The government may think slashing Income Tax or National Insurance will win votes, but boosting growth and restoring the UK’s reputation as a stable place to invest should be the priority, says John Dickie
Governments are always tempted by pre-election tax cuts – particularly when the electoral terrain looks very difficult.
With taxes heading towards a post-war high under a government nominally committed to low taxation, it is understandable that many Conservative MPs fighting to hold on to their seats are urging the Chancellor to use next month’s Budget to cut taxes and help them on the doorstep.
Depending on who you ask, income tax, national insurance and inheritance tax cuts look to be the strongest candidates to put a little more of people’s money back in their pockets in the run-up to the election.
But with the economy now in a technical recession, government debt rising and public services severely squeezed should cuts to personal taxation be the immediate priority for Britain’s economy? Particularly when the modest fiscal headroom that will enable the Chancellor to make them is predicated on future public spending levels which are widely seen as unsustainable – whoever wins the election.
After all everyone agrees that what we really need is to boost the UK’s flatlining economic growth if we are to fund our public services sustainably. And virtually everyone agrees that this means effective partnership between the Government and the private sector to deliver the investment and innovation required to revive the UK’s fortunes. So, what does business need to help boost growth, improve productivity and hence create the headroom for sustainable choices on taxation?
Restoring the UK’s reputation as a stable place to invest and do business must be the key priority. Our economy has experienced a very substantial series of shocks in the past decade. Some – the tragedies of the pandemic and the war in Ukraine – are global phenomena. Some – Brexit, the 2022 mini-Budget and U-turns over key public investment priorities such as HS2 – are of our own making. Taken together, they have shaken confidence in the quality, predictability and consistency of government decision-making. Adding to uncertainty through tax cuts which are likely to be reversed, one way or another, after the election won’t help.
What would help is a laser-like focus on reforms which will improve our performance and competitiveness.
The Chancellor’s decision to review the impact of the ‘tourist tax’ is a great example. BusinessLDN has been campaigning to restore VAT-free shopping on goods bought by visitors because this would boost jobs, growth – and tax receipts. The amount lost would be outweighed by more visitors coming here, and their spending on hotels, restaurants and so forth across the country – rather than in France, Spain or Italy. We need the Government to embrace this kind of dynamic thinking to get our economy out of the doldrums.
Other measures that could unlock private sector investment include reviewing London’s green belt to unlock poor-quality parts for desperately needed housing; providing Transport for London with the certainty of a multi-year capital funding deal to support its supply chain around the country as well as in the capital; and reforming the apprenticeship levy to deliver the skills that business so desperately needs.
The Spring Budget presents the government with an opportunity to show their consistency and commitment to growth. Let’s hope they seize it.