also understands the need for lower tax rates.
Currently, the prospects for long run growth are dire.
This is depressing for people’s hopes and implies steadily worsening public finances.
That is the great irony of the short-termist fiscal rules that have been used to drive up taxes.
They have destroyed the prospects not just for growth, but also for bringing down the public debt in the long term.
Without growth, tax revenues will stagnate and be overtaken by rising public spending.
Douglas McWilliams, deputy chairman at the Centre for Economics and Business Research, and co-chairman of the Growth Commission, wants corporation tax to be cut and the tourist tax to go. He explains the benefits.
Three years ago, when Covid was largely over, the Government was planning to spend £1.07billion in the 2024/25 financial year. By last November, this had shot up to £1.24billion.
The biggest single cause of higher spending has been lack of productivity.
Official figures show that UK public services are 7% less productive than they were before Covid.
This cancer of inefficiency in public services is undermining not only the services themselves, but is starting to infect the productive part of the economy through high taxes. In his Budget, Mr Hunt needs to reverse this process and set budgets for a more productive public sector.
This would give him money to reverse his rise in corporation tax to 25% and bring the rate down to an internationally competitive level of 19%.
The growth generated will create scope for further tax cuts, to cut income tax and inheritance tax. If Mr Hunt gets rid of the hated “tourist tax” as well, he will actually gain extra growth and revenue in a win-win boost to the flagging hospitality sector.
Karl Williams, research director at think tank the Centre for Policy Studies, wants stamp duty axed for all houses under £1million. Here’s why he thinks it’s so vital.
It remains unclear how much wiggle-room the Chancellor will have to cut taxes in the Budget.
But if his room for manoeuvre is squeezed, Jeremy Hunt should prioritise scrapping stamp duty for all houses under £1million. The current “holiday” on stamp duty is due to expire in March 2025, but we need more than an extension.
HMRC believes that scrapping this levy on housing sales would cost the Treasury roughly £4.6billion in lost revenue in 2025/26. However, the move would have large economic and political benefits to offset that. If the Chancellor has headroom for tax cuts, this would be a good way to use it.
Stamp duty is a very unpopular tax, paid by home buyers. It is a barrier to people trying to get on the housing ladder.
It is also a source of friction within the housing market, resulting in fewer homes being bought and sold overall.
This means people looking to expand struggle to upsize and older people, whose children have left home, don’t downsize, even if they want to do so.
If you want to move cities to be closer to better-paid work, you can’t do that either.
Overall, stamp duty holds back economic growth, people’s wages and the formation of families.
Scrapping the tax and boosting sales would also send a positive signal to housebuilders about the demand for new houses.
While no substitute for systematic planning reform, it would at least boost housebuilding, which is falling far short of the hundreds of thousands of new homes we need each and every year – even without current record levels of net migration.
Home ownership is a key part of family life in modern Britain.The Chancellor should use the Budget to show the Tories understand the aspirations of millions of potential Conservative voters.
