Conservative Conference 2021: Swallow tax rises now and low tax agenda will return, promise ministers

13 Oct 2021

Chancellor Rishi Sunak defended his tax rises to the Conservative Party Conference, placating members with a promise that tax cuts would be introduced once the public finances have been put back on a sustainable footing. In a remarkably policy-light conference there were calls on the conference fringe for reform of property and employment taxes.

Contents:

Chancellor vows to do ‘whatever it takes’ to fix public finances...
… as party moans over tax rises mostly fails to materialise
Chancellor defends National Insurance increase
Still the party of low tax and small government?
A secret deal for pre-election tax cuts?
Ministers under pressure ahead of business rates review publication
Support for reform of residential property taxes too…
… But not for a wealth tax
Reforming personal tax and employment tax
International corporate tax – support for global minimum tax rate
Getting to net zero – carrots preferred to sticks amid concern over backlash
Business in the firing line over low wages and imported labour
New ideas for gig economy and other insecure workers
Financial services – cuts in bank surcharge anticipated
Universal credit and ideas for helping low income households
‘Levelling up’ – what does it mean for tax?
Conference News in Brief

Chancellor vows to do ‘whatever it takes’ to fix public finances..

Chancellor Rishi Sunak put fiscal responsibility at the heart of his conference platform speech, telling party members that he knows tax rises are unpopular, but he would - in an echo of then-ECB President Mario Draghi’s famous 2012 commitment to preserving the euro - do ‘whatever it takes’ to fix the public finances.

The Chancellor acknowledged that some consider tax rises un-Conservative. However, he charged, what was really un-Conservative was “unfunded pledges, reckless borrowing and soaring debt.” “Anyone who tells you that you can borrow more today, and tomorrow will simply sort itself out just doesn’t care about the future,” continued Sunak. “Yes, I want tax cuts. But in order to do that, our public finances must be put back on a sustainable footing.”

Earlier in his speech the Chancellor had launched an even more stinging attack on high borrowing, saying that “borrowing more money and stacking up bills for future generations to pay, is not just economically irresponsible, it’s immoral.” Sunak told party members he cared about what works rather than ‘the purity of any dogma’, summing up his outlook as pragmatism, fiscal responsibility, a belief in work, and an ‘unshakeable optimism’ about the future.

In the conference’s only economic policy announcement, Sunak said he would continue the Plan for Jobs into next year, at a cost of £500 million: “The Kickstart scheme extra support through the Youth Offer, the Job Entry Targeted Support scheme, and our Apprenticeship Incentives. All extended because we believe in the awesome power of opportunity.”

Prime Minister Boris Johnson also defended the Government’s tax increases in his own conference speech, asking: “does anyone seriously imagine that we should not now be raising the funding to sort [NHS problems] out? Is that really the view of responsible Conservatives?”

In an interview with the BBC's Andrew Marr Show three days earlier, the Prime Minister said there was “no fiercer and more zealous opponent of unnecessary tax rises” than himself, “[b]ut we have had to deal with a pandemic on a scale which this country has not seen before in our lifetimes and long before.” “We don't want to raise taxes, of course we don't, but what we will not do is be irresponsible with the public finances,” he added.  

Sunak is expected to set out new fiscal rules in this month’s Budget, ending borrowing to fund day-to-day government spending.

… as party moans over tax rises mostly fails to materialise

Going into the conference there were predictions that members’ anger over tax increases would boil over and result in angry exchanges. In the words of the Politico website: “If there was a moment for Tories unhappy with the government’s manifesto-shredding tax hike to provide a funding boost to the NHS and social care, this should have been it.” But it did not happen. This is largely down to the high standing of the Prime Minister and Chancellor within the party, and trust that their instincts genuinely are, as they maintain, to cut taxes as soon as they responsibly can.

The underlying hostility to tax increases within the party should not be underestimated. In early September the Daily Mail reported a Conservative ‘insider’ claiming of the National Insurance Contributions (NICs) rise: “I’ve seen it reported that five Cabinet ministers are opposed to the idea. The truth is you would struggle to find five of us who are in favour”. Three former Conservative chancellors — Philip Hammond, Kenneth Clarke and Norman Lamont — have all come out against the increase. Former minister Steve Baker told the Sunday Telegraph (also in September): “Of all the ways to break manifesto tax pledges to fund the NHS and social care, raising NIC must be the worst.” And there is vocal opposition from traditionally Conservative newspapers, with The Sun, for example, accusing the Government of “hammering workers”.

Nevertheless, party unity was more or less maintained during the conference, with what criticism there was mostly coded and framed in terms of the need to avoid further increases and to seek tax cuts sooner rather than later.

New Foreign Secretary Liz Truss, for example, told the BBC: "We need to keep the tax burden low", but did not directly criticise the increases made to date. Business Secretary Kwasi Kwarteng said: "I don't believe we can tax our way to wealth”.

Her fellow cabinet minister Jacob Rees-Mogg, speaking at a TaxPayers’ Alliance Question Time on the opening day of conference, told the audience that the UK is “effectively at the upper reaches of the reasonableness of the tax burden…we are at the limit of what tax can raise”. Maintaining that the Conservatives were still the party of low tax, he reminded the audience that the first Thatcher government (1979-1983) had increased taxes as part of its programme of economic recovery, cutting them significantly after the 1987 election. Rees-Mogg was pressed to share his thoughts on the NIC decision amid rumours he had spoken up in Cabinet against the measure. “I’ll tell you in 30 years”, he said, adding that Cabinet discussions should remain private and confidential.

A number of backbench Conservative MPs acknowledged the necessity of the government’s decision to increase NICs, but spoke of their frustrations at the policy, with Bassetlaw MP Brendan Clarke-Smith telling a different TaxPayers’ Alliance event that the vote was “the single most difficult thing for me as a Member of Parliament to support”. Ben Bradley MP (Mansfield) added that he “didn’t know” whether increasing NICs was the right thing to do, but that the understood the government’s rationale: “The public’s perception is that NI funds the NHS”.

At a Centre for Policy Studies (CPS) event on tax and inflation, one young party member questioned the government’s decision to increase NICs and freeze income tax thresholds, warning that – alongside student loans – it represented an attack on the young voters who will form the Conservative Party’s core vote 10 to 15 years from now. Jesse Norman, until September Financial Secretary to the Treasury, was philosophical in his response. He said that the government’s tax policy “doesn’t present itself well” but that, over time, the benefits of government policy in the form of education and better public services, would give this generation the tools to “aspire, build and learn”.

Chancellor defends National Insurance increase

The Chancellor was challenged to explain his decision to increase NICs at a fringe event hosted by the Taxpayers’ Alliance and the Institute for Economic Affairs (IEA), on the day after his speech in the main hall.

Rishi Sunak said candidly that ‘there were not many places to go’ for the Government to raise the money required for the NHS to catch-up on its work and ‘there is no easy way to raise taxes’. His view was that VAT is already high and there is no traditional link that VAT pays for public services. In contrast, when NICs was established it was to fund health care.

The Chancellor said that hypothecated amounts of NICs go to the NHS already and it would have taken a couple of years to set up that sort of system for income tax. He argued that a rise in NICs spreads the burden between an employer and employee. He also said that NICs is a UK-wide tax while income tax is partly devolved. He said the Health and Social Care Levy would be paid by everyone and that the Government has increased the dividend tax rate to ‘widen sources’.

Sunak suggested it was important to keep a lid on spending before thinking about tax cuts. He explained repeatedly that the Government wants to deliver on its ‘ambitious’ manifesto, which includes spending on education, skills and the PM’s ‘levelling up’ agenda. When pressed by the questioner on whether ‘high’ taxes were to blame for sluggish growth rates in the UK in the years before the pandemic, Sunak retorted that many countries had the same experience and not all have increased taxes in that time.

The view that high taxes will depress economic activity is shared by significant number within the party. Writing in the Daily Telegraph the day before the conference began, former cabinet minister David Davis said that: “Raising taxes beyond a certain point - and we have reached it - just does not work”. He praised the policies of Nigel Lawson, who cut tax rates and increased the tax take. “With higher taxes, people in general work less hard and for fewer hours. As for the well-off, they just hire more and better tax lawyers”, argued Davis.

Still the party of low tax and small government?

Despite recent developments, which put the tax burden on course to reach its highest level since 1950, most Conservatives, from the Prime Minister down, maintain they are still the party of low tax – or at least of lower tax than Labour would impose. After the unprecedented economic interventions of the past 19 months, there are increasing calls for a return to less active, smaller government. These objectives may be harder to achieve than they think.

Speaking at a Centre for Policy Studies event at the conference, the former Financial Secretary to the Treasury Jesse Norman said that he was immensely proud at the efforts of HMRC and the Treasury to stand up economic support measures at short notice last year. But the time had come to “nudge and press the economy back to a new normal”.

At a TaxPayers’ Alliance event provocatively titled ‘Are the Conservatives now the party of high tax and spend?’ Ben Bradley MP described himself as a “low tax, small government” Conservative and said that he recognised the necessity of the government’s interventions during the pandemic. But he said that the party now needed to return the country to fiscal normality.

At the same event, another MP, Brendan Clarke-Smith, said he wants the size of the state to be “as small as possible”, telling the audience: “we can’t tax our way to responsibility”. He too acknowledged the scale of the challenge presented to the government last March and the need to respond, describing the furlough scheme and other pandemic support measures as “things I never could have seen myself, as a free market libertarian support, but they were right’”.

At a separate event, Sir Graham Brady, chair of the 1922 Committee of backbench Conservative MPs, said that ministers need to set out a plan to cut taxes well before the next election, otherwise the party’s reputation as a low tax party would be under threat.

Shortly before the conference, Mel Stride, chair of the House of Commons Treasury Committee, encouraged the Government to consider reversing recent tax increases before the next election. "I don't want us to be a party and a government that is putting up taxes, particularly on business,” he told the Daily Telegraph, adding that tax increases getting in the way of investment, employment and growth should be the focus.

A prominent commentator, Andrew Neil, asked in the Daily Mail ahead of the conference whether this was “really a Tory government in any recognisable sense, given its enthusiasm for big government and the inevitable high taxes that go along with it”. Neil said Conservatives who think there is still time to cut taxes before the next election “are in denial”, with further tax rises likelier.

Another commentator, Kate Andrews, the economics editor of the Spectator, said on the conference fringe that it was no longer credible for the Conservatives to define themselves as the party of low tax and that ministers face a “real threat” this winter as the cost of living increases. Andrews has also detected a shift in the party’s messaging, presenting itself in contrast to Labour as the “lower” tax party. This came as a Sunday Telegraph/TaxPayers’ Alliance poll found that 34 per cent of voters trusted Labour to keep taxes low “for people like you”, compared with 31 per cent for the Conservatives.

There was better news for the Government in a separate poll published during the conference by YouGov for The Times, which found that 64 per cent of the public said they supported NICs going up for the NHS and social care, with just 23 per cent opposed. This was more popular than the alternative option put in the survey, of increasing income tax. A further YouGov survey conducted the day after the conference finished found that the Conservatives are now considered more likely to raise taxes than Labour. 64 per cent of respondents thought the Tories would raise taxes if they won the next election, while 56 per cent thought that Labour would. The public are about as likely to say the government is taxing too much (28 per cent) as too little (26 per cent), while 19 per cent think they’ve got the balance right.

A secret deal for pre-election tax cuts?

A
Sunday Times story published on the first day of the conference claimed that the Prime Minister and Chancellor “have struck a secret deal to cut taxes before the next general election in exchange for spending restraint now.” The paper reports that the PM has agreed that new spending in this autumn’s spending review must be matched by cuts elsewhere or tax rises to pay for it, rather than letting government borrowing rise further.

A ‘senior figure in government’ is quoted as saying that the Prime Minister “has seen that there is a potential political benefit to keeping a lid on things now. Both Boris and Rishi want an election war chest. They both want to show voters that Conservatives are a tax-cutting party.” The paper reports that Rishi Sunak has been telling Tory MPs that he will have room for tax cuts later if they back his calls for fiscal restraint now.

The same article also reports unnamed Treasury officials as saying that the Budget will contain “little in the way of meaningful tax changes, since the social care levy is the main financial announcement of the year.” Separately the Financial Times has also reported that Sunak has promised colleagues that his October Budget will be ‘a modest affair’.

According to reports the ‘joint economic unit’ serving No.10 and No.11, whose setting up in early 2020 prompted the resignation of Sunak’s predecessor Sajid Javid, is now firmly under the Chancellor’s control, strengthening his power base.

Ministers under pressure ahead of business rates review publication

Expectations are growing ahead of the
Treasury’s fundamental review of business rates (expected to report on Budget day). At a packed TaxPayers’ Alliance event on the future of the High Street, Paul Scully, minister for small businesses, said that the review would “hopefully be as fundamental as it says on the tin”.

Scully told the meeting that business rates were “predictable” and “stable”, providing the Treasury with a “very big singular tax take for the chancellor”. As a result, this had made them difficult to reform. Former minister Jake Berry agreed with this assessment, but he said it was “lazy government”, describing the business rates regime as “an analogue tax in a digital age”.

Berry – chair of the party’s Northern Research Group – would ultimately like to see the regime abolished but, in the meantime, called for reforms that would make it easier for cash machines to be situated on the high street (they are currently subject to separate ratings from the properties they are located in) and for the introduction of an online sales tax (one of the options in the business rates review) to “unburden bricks and mortar businesses” and level the playing with online marketplaces that have “literally made billions of pounds in the pandemic because the high street has been closed”. A panellist from Kingfisher also backed an online sales tax.

Questioned that shoppers preferred online retail for its convenience, Berry said that if consumers want convenience, “you’ll need to pay for it”.

Scully welcomed the suggestion on cash machines, which he said helped drive a “stop and shop” mentality that benefitted high street retailers. But he called for caution on matters relating to the taxation of online businesses, arguing that online taxes needed to be “holistic” and designed to ensure that online businesses pay their fair share, preventing them from “sending their accountants and lawyers around the world to hide their money”. He added that simply bolting on a levy to online sales as an afterthought would be “playing whack-a-mole” with the tax system.

Thirsk and Malton MP Kevin Hollinrake (from the audience) floated the idea that business rates could be abolished and replaced with a 3 per cent increase in VAT. Jake Berry said he doubted whether this would be politically sellable but that he’d be prepared to make the case in parliament.

Support for reform of residential property taxes too…

Two Conservative parliamentarians argued for reform of domestic property taxes at a fringe event staged by liberal Conservative think tank Bright Blue and the campaign group Fairer Share.

Aaron Bell MP
is one of eight Conservative MPs signed up to the cross-party Fairer Share campaign in favour of a proportional property tax at a flat rate of 0.48 per cent on the current value of your property, accompanied by the end of council tax, stamp duty land tax (SDLT) and the ‘bedroom tax’. It will be paid by property owners, not tenants, with payment deferred for those owners unable to pay, with exemptions on second homes and undeveloped plots scrapped. There would also be an annual and automated valuation for all properties.

Bell is upset at the unfairness of council tax which leaves some people in his Newcastle-Under-Lyme constituency spending more on council tax than people living in much more expensive homes in Central London. He described SDLT as ‘a terrible, terrible’ tax that stops people moving house and forces people to ‘overstretch’ themselves financially. The Conservatives have a big majority in Parliament, which the MP suggests makes it an ideal time to reform SDLT; “If not now, when?”

Lord Willetts, former minister and current President of the Resolution Foundation, said council tax is regressive and often paid by renters, especially young people. He opined that the Conservatives have an ‘irrational fear’ of reforming council tax because of the poll tax riots. He finds it sad and strange that we tax earnings more than asset wealth such as property.

At the same event, Anya Martin, of Priced Out, said SDLT is unhelpful because it disincentivises housing transactions. Although no fan of SDLT, Sunday Times Deputy Property Editor Carol Lewis was sceptical that landlords rather than renters will pay a proportional property tax and thinks it would not help with the dearth of suitable houses to downsize into.

Andrew Dixon, founder of Fairer Share, said a proportional property tax is not intended to be tax progressive but rather ‘pro-aspirational’. He cited a new report from Fairer Share and WPI Economics which found that thousands of homes for first time buyers and young families would be freed up by scrapping council tax and reforming the property tax system. The report reveals that bringing in a proportional property tax could release up to nearly 600,000 homes in total – including more than a quarter of a million one and two bedroom ‘starter homes’. (More here.)

At a separate event the economist Dr Gerard Lyons of the Policy Exchange think-tank said the UK had some of the highest property taxes of OECD countries. Lyons would like to see a review of the UK’s property tax regime and called for the abolition of SDLT.

Is residential property tax reform likely? Notwithstanding the wariness highlighted by Lord Willetts, it is worth noting that the Prime Minister has a history of sympathy for such a move. As recollected in a Times article during the conference, when Boris Johnson was Mayor of London he was keen on a report from the London Finance Commission which recommended (among other things) “devolving the full suite of property tax revenues streams - this includes council tax, stamp duty land tax and business rates – with the ability to reform those taxes”. Johnson praised the ‘excellent report’ and promised to take the case for further devolution to the national government.

The further council tax rises which are now seen as inevitable (the only question being on what scale) are likely to push this question up the political agenda (along with whether there should be a revaluation). Local authorities claim that even with the Health and Social Care Levy there is a £2.6 billion black hole in social care and it would take a nine per cent council tax increase to fill it but the Prime Minister told Andrew Marr that he would avoid any further tax hikes “if I can possibly avoid it.”

… But not for a wealth tax

Support for a wealth tax was thin on the ground at a discussion hosted by CIOT and the Institute for Fiscal Studies.

Stuart Adam
of IFS told guests that a one-off levy would be “a very different beast” to a yearly charge. Emma Chamberlain of the Wealth Tax Commission said such a tax could be a one-off but paid in instalments over a number of years. It would be hard to avoid and unlikely, as a one-off, to drive significant behavioural change.

However Felicity Buchan – a member of the influential House of Commons Treasury Committee – argued the UK has reached the limit of what it can sensibly tax. She warned that many assets liable for a wealth tax are already subject to tax (for example, through inheritance tax, capital gains tax and council tax), that very few European countries which had experimented with wealth taxes in the past had chosen to retain them, and that a wealth tax could send a negative signal to entrepreneurs and businesses looking to invest in Britain. We should not penalise the well off, Buchan argued, saying “levelling up is about taking people up not taking them down”.

There was little sympathy for a wealth tax among audience members either, with contributions arguing that wealth taxes have failed to reduce inequality in Latin America, and expressing scepticism that people would believe politicians telling them a tax was a one-off.

At a separate fringe discussion on Conservative tax policy, another MP, Ben Bradley also spoke against the idea of a wealth tax, arguing instead that government needed to focus on cutting taxes and promoting economic growth. He told guests that he “couldn’t see any examples of wanting to increase taxes” beyond where they are at present.

Reforming personal tax and employment tax

A number of Conservative MPs floated ideas for reform of personal taxes during the conference, some of which may be more plausible than others.

Two Nottinghamshire MPs had National Insurance in their sights. Brendan Clarke-Smith argued that Brexit and the pandemic presented a “good opportunity” to start thinking about ideas such as merging income tax and NI. Ben Bradley MP said he would like to see a ‘root and branch’ review of the role of NI.

After a CapX fringe event, Bim Afolami MP told a handful of attendees that he would like to see some reduction in NICs for hiring people in certain areas of the country. He accepts that it is too complicated to have different income tax bands for different ages, to boost youth employment, even though it is something he would like considered in a perfect world.

Another backbench MP, who shall remain nameless, questioned a CIOT representative at a reception as to whether income tax and national insurance could be abolished and the shortfall made up by increasing VAT. They were somewhat disappointed by the news that this would require VAT to be at least trebled, and that this might be inflationary.

At a Spectator fringe debate on paying for levelling up, economist Arun Advani, part of the Wealth Tax Commission, called for reform of capital gains tax (CGT), arguing that it is unfair that people who do similar work are taxed differently, that it leads to mediocre owners of companies and noting that the OTS believes equalisation of CGT and income tax would raise £40 billion a year. At the CIOT/IFS event Emma Chamberlain called on the Government to set out a capital taxes roadmap and for a political consensus in favour of reform.

Back at the Spectator event IfG economist Gemma Tetlow remarked that it is better to look at the design of the tax system rather the rates. She suggested the Government look at the many exemptions from VAT.  Senior Researcher at Bright Blue Sam Robinson said it would be fairer if the Health and Social Care Levy was broadened to rent and property income.

Former Financial Secretary to the Treasury Jesse Norman told this event that he was unconvinced aligning CGT and income tax will bring in £40 billion a year because people’s behaviour will change. He also questioned the democratic consent of making a sudden alignment of CGT and income tax overnight. Another MP, Joy Morrissey, said she was against alignment of CGT and income tax because some self-employed have seasonal or infrequent pay.

Norman praised the Conservatives’ work to curb egregious tax avoidance and promoters of tax avoidance, but explained that it inevitably adds complexity to the tax system – ‘that is the trade-off’. He also explained that while economists call for equalisation of taxes for self-employed or employed, politically that will mean the Government ordering a pay rise for many self-employed people – is that a realistic political proposition? he asked them. He also claimed the Government’s speedy response to the pandemic shows the tax system works under pressure.

International corporate tax – support for global minimum tax rate

The All Party Parliamentary Group on Anti-Corruption & Responsible Tax held a fringe meeting at the conference, with the group’s two Conservative co-chairs, MPs Andrew Mitchell and Nigel Mills, among the speakers.

Mitchell aimed his remarks at the scourge of ‘dirty money’, declaring that it was ‘thunderingly embarrassing’ to Britain that we are ‘the butlers to the money launderers around the world’. However the focus of the event was on proposals for international reform of corporation tax.

There was support around the room for international action in this area, but some scepticism about the impact the current proposals will have, particularly if the global minimum rate is just 15 per cent. Mills said he had a feeling the proposals would bring in less for the UK than the Digital Services Tax we have agreed to scrap if they come in. But he thought 15 per cent was worth having and would ‘take havens out of the game’. He thought that public country by country reporting could focus business minds in relation to tax in a similar way to how public gender pay gap reporting had on pay. He also thought there was an argument all businesses should have to publish their corporation tax returns.

Ewan Livingstone-Docwra from the ‘B Team’ (a not-for-profit which encourages ethical business behaviour) said the Conservative case for a global minimum tax is that we need a level playing field for business. Sam Robinson of Bright Blue, and formerly of the Conservative Party’s Policy Research Unit, agreed and said that a level playing-field taps into the levelling-up agenda.

From the floor, George Crozier of CIOT emphasised the Institute’s support for concerted international action but said the biggest challenge would likely be in agreeing the details of any agreement - every country calculates taxable profits in a slightly different way and treatment of reliefs and allowances could be a sticking point. Mills shared this concern. Another questioner suggested the US might have too much power in the reform process. Livingstone-Docwra, however, said business welcomed the US coming back to the table, which had revived the process. There was also discussion about whether the proposal would affect Amazon (conclusion - probably not).

Ahead of the conference, while visiting New York for the United Nations General Assembly, Boris Johnson met with Amazon boss Jeff Bezos. Asked ahead of the meeting if the Prime Minister would raise Amazon’s tax record with Bezos, Johnson’s official spokesman said: “You can expect the prime minister to raise this important issue. We have been an advocate for an international solution to the tax challenges posed by digitalisation of the economy… we will very much be looking to raise that.” A statement issued after the meeting said simply: “The Prime Minister raised the issue of taxation, and hoped progress could be made in implementing the G7 agreement on tax.”

At a Spectator fringe event, former Financial Secretary to the Treasury Jesse Norman proudly said no country has taxed user content as we have done with the Digital Services Tax.

Getting to net zero – carrots preferred to sticks amid concern over backlash

Climate change and the quest to get to net zero carbon emissions were prominent at the conference, but overwhelmingly on the fringe rather than in the key platform speeches. There was particular concern among environmentalists that the Chancellor did not mention climate change in his big speech. There are no signs that tax is central to Conservative plans in this area.

In an interview with Times Radio during the conference the Prime Minister left the door open to a rise in fuel duty. He said: "We don't want to raise tax of any kind - that is not what we want to do, that is not our instinct. But what I do think we need to do is recognise that the era of relying on hydrocarbons, on oil and gas, is coming to an end. We've got to get ready for an exciting new era where we rely on clean green sources of energy."

A vocal group of Conservative backbenchers, chaired by Kent MP Craig Mackinlay, are concerned about this prospect and have set up what they call the “net zero scrutiny group”. The group believe that, “while something sensible can emerge”, the current approach is “too rapid, too uncosted and too unscientific”. The group is reported to keep in touch via a WhatsApp group comprising around 40 members.

Notwithstanding this, there was praise from Greenpeace’s chief scientist Doug Parr at a fringe event for those in the Conservative Party who have put a lot of work into ensuring climate change is not a dividing line between parties on the left and right in the UK like it is in the US, Australia and Canada.

Prominent on the conference fringe was Andrew Griffith MP, who has been appointed the UK’s Net Zero Business Champion by the Prime Minister. He told one fringe meeting on COP26 that the job of government on climate change was to set out long-term demand curves, provide pump priming (eg the net zero innovation fund) and to use government spending in ways that encourages reduced emissions.

Newly appointed energy minister Greg Hands was also active on the fringe. He said his aim was to make the energy mix more diverse. He said the UK’s record over recent decades had shown that, contrary to the claims of some environmental campaigners, you can grow the economy while cutting emissions – “going green will not make you poorer”. In response to a question about some taxes – such as VAT – incentivising non-green behaviour he said he could not talk about specific taxes but the questioner had made good points.

Ted Christie-Miller of the think tank Onward, speaking at the same meeting, advocated moving environmental levies from gas to electricity (which the government are rumoured to be considering). He highlighted a number of imbalances in carbon pricing – for example it is cheaper to fly to Edinburgh from London than to get a train. He argued that changes to tax can be made in progressive ways, giving the example of tax on aviation which disproportionately hits the wealthiest half of the country. He thought it was unrealistic to expect a carbon border adjustment mechanism to be agreed at Glasgow and that it would probably take until the EU does it before the UK follows suit.

In response to a question about the loss of tax revenue from petrol being a problem, Hands – a former Treasury minister – reflected that behavioural taxes can be ‘tricky’. The Government knew the Soft Drinks Industry Levy would lead to a change of behaviour and revenue would decrease, he said. The Government had looked at reforming air passenger duty from a levy on each passenger to a per plane tax but there were ‘complications’ and undesirable behavioural changes which meant in the end it was easier to stick with APD.

At an event sponsored by KPMG, the firm’s UK Head of Energy and Natural Resources, Simon Virley, aformer head of carbon taxes at the Treasury, said carbon pricing has a really important role in tackling emissions – it is necessary but not sufficient. He added that chancellors need freedom of manoeuvre though, and long-term regulatory mechanisms can provide the certainty that businesses require.

At the same event, Gareth Davies, who ran an ESG business in financial services before becoming an MP, said the most important thing for government in this area was to incentivise innovation to help us meet net zero. He also stressed the need to ‘bring people with us’, noting this was a concern on the political right and left. Policies that lead to job losses have the potential to cause problems on the left, and with trade unions in particular, he observed.

At a policy exchange event on decarbonising road transport the new minister for the future of transport and decarbonisation, Trudy Harrison, said she would be working closely with Greg Hands to make sure the supply of energy to electric vehicle (EV) recharging points is green. She put an emphasis on getting the second hand electric car market growing, given the lack of affordability of new EVs. Ed Birkett, the panel chair, noted that EVs so far seem to have held their value (a good thing in some respects) which has limited the second hand market.

A fringe meeting hosted by the Conservative Environment Network and WWF UK heard pensions minister Guy Opperman say that mandatory action to move companies to net zero would in effect be a policy of divestment, which would be a “disaster” and self-defeating. A speaker from WWF said that the UK’s finance sector ‘punches above its weight’ in contributing to carbon emissions. She called for regulation of carbon offset markets.

Dame Andrea Leadsom MP told a fringe debate that she would like to see energy prices localised; this would mean people living in a windy part of Scotland benefit directly from the wind turbines near them, she said. At the same event, Hannah Dillon, who runs the Zero Carbon Campaign, said her organisation is working with the Joseph Rowntree Foundation on how to avoid the move to net zero emissions punishing the poorest in society. She said that the Government must have policies that mitigate risks to the poor and involve people on low incomes in its decisions on net zero. Lee Anderson MP remarked that net zero never comes up on the doorstep in his constituency. He would like the Government to focus on targeted support for the 3.9 million homes in fuel poverty.

At a Taxpayers’ Alliance/IEA fringe event, Chancellor Rishi Sunak remarked that you cannot put a figure on the cost of achieving net zero by 2050 and pointedly said that ‘you cannot spend your way to net zero’. Bim Afolami MP, PPS to the Work and Pensions Secretary, told a Cap X event he is in favour of raising taxes on carbon emitters, though without specifics.

Business in the firing line over low wages and imported labour

The conference took place in an ‘autumn storm’ of labour shortages, rising costs and supply disruption (as well as impending tax increases). Rather than attempting to placate business concerns senior ministers accused them of becoming over-reliant on cheap, imported labour, with the Prime Minister arguing in his keynote address for a transition from an old model of “low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration” to “a high wage, high skill, high productivity and yes, thereby low tax economy”.

This built on points made by the PM in earlier media interviews. Asked about the ‘cost of living crisis’, he told the BBC: "What I think should happen is that organically business and industry should be paying people a little bit more in order to help them. I know it is tough for people and I understand that people on low incomes are working very, very hard at present to make ends meet. What I think is wrong is to take more money in taxation and use it to subsidise low pay."

Business reached angrily, with Craig Beaumont of the Federation of Small Business (FSB), claiming the Conservatives seemed to “have vacated the pro-small business space”. Richard Walker, the Leave-voting managing director of Iceland, accused Boris Johnson of treating business like "an endless sponge", and complained: “We can only weather so many cost increases at once, so they need to taper it." Lord Wolfson, another pro-Brexit business boss, and also a Tory peer, claimed the PM’s approach was one that “leads to queues at petrol stations and pigs being unnecessarily shot”.

Business Secretary Kwasi Kwarteng is largely credited with developing the ‘transition to higher wages’ line of argument, and put it forward at a fringe meeting hosted by ConservativeHome earlier in the week. He argued that the UK was undergoing three structural shifts: Brexit, the pandemic and moving towards net zero. These, he argued, have “completely reshaped” the dynamics of business and the right way forward for the UK is to be a high wage, high skill nation which does not depend on high immigration.

Employment-based migration was raised in numerous fringe meetings during the conference. Most vocal were business voices stressing the need for, at the top end, ‘access to talent’, and in other areas, easier migration to fill vacancies in agriculture, hospitality, HGV driving and other sectors denuded by Brexit/pandemic related departures. However some party members are alarmed that the introduction of temporary visas might mean the Government is backtracking on its commitment to keep immigration low. Kwarteng said that, fundamentally, the Government is giving the British people what they want: controlled immigration and capped numbers.

Writing in the Evening Standard during the conference, Lord Wolfson called for a ‘visa tax’ where businesses would be free to recruit overseas workers in return for paying an additional 7% tax on their wages.

Kwarteng also addressed the need to improve skills in the UK during his remarks. Among other observations, he acknowledged that the apprenticeship levy could be more focused. The Business Secretary also expressed a wish to focus on helping micro-businesses scale up, and there was a discussion about whether a tapering system on the £85,000 VAT threshold would be beneficial.

At an event on ‘using innovation to transform the UK economy’, Sue Daley of Tech UK called for a bigger focus on development as part of R&D, as well as ensuring funding for the deployment of innovative products. Alistair Tebbit of RELX argued that existing tax incentives were “misfiring”.

New ideas for gig economy and other insecure workers

A number of speakers on the fringe put forward proposals for changes to employment and tax rules.

Rachel Wolf
is a partner at the agency Public First and was co-author of the 2019 Conservative manifesto. Speaking at a fringe debate on the gig economy she drew attention to Public First’s Good Work report, commissioned by Uber and published in September 2021. The report recommends that the Government should use legislation to update and clarify the current Worker classification, renaming it ‘Flexible Worker’; that the Flexible Worker status should be policed by the Government’s proposed new Single Enforcement Body for employment rights; and for tax purposes, Flexible Workers should either be treated as self-employed, or ideally given their own independent tax status. The paper also recommends that platforms connecting customers and Flexible Workers should be legally required to provide access to a minimum set of benefits and allowed to offer their users additional benefits such as sickness pay, insurance, parental leave, and training, without being at risk of employment status reclassification. (The report is here.)

At the same event, Ash Kebriti, of Uber, claimed flexibility matters most to Uber drivers. But he called for legislative reform because of fatigue at the amount of cases going through the courts in this area at the moment. Employment Minister Mims Davies said the Government wants a ‘thriving’ gig economy, saying young people in particular need a gig economy to ‘dip in and out of’ while they pursue their education and careers. Davies claimed the benefits system is ‘embracing’ the flexibility of the gig economy and that the gig economy gives everyone a chance to ‘get on’ regardless of background.

We learnt at this event that bosses of four leading business membership organisations in Northern Ireland have established a COBRA style committee aimed at supporting businesses through the COVID-19 crisis, whilst acting as a direct conduit to government. The Business Alliance is a partnership between CBI Northern Ireland, the Centre for Competitiveness, the Institute of Directors Northern Ireland and the Northern Ireland Chamber of Commerce and Industry. CBI President Karan Bilimoria told the fringe meeting that he would like a UK-wide COBRA-style committee aimed at supporting business recover from the pandemic. He said the Conservatives need to be not only the party of business but the ‘party working with business’.

At a separate event on levelling up, Ryan Shorthouse of Bright Blue said the Uber ruling (that drivers are workers) was welcome. Issues around bogus self-employment are fuelled by tax incentives, he added. He thought it was worth looking at how the furlough could continue in an adapted form. Frances O’Grady of the TUC criticised widespread abuse of self-employed status, including for tax reasons, saying it strips workers of their rights. She praised how government, unions and business had worked together during the pandemic, stepping up at a time of crisis. Katie Schmuecker of the Joseph Rowntree Foundation argued for greater security around contracts and a right to flexibility from day one of employment. She called on the government to bring forward the Employment Bill in this session of Parliament.

At a separate event, Paul Scully MP, Minister for Small Business, Consumers and Labour Markets, stated that if the right to request flexible working became law then there would be clear guidelines around when employers could reject it. He acknowledged that there is more the Government can do to protect workers on zero hours contracts.

At a ‘Driving the Economy’ event, Elizabeth de Jong, director of policy at Logistics UK spoke about the shortage of level 2 workers in the economy at the moment. Steve Granite, founder of Think Logistics, complained that the apprenticeship levy and Trailblazer partnership took too long to make a difference to levels of employment in his sector. MP Alex Burghart said vocational courses that lead straight into a profession are vital. He said the Government wants a ‘localised system’ to match people with the skills needed in their respective area. He claimed long-term automation will help with the lack of low skills workers.

Financial services – cuts in bank surcharge anticipated

Economic Secretary John Glen told more than one fringe meeting that the Government was looking at reducing the bank surcharge and levy, acknowledging the widely felt view that that, combined with proposed increases to the main rate of corporation tax, the eight per cent surcharge rendered the sector uncompetitive internationally. The review of the surcharge was first mentioned by the Chancellor in his March Budget, but the frequent repetition suggests reductions will be announced on 27 October.

At a fringe event hosted by TheCityUK, Glen said we must get the tax regime right when it comes to financial services so that the whole sector can ‘face the future with confidence’. Glen also said the Government will look at the Kalifa Review of Fintech and its concerns on access to cash. The Kalifa Review include a recommendation to expand R&D tax credits, the Enterprise Investment Scheme and Venture Capital Trusts. Glen said the UK will not compete with the rest of the world by having lower standards of regulation or services. He said tax transparency is very important to the UK Government in its relations with Crown Dependencies and Overseas Territories (CDOTs).

Kay Swinburne, Vice Chair of Financial Services at KPMG, said at the event that a thriving financial services sector is vital to provide money to grow the ‘green economy’. She also called for financial scams to be covered in the Online Safety Bill. Economist Gerard Lyons called on banks to step up in providing SME finance, but said that capital taxes on banks should be reduced.

At a meeting co-hosted by UK Finance and the think tank Onward, trade minister Ranil Jayawardena said there is an ongoing conversation about CDOTs – they are part of the UK’s financial ecosystem, but we have to make sure the high regard the British public have for transparency is taken forward. He also responded to questioning about high rates of tax on business, saying we are less taxed than France or Germany.

At the same event, Gareth Davies MP called for the bank surcharge to be cut or scrapped altogether. He said trade agreements are great but they are mostly about goods and we need to turn our attention to services. David Postings, the boss of UK Finance, said banks have paid their penance and the reason for the bank levy has disappeared. We are out of line not just with New York and Frankfurt, but with Dublin and Amsterdam, he said.

Meanwhile former cabinet minister and Treasury Committee chair Baroness (Nicky) Morgan praised the UK’s ‘fantastic ecosystem of financial and professional services’. She said we need a debate about the balance between competitiveness and protecting consumers, but there must be no ‘race to the bottom’ on standards. Catherine McGuinness of the Corporation of London warned that the FCA-proposed duty of care for banks could result in financial exclusion. Both Davies and McGuinness stressed the need for access to international talent.

In a question and answer session on the conference fringe, Rishi Sunak said that the Government was pursuing a path of deregulation where possible, and that he was open to deregulatory ideas in financial services especially. Some see this as potentially contradictory to John Glen’s repeated commitment not to lower standards, though the Government would no doubt argue the two are mutually compatible.

Universal credit and ideas for helping low income households

Universal credit (UC) had a high profile at the conference. Partly this was about the impending ending of the £20 uplift, but there was also plenty of debate about UC’s effectiveness, with broad praise combined with a range of specific suggestions for improvement.

At a Centre for Policy Studies event, Work and Pensions Secretary Therese Coffey argued UC does not have the ‘cliff edges’ of the old system of benefits. Coffey said we must look at what people can do, rather than what they cannot when DWP assesses claims for benefits, especially disability benefits. She wants work to pay and to move to a ‘welfare net, not a welfare trap’. But she warned there is no ‘magic wand’ to reduce spending.

At the same event, Gavin Rice of the Centre for Social Justice observed that the OBR had said that on current trends paying for welfare, education and health care etc., will require a tax rise of one third – yet the UK does not have a generous system of welfare by OECD standards. He highlighted the pressures of in-work poverty, slow wage growth since 2008, money for social housing going into the hands of private landlords and the problem of family breakdown and unstable households. James Kirkup, director of the Social Market Foundation, remarked that not all cliff-edges are gone (for example work allowances). He asked if the Government ‘can hand out sweeties’ to companies that display good behaviour to their staff, principally by helping people up the wage ladder.

Treasury minister John Glen came under fire from a range of organisations at a number of different fringe events over the decision to end the UC uplift. At one event – hosted by the liberal conservative Bright Blue think-tank – he explained that the Government was pivoting towards an approach focused on helping people into “more and better work”. As Economic Secretary, Glen explained that he was involved in the development of a range of schemes to improve the financial resilience of low income households, including the ‘Help to Save’ scheme, action against high interest lending companies and a new pilot No Interest Loan Scheme, which the Treasury is developing based on a similar model in Australia.

Tim Pitt, a former special adviser to Philip Hammond when he was Chancellor, also spoke to Bright Blue about the challenges of supporting low-income households. He said that the Government’s response to the pandemic had been “a real triumph” but had shown up the deficiencies in the UK’s existing welfare system. He argued that the Government need to increase the income replacement rate (he said the UK’s rate was the lowest in the OECD) for benefits so that they more accurately reflect a person’s income and can support them back into meaningful work, as well as lowering the UC taper rate. Both policies could make the social security system fit for the future and support the economy as it restructures post-pandemic.

‘UC is broadly a good thing but needs a lot of defining’, was how the chair summed up the theme of a fringe meeting co-sponsored by Citizens’ Advice. Nigel Mills MP, a member of the Work and Pensions Select Committee, said the pandemic had shown that UC can be scaled up and can cope with additional pressure. Deven Ghalani, Director and Founder of Policy in Practice, a social policy software and analytics company, agreed, saying UC is a clear success and much better than the system it replaced. There was no way the old benefit system would have coped with the pandemic, he thought.

Ghalani said that the benefit cap and two child limit interact in ‘a weird way’ and we don’t need both. Mills said we could improve transition from legacy benefits to UC, with managed migration probably the best approach. Andy Brown, Chief Officer of Citizens Advice, said managed migration would be far more effective if people received external advice. All four panellists, who also included Peter Aldous MP, thought the removal of the uplift was a mistake. Aldous predicted we would see a big crisis in the private rented sector in the coming weeks as a result.

Media rumours ahead of the conference suggested the UC taper rate might be reduced from 63 per cent to 60 per cent. Jacob Rees-Mogg, speaking at the TaxPayers’ Alliance Question Time, said that a reduced UC taper rate could enhance the link between welfare and work. Rees-Mogg did not give a specific figure, but noted that the present rate of 63 per cent provided a much better incentive to work than the previous 90 per cent rate. This was also raised by questioners elsewhere on the fringe.

The question of how UC affects the self-employed was raised by CIOT at a (different) Bright Blue-hosted fringe event. The Institute’s George Crozier asked whether UC worked as it should in terms of how it supports insecure work and volatile earnings, especially in relation to the minimum income floor. He noted that LITRG has suggested averaging of self-employed earnings for UC as a possibility. Martin McTague of the Federation of Small Business agreed. We have been trying to persuade the DWP of this for many years, he said, but they don’t get it. Katie Schmuecker of the Joseph Rowntree Foundation said the minimum income floor should be looked at over the course of a year; UC was designed for people on monthly salaries which was a bad design flaw. Frances O’Grady of the TUC said she had been struck, early in the pandemic, by how unfit for purpose systems in HMRC were in relation to the self-employed. Ryan Shorthouse of Bright Blue said the think tank had called for a second 12 months during self-employment where the MIF can be disregarded as it is in the first 12 months.

 ‘Levelling up’ – what does it mean for tax?

Probably the most omnipresent slogan at this year’s conference (marginally ahead of ‘building back better’) was ‘levelling up’, which was applied to everything from the justice system to the hospitality sector. What does it mean for tax?

Not increasing tax on the low paid, according to a group of Conservative MPs who met with Boris Johnson ahead of the conference. Jake Berry, chair of the Northern Research Group of Conservative MPs in northern seats, told The Observer the challenge for the Government was to “square the circle of how you can level up deindustrialised and poorer communities in the north of England while at the same time taking cash out of their pockets through a national insurance rise and cuts in universal credit.” Former Cabinet Minister David Davis commented: “You don’t level up by increasing the tax and cost of living on the working class.”

Prioritising poorer areas, and spending more / taxing less in them, according to some. At a CapX debate, Bim Afolami MP talked of the need to increase the ‘economic capacity’ of areas outside London, saying that levelling-up will only mean something when people do not need to leave the areas they grew-up in to ‘get on in life’. He mooted lower rates of NICs for hiring people in certain parts of the country. Virginia Crosbie MP called for a freeport for her Anglesey constituency. Alex Stafford MP claimed the UK cannot cope with economic activity being sucked into the South-East of England. Dehenna Davison MP said that she wants to see the Government create a policy environment and taxation system where businesses are ‘not afraid to grow’.

Rebalancing property taxes so the south east of England pays more, is another answer. In an online article for The Times ahead of the conference, Simon Fell MP urged the Chancellor to cut business rates in next month's Budget, saying “Shops in constituencies like mine need levelling up, not boarding up.” A number of other MPs have made the same call, arguing that business rates disproportionately hit the high streets of economically disadvantaged towns in the north and midlands, and also arguing for a proportional property tax (see earlier section).

Or perhaps it means devolving more fiscal powers? At the CapX event referred to earlier Bim Afolami also told the audience that he wants more taxes raised locally and spent locally, in part to achieve the goals of ‘levelling up’. He emphasised the need to decentralise decision making in relation to the economy, echoing calls Boris Johnson had made when he was Mayor of London. Reportedly a white paper on devolution due this year has been elbowed aside by one on levelling-up. But might it include some decentralising moves?

Conference News in Brief

At a fringe event, Economic Secretary John Glen said financial education of school pupils needs to be done by individual schools rather than the Government because different secondary schools have different demographics.

Jesse Norman, the former Financial Secretary to the Treasury, was pressed about the specifics of the government’s upcoming Budget at an event hosted by the Centre for Policy Studies. Norman – who left government at the September reshuffle – would not be drawn on this, telling event host Tom Clougherty: “I’m not going to open the kimono of Horseguards”.

Cabinet minister Jacob Rees-Mogg told a fringe meeting that a pivot towards cutting taxes should involve a “bonfire of the barnacles” of EU regulations, which he said inhibited business growth.

The campaign group NEON commissioned polling from Opinium Research ahead of the conference season on public views on various progressive policies, and published figures for 2019 Conservative voters during the conference. These included a tax on wealth where individuals are taxed 1% of their net worth over £1,000,000 each year, excluding any personal pension savings and their main home (60% support, 17% oppose); ending the so-called “carried interest loophole” where people pay less tax on the money they make from their bonuses than their incomes (64% support, 12% oppose); a one-off windfall tax on companies that made significantly more during the pandemic than in other years (52% support, 15% oppose). (Full tables here.)

Report by the CIOT External Relations Team (George Crozier, Hamant Verma and Chris Young)