Hints of tax cuts but no big announcements - a report on Conservative Conference 2019
There were no big tax announcements at this year’s Conservative conference, but plenty of hints of what the new Prime Minister and Chancellor would like to do, once Brexit is out of the way. This includes cuts to income tax and inheritance tax.
This is part of a series of reports on tax policy discussions at the main party conferences. A round-up of the Labour conference can be found here and the Lib Dem conference here. A further report will follow on the SNP conference.
Hints of tax cuts but no big announcements
“Boris Johnson told hard-up Brits to expect tax cuts in the upcoming Budget,” began The Sun’s report on its eve of conference interview with the Prime Minister. But readers were told they would have to wait till the Budget for details. The Sun thought they detected “a strong hint that fuel duty would be frozen again or cut”.
The Prime Minister, of course, argued for a number of tax cuts during the summer’s Conservative leadership contest, including:
Raising the threshold for the higher rate of income tax to £80,000 (later downgraded to an ‘ambition’) Raising the national insurance contribution threshold to align it with the income tax threshold General support for cuts in corporation tax and business rates Raising the threshold for the annual investment allowance significantly above the present level of £1 million Press reports also suggested he was considering abolishing stamp duty on homes worth less than £500,000.
Chancellor Sajid Javid, when he was in the leadership race, and in an August interview with The Times, said:
He is willing to scrap the 45p rate in a bid to inject more ‘dynamism’ into the economy But his priority is to cut taxes for the low paid Fuel duty should be frozen for at least two more years He is looking at ‘various options’ for reforming stamp duty land tax A ‘no deal’ Brexit would require a ‘significant economic package’ as a response (see below)
Conference discussions added to these earlier hints, in particular possible cuts to inheritance tax (see below).
Tax cuts and spending increases – having your cake and eating it?
The most significant announcement of last autumn’s Conservative conference was then Prime Minister Theresa May’s declaration that ‘austerity… is over’. Now, in September’s mini-spending review, in further conference spending announcements and in the Budget, whenever it comes, we are seeing what this means in practice. And the answer appears to be spending increases pretty much across the board (though not back to pre-2010 levels), tax cuts (see previous section) and increased borrowing taking the strain.
The Chancellor hinted at this when he told The Times in August: “It is obvious to me that when you’ve got some of the lowest rates on government debt this country has ever seen I wouldn’t be doing my job if I wasn’t thinking seriously about how do we use [that opportunity].” He told The Times he would be thinking about whether any changes were needed to the fiscal rules.
A panel discussion at the conference organised by the Institute for Economic Affairs (IEA) and the Taxpayers’ Alliance (TPA) was titled ‘The end of austerity – why tax cuts are better than spending hikes’, but might more accurately have been billed as ‘why tax cuts and spending hikes are both great!’ at least so far as the three MP panellists were concerned. Andrew Bowie MP and Steve Baker MP both praised the government’s hospital building plan and maintained that it was not inconsistent to advocate tax cuts while also proposing spending increases. Julian Knight MP pointed to ‘tremendous demographic pressures’ – people living longer but less well – which meant health and care services needed additional resources. At a separate event Suella Braverman MP cited the Trump administration’s tax reform agenda as evidence that it is possible to cut taxes and increase public spending at the same time.
Dynamic modelling – paying for spending increases with tax cuts
John O’Connell of the Taxpayers’ Alliance said the TPA were about to publish polling showing voters were up for bold ideas including tax cuts. He wants to see more use of dynamic modelling. The CGE (Computable general equilibrium) model has been trialled for fuel duty and corporation tax with good results, he said. He suggested the Conservatives could use the strap line ‘cut taxes and invest in our policy, hospitals and schools’.
In Sajid Javid the UK now has a Chancellor highly sympathetic to this approach. Javid told The Times in August: “We want to set [taxes] at a rate where we are trying to maximise revenue, and that doesn’t always mean that you have the highest tax rate possible. Generally I want to see lower taxes, but at a level that is going to pay for the public services.” During the leadership election Javid highlighted increased tax revenues in the wake of George Osborne’s decision to scrap the 50 pence rate of income tax as evidence that income tax cuts can pay for themselves.
On a similar theme Financial Secretary to the Treasury Jesse Norman told delegates at an IEA/IPSE (Independent Professionals and the Self-Employed) event that he had ‘teams’ of civil servants within the Treasury studying the impact of the Laffer Curve.
So which taxes should we axe?
Lots of love around the conference for tax cuts, but which ones do MPs, thinktankers and the Tory faithful think should be the priority for the Chancellor’s axe?
There was a lot of support for the notion that the government should prioritise tax cuts that would have the biggest impact on economic growth. This means principally tax cuts for business – especially delivering the corporation tax cuts already promised (and more if possible). But, warned Scott Hodge of the US-based Tax Foundation, the most popular tax cuts tend not to be the ones that do most for growth. However Sam Dumitriu of The Entrepreneurs’ Network thought there was a distinction between popular actions and popular results. In other words, growth-promoting tax cuts for business win votes too, they just do it indirectly, by creating jobs and prosperity rather than by being popular in their own right. Nevertheless, thought Dumitriu, in the run up to an election a sensible strategy would prioritise tax cuts aimed at people on low incomes.
Dumitriu thought SDLT should be the first tax on the chopping block. This was also the view of Kate Andrews of the IEA, who also wanted corporation tax replaced with ‘something more suited to this century’ (such as a tax that is better suited to digital multinational companies). Dumitriu also attacked stingy capital allowances, while Andrews thought ‘sin taxes’ were the most regressive. International Trade Secretary Liz Truss also disliked ‘sin taxes’.
Faced with calls from the audience to abolish Corporation Tax, Jesse Norman said at a fringe meeting that this question was perennially asked of ministers, but how would the audience members make up the £50 billion a year of lost revenue?
The winner though, in the ‘least popular tax’ stake, was surely inheritance tax which managed to achieve a packed meeting of perhaps 140 people, nearly all baying for its abolition (see below).
Inheritance tax – ‘nasty’, ‘immoral’, ‘terrible’, ‘unfair’ – now tell us what you really think
Political folklore has it that George Osborne’s 2007 party conference announcement (in opposition) of plans for a big inheritance tax (IHT) cut was so popular Gordon Brown cancelled his plan to call a general election. Conservative delegates and right-leaning thinktanks want his successor Sajid Javid to go further and abolish the tax entirely.
At a standing room-only Taxpayers’ Alliance fringe meeting titled ‘Death and Taxes: Should inheritance tax be scrapped?’ a call from the TPA’s research director for the tax to be scrapped won a rousing cheer. Tom Clougherty of the CPS agreed we should ‘get rid of it’ saying it was “a nasty way of interfering with a desire to support one’s family and pass something on to the next generation”. Telegraph journalist Matthew Lynn called it “a terrible tax and badly executed”. Audience members were at least as critical, calling it “immoral” and the “biggest threat to my family’s prosperity”.
Angela Knight, former Treasury Minister, spoke primarily about the work the Office of Tax Simplification had done on IHT while she was its chair. She said neither of the OTS’s two reports on IHT had gone far enough for her, but they were engaged in “the art of the possible”. There were more than 3000 responses to the OTS’s survey. Apart from abolition the two main comments were ‘there’s no reason why I should have had to fill in a form as we were well below the limit’ and ‘the guidance can’t be understood’. She thought estates of £225,000 or less shouldn’t have to fill in a form – it was a shame that didn’t get into the report. Knight thought the issue could not be ignored, such was the strength of feeling. People don’t think it’s fair, she said, both in that it is seen as a second round of taxation, and (it is perceived that) the rich don’t pay while middle income people do. She thought Javid would be stronger on this than Hammond had been. The OTS report was awaiting the Chancellor’s response, she said, but in the meantime she encouraged people to make their voices heard.
The debate did stretch beyond a rally for abolition, however. There was widespread agreement that the nil rate-band (NRB) should be merged with the standard threshold (ie everyone and all parts of an estate should get the benefit of it). Two people made the point that children of divorced parents don’t currently get the benefit of it. What about parents who never married, asked a panellist. Knight said the OTS had asked four or five experts about NRB simplification and all came up with different answers.
Duncan Simpson of TPA said if we can’t get rid of IHT we should look at some of the reliefs, eg business property relief advantaged some companies but not others. CPS’s Clougherty explored the case for a lifetime gifts tax, acknowledging there was some economic logic to the argument ‘Why tax one big inheritance more than several small ones?’ but ultimately coming down firmly against it. If we think IHT is hard to operate this would be a nightmare, he said. What about rent-free accommodation? As much as IHT was unseemly, there was something even more horrible about the state inserting itself in financial relationships between families in this way.
One delegate asked whether bringing equality to people’s life chances was not a Conservative goal. The room was not with them. Another questioner, from the north west of England, said they were winning Labour voters over on Brexit but were worried they will lose them if they promise to scrap IHT. Knight acknowledged this (to audience heckles). She suggested calling it ‘death duties’ might help persuade people.
And what of the Chancellor’s views? At a Taxpayers’ Alliance/IEA fringe event, Sajid Javid hinted he could cut IHT, saying ‘it's something that's on my mind’. The chancellor said there was ‘a real issue’ around IHT. “You pay taxes already through work or through investments and your capital gains in other taxes, there is a real issue with then asking them to, on that income, to pay taxes all over again. Sensible changes have already been made but it's something that's on my mind.” Faced with a scarcity of genuine conference announcements journalists wrote this up as ‘raising hopes’ the tax would be abolished.
Anyone for tax increases?
Not really. But if pressed there were one or two thoughts floating around the conference for changes which might increase the tax take.
Most of these came from outsiders. At the CIOT’s event (held jointly with the Institute for Government (IfG) and Institute for Fiscal Studies (IFS)), John Barnett (CIOT Technical Committee chair) took up the challenge to suggest possible revenue boosters and suggested that there were a number of reliefs in the tax system which were more generous than their underlying policy objective required. These included giving both capital gains tax (CGT) and inheritance tax (IHT) reliefs on the death of business-owners and – although it might not be popular with a Conservative party audience – granting exemption from CGT rather than a rollover when a person sold their main residence (David Willetts described this last remark as an “act of unprecedented bravery at a Conservative Party Conference”!) Barnett stressed that these were personal suggestions rather than CIOT policy. He also queried why we encourage wealthy foreigners (non-doms) to come to the UK but then discourage them (the remittance basis) from bringing their money with them – a perverse incentive which appeared entirely contrary to the UK’s interests.
Tom Clougherty of the Centre for Policy Studies (CPS) was sympathetic to bringing in more money by broadening the VAT base. You could get an extra £50bn a year if you got rid of zero and reduced rates, he said, adding that when he told colleagues this they had joked that he had found the magic money tree. While not advocating increases, it is also noteworthy that VAT is more or less unique in being a large tax to which the Taxpayers’ Alliance are not advocating cuts!
There are also just a few signs that some Conservatives are open to taxing wealth more. George Freeman MP said the economic crash had shattered the contract between wealth, wages and work and the party had not been vocal enough about the wealth injustice of quantitative easing. Charlotte Pickles, formerly an adviser to Iain Duncan Smith but now director at Reform, said we have a very unfair tax system, focused on taxing income not wealth, and she could not possibly see why a Conservative would say we should be more generous on unearned income than on earned income. Former Treasury adviser Rupert Harrison, speaking at an event shortly after the conference, said that he was increasingly finding Conservatives who were signed up the idea of taxing wealth, though he was worried about administrative complexity around this.
Simplification – few clues as to Chancellor’s intentions
In his first interview as Chancellor, Sajid Javid told The Times that he wants a simpler tax system, but declined to flesh this out. Conference added little.
One radical possibility discussed on the fringe at the conference is a proposal for a Single Consolidated Tax. The proposal, in essence, is that companies with revenue of under £1 million should be given the option to replace corporation tax, business rates, VAT and Employer’s National Insurance with a simple levy on turnover, charged on a cash basis. It came out of a report published in May 2019 by CPS. The report’s author, Nick King, was special adviser to Sajid Javid when he was Business Secretary. And speaking at the launch Javid (then Home Secretary) called it “a very important contribution to the debate”. He said the report shows “how bureaucracy and paperwork are stifling the growth of our small businesses and offers a series of compelling ideas for how Government can roll back the tide and show that the Conservatives are backing entrepreneurs."
IPSE head of policy Simon McVicker called on the government to simplify and digitise the tax code to make it fit for the 21st century. An audience member at another fringe floated income tax/NI merger but got a luke-warm reception from panellists. John O’Connell said the TPA wanted to get rid of corporation tax. Julian Knight MP called for a more honest discussion on where tax charges actually come from.
Angela Knight told a fringe meeting she had changed the remit of the OTS when she became its chair so it started looking at what taxpayers want rather than just issues raised by tax professionals.
Reducing the tax gap, abolishing PAYE?
The Spectator magazine, in partnership with the Centre for Competitive Advantage in the Global Economy, hosted an event with Finance Secretary Jesse Norman MP on the subject of increasing government revenue without the need for tax rises.
Arun Advani of the University of Warwick said that it was possible to raise additional revenue without the need for tax cuts. He said that this could be achieved by targeting the £35 billion of tax owed to HMRC that is never paid (the ‘tax gap’). He argued that HMRC was ‘dramatically good’ at finding people who owed tax, but that the number of audits had decreased significantly from 350,000 in the mid-2000s to less than 150,000 today. Advani argued that that it was harder for people to avoid paying the tax they owed once they had been audited, and made a specific plea to the government to increase HMRC’s audit capacity.
Former CIOT President John Whiting contributed to the debate. He defended the UK’s tax compliance record, saying that HMRC was good at collecting the overwhelming majority of taxes that it is owed.
At the same debate Rory Sutherland, vice-chairman of the UK arm of the international public relations firm Ogilvy, suggested the abolition of the PAYE system to increase public awareness of the tax system. He also advocated for a degree of hypothecation within the tax system to link taxes to outcomes and proposed that in place of tax cuts, taxpayers should receive tax rebates, similar to the system in place in the United States. John Whiting suggested that the US system was designed to overcharge taxpayers over the course of the tax year to incentivise engagement with the tax system. He also voiced concerns that this may overburden those on lower incomes over the course of the year. Whiting added that the PAYE system worked well, but that it may not necessarily work as well with the emergence of the gig economy.
Jesse Norman argued that the complexity of the tax system helped to facilitate the tax gap by making it more difficult for taxpayers to understand what they owe. He accepted that both HMRC and the Treasury performed a ‘heroic’ role in policing the tax system but said that unless fraud was involved, HMRC had few tools available to it to tackle avoidance. He confirmed that he had asked officials to look into the level of enforcement powers available to the tax authorities.
Fiscal devolution – anything happening here?
Transport Minister George Freeman, speaking at a discussion on urban devolution, said that the government was serious about devolution to English regions and made a specific plea to policy makers to ensure that rural, as well as urban areas, were empowered through devolution. Freeman floated a policy suggestion that local leaders be incentivised to generate additional savings through a proposal that would see local areas being given control of deficit reduction and growth, and the opportunity to retain a share of the savings generated if they beat national targets. He argued that a policy such as this could re-empower the debate over decentralisation that had been initiated by the former chancellor George Osborne in the early years of Conservative-led government.
His suggestion was welcomed by Lord (Robert) Kerslake, the former head of the civil service, who said such a move needed to “incentivise and equalise” the provision of services and delivery of policy outcomes. In earlier remarks to the event, Lord Kerslake cited evidence from the UK 2070 Commission into city and regional inequalities that found the UK to have one of the most regionally unbalanced economies in the industrialised world.
Speaking at the same event, Councillor Catherine Faulds from the Royal Borough of Kensington and Chelsea said there needed to be greater public awareness of how local taxes were generated and spent. She said that in her authority, just £63 million of the £450 million in business rates raised annually were retained by the Borough. Councillor Faulds said that the Borough was investigating the use of ‘community commissioning’ of budgets as a means of driving public participation and improving the understanding of local budget processes.
At another event an audience member floated the idea of tackling regional inequality thorough different corporation tax rates – 20 per cent in most of the country but just 10 per cent in deprived areas.
At a Taxpayers’ Alliance/ IEA fringe event, the Mayor of Tees Valley Ben Houchen spoke warmly about the potential for public sector competition as a result of metro mayors. He suggested that enabling local authorities to retain business rates and even allowing them to reduce the rates would create a more competitive environment.
Business rates and the future of the High Street
In response to an audience question asking whether the government would consider the abolition of business rates, the chief secretary to the treasury, Rishi Sunak said that while one-third of businesses were exempt from rates, they contributed £25 billion to the exchequer and represented a ‘big chunk of change’ that would need to be replaced.
The Spectator hosted a discussion on the ‘High Street of Tomorrow’. Perhaps surprisingly this was not a business rates moan fest. In response to the one question on this topic Andrew Carter of Centre for Cities agreed business rates need reform but he was sceptical that reductions in BRs benefit firms. There was evidence that rents in periods of less than 18 months rise to make up for the relief, he said, so it subsidises landlords. Carter commented that, right now, the most successful high streets are those least dependent on retail. The answer to ‘the retail problem’ in our high street is not more retail, he argued.
Jake Berry, Minister for Local Growth, said online shopping was a great driver of wealth. We have highest (18%) level of online sales in Europe. Those who combine bricks and clicks will succeed best, was his view. Berry praise the work of the High Street Task Force launched in July, to give guidance and advice to local authorities across England seeking to cope with the effect of changing shopping habits. The task force was created following recommendations from the High Streets Expert Panel chaired by businessman Sir John Timpson. Most successful high streets have a Business Improvement District, the minister noted. We are trying to get a massive expansion of that, he said. Berry also remarked that Brexit was hindering progress in this area as ‘you can’t get secondary legislation through because every secondary legislation slot is taken up with Brexit readiness legislation’.
Taxing tech firms – does Digital Services Tax go far enough?
Chief Secretary Rishi Sunak said that he hoped the government’s unilateral introduction of a digital services tax (DST) would help redress the imbalance between the taxation of physical and online businesses but that this should form part of a wider global response to the issue of digital taxation.
Former minister Lucy Neville-Rolfe, at another event, said she was a big supporter of the DST. Tech companies don’t pay enough tax, she said. We need to cut the amount paid in business rates as a whole and increase DST. However at another different fringe meeting, Victoria Hewson of the Institute for Economic Affairs described the DST as a ‘luddite measure’ that would provoke international retaliation and called for its immediate repeal. She argued this would send a signal that the UK was free and open to embrace the tech agenda.
Martin McTague, the Federation of Small Business’s Policy and Advocacy Chairman, told a fringe that he would like to see the break-up of some digital multinational companies to increase competition. Business Secretary Andrea Leadsom did not contest this point, adding that it is within the remit of the CMA. Interestingly Leadsom said she has not heard of problems with Making Tax Digital.
Worth noting is that, in May, before he became Chancellor, Sajid Javid, said the government needed to go further than the DST in making ‘big online businesses’ pay tax. At a CPS event he said “whilst the small businesses are paying their fair share of tax they see these tech businesses paying what I would say is a piddling share of tax, if anything at all. That is not fair, it’s not right and it’s not acceptable.” He acknowledged the plans for a DST “but I don’t think we’re going far enough yet, We need to do far more to make sure that the big online businesses pay their fair share of tax.”
And that Boris Johnson, during the leadership campaign, gave his view on taxing digital services to a York hustings, saying: “I think it’s deeply unfair that high street businesses are paying tax through the nose... whereas the internet giants, the FAANGs — Facebook, Amazon, Netflix and Google — are paying virtually nothing”. He added: “We’ve got to find a way of taxing the internet giants on their income, because at the moment it is simply unfair.”
Supporting small business
Financial Secretary Jesse Norman told a fringe meeting that people in politics needed to be ‘appropriately respectful’ of small businesses. Business Secretary Andrea Leadsom told a fringe that the rate of corporation tax should be reduced, especially to improve the ‘plight’ of small businesses. Leadsom invited business and the public to put forward ideas to cut the red tape that face businesses, as a key post-Brexit policy. At an Enterprise Forum event the Chancellor stressed the importance of keeping businesses growing, generating the wealth that pays for public services. He promised to “keep taxes low and simple” for business.
At a small business fringe event an FSB representative said that, for entrepreneurs, HR issues are bigger than tax issues when taking someone on. A questioner from the AAT suggested making the Prompt Payment Code compulsory for 250+ employee companies. Another questioner asked about the proposal for a single consolidated tax (see above). Baroness Neville-Rolfe was sceptical. She thought big government projects where everything comes together have a tendency to become ‘gravy trains’ and not make things better. ‘Work with what you have’ was her advice.
Shortly before the conference the Taxpayers’ Alliance published a ‘Bumper Book of Burdens on Business’ highlighting 14 ways (some tax, some not) in which, they argue, politicians and bureaucrats place significant barriers in front of our entrepreneurs. This was promoted at the conference. Among the recommendations of the report are:
Abolish the apprenticeship levy
Cuts to business rates Cut capital gains tax to 10 per cent and abolish it when possible Cut corporation tax to 10 per cent and abolish it when possible Cut both employer and employee NIC rates to first 11 per cent, then 10 per cent Scrap the climate change levy and abolish the requirement for energy providers to include renewable sources of energy in their portfolios Increase the threshold required in a ballot for determining whether or not workers can take industrial action. Abolish stamp duty on shares Abolish the bank corporation tax surcharge immediately Abolish air passenger duty Cut fuel duty and insurance premium tax, freeze VED
Tackling low pay – a big boost for the living wage
The biggest conference announcement was probably the Chancellor’s setting of a new target for the National Living Wage, to raise it to match two-thirds of median earnings. That means, on current forecasts, the National Living Wage will be £10.50 by 2024. Javid added that he will bring down the age threshold for the National Living Wage to cover all workers over the age of 21. Over the next five years, ‘we will make the UK the first major economy in the world to end low pay altogether’, he said.
There were few if any dissenting voices on the announcement. Stephen Crabb, a former Secretary of State for Work and Pensions, accepted that the Conservatives were wrong to protest so much against the introduction of the national minimum wage when proposed by the last Labour government. Current minister George Freeman agreed. “I was wrong,” he conceded. Freeman said the question of how the economy could be both prosperous and just was “about the most important question facing this party”. Brexit was “a roar at a series of domestic grievances”, he believed. If the Conservatives did not deal with this sooner or later people would turn to Labour. He argued for scoring companies on their record on inclusive growth. At the same event Carys Roberts of the Institute for Public Policy Research (IPPR) called the living wage announcement ‘brilliant progress’.
The idea of a universal basic income (UBI) was raised at an IEA/IPSE event. Dame Helena Morrissey, head of personal investing at Legal and General, said that she preferred incentives within the tax system as an alternative to UBI. She said this could be achieved by harnessing revenues generated by technologies that had displaced workers or by providing people with an income when their personal data is used by start-ups and other businesses. Financial Secretary Jesse Norman suggested that UBI already existed in the form of the state pension system.
At a Taxpayers’ Alliance/IEA fringe event Kate Andrews, Associate Director of IEA, complained that the National Minimum Wage and National Living Wage are overcomplicated and too politicised.
Off-payroll working – minister defends reforms
At the IEA/IPSE event Financial Secretary Jesse Norman was challenged by IPSE’s Simon McVicker who argued for a comprehensive review of the business tax system and an ‘honest’ review of ‘misery taxes’, citing the extension of IR35 rules to the private sector and the impact of the loan charge. Norman said that the self-employed were an important component of the labour market that government should protect. He did not comment on the specifics of the current review into the loan charge given the current review being undertaken by Sir Amyas Morse, but did suggest that 90 per cent of people would “assent to the principle” of the IR35 guidance, namely that “people who work like an employee should pay tax like an employee”. McVicker said that “too many people” were being forced into IR35 and that the inefficiency of the system was shown in the number of cases being lost by HMRC at tribunal. Norman argued that the win/loss ratio from tribunals did not provide an appropriate reflection of IR35, arguing that a “great deal” of cases were settled before they entered the tribunals process.
At a separate event a questioner said that, in 2010 we were told the Conservatives would get rid of IR35, but ‘It’s got worse’. Craig Beaumont of the FSB said he would love to see IR35 abolished but it was brought in to tackle a real problem. At another different event Bim Afolami MP said he wanted the tax system to proactively help the self-employed: “We need to embrace self-employed rather than fear it as a problem we have to solve.” He said the government should do more to respond to the Good Work review and ‘turbo charge’ that agenda. Work and Pensions Secretary Thérèse Coffey accepted that there are some companies that are forcing people into self-employment.
Drawing up the economic battle lines
In a speech short on new policy Chancellor Sajid Javid criticised Labour for its plans to renationalise sectors of industry, that “people’s taxes would rise to the crippling levels of the past and people’s jobs would be put at risk with sectoral pay bargaining”. He rehearsed some of the party’s likely attack lines on Labour for the next general election. On the one hand Labour offer “divisive, backwards, bankrupt, immoral, incompetent, ideological experiments [that] will pose [a threat] to everyone’s way of life.” On the other hand Conservatives “are forging ahead with our positive, One Nation vision for our country’s future.”
Chief Secretary to the Treasury, Rishi Sunak, told a CPS event that the Conservatives needed to clearly articulate their vision for income tax cuts as part of a broader statement of the party’s vision for the country. He thought they had failed to articulate a clear economic narrative in the lead-up to the 2017 General Election, conceding ground to Jeremy Corbyn and the Labour Party. Sunak’s argument was the Conservatives needed to better articulate their position by promoting a wealth-creation agenda with a “strong moral underpinning”. He claimed that there would be a “real appetite for radicalism” at the upcoming General Election and that this represented an opportunity for the party to communicate its values to the electorate.
Is austerity over? Did it ever start?
An interesting side-debate at the conference, emerging at a number of fringe meetings was a discussion about whether austerity was actually over, and also to what extent it had actually happened. Kate Andrews of the IEA said certain areas had been cut, and had especially impacted upon the young, so people had felt austerity, but overall the coalition had only cut by 0.5% per annum.
Perhaps the most interesting answer to the question “did we have austerity?” came from former minister Steve Baker - “no, yes and we will do”. ‘No’ because of what statistics say about the extent of actual cuts, ‘yes’ because that’s the experience of communities, ‘we will do’ because projections in the OBR’s fiscal sustainability report put debt at 250% of GDP by 2060 so something will have to give at some point. An audience member at the same event thought ‘we as a party are too attracted to giving things away, but we are still increasing debt. Should it be the end of austerity?’ MP Andrew Bowie said it should be, but it should not be the end of sensible management of the public finances. Steve Baker said the message should be ‘austerity for the state, prosperity for you’. He also thought Conservatives should smile more.
International inspiration from USA and Australia
Conservative thinkers are interested in the Trump tax reforms. Ted Bromund of the US-based Heritage Foundation think-tank told delegates attending an event on global tax reform that these had cut taxes, increased household earnings and boosted US GDP. But Scott Hodge, of the Tax Foundation (also US-based), warned that around a third of the gains made as a result of the Trump agenda had been eliminated by the president’s trade tariffs.
At the same event, George Brandis, the Australian High Commissioner, said that the Australian centre right had adopted a long-term approach to tax reform and tax reduction that had been a deciding factor in the Liberal Party’s unexpected election win earlier this year. Brandis said that tax reform can be popular across working class and lower-middle class voters when they can see tangible benefits for themselves. As a result, he said that the Australian Labor party had been unsuccessful in the 2019 elections because its tax policies were framed as an attack on their wellbeing.
Also at the same event, Hodge suggested the UK look towards Estonia, which had introduced a 20 per cent tax on capital gains but did not levy it on profits reinvested into businesses.
Apprenticeship levy under fire
Across a number of events, delegates were critical of the Apprenticeship Levy, saying it had acted as a disincentive for businesses to hire and train apprentices. At a Taxpayers’ Alliance/ IEA fringe event Kate Andrews, Associate Director of IEA, claimed the levy is ‘sticking’ in the way of businesses who want to take people on.
A recent report from the Taxpayers’ Alliance said that “the new apprenticeship levy merely means extra costs for businesses that had already been operating training schemes.” It claims evidence suggests that not only does the levy lead to fewer job opportunities and lower wages, it has also resulted in a decrease in the number of available apprenticeships. For example, the number of apprenticeship starts fell by 59 per cent between May and July 2017 compared to the same period in 2016. Data from 2018 also confirmed that apprenticeship starts have fallen since the introduction of the levy. TPA is calling for the levy to be abolished.
Pension tax relief unfairness – minister wants to resolve the issue too
At a fringe meeting on ‘Getting the UK retirement ready in the age of auto-enrolment and pension freedoms’ pensions minister Guy Opperman was asked by CIOT about the NPA pensions anomaly. The minister said this was primarily a matter for Treasury and HMRC. But he echoed the desire of the Net Pay Action Group (of which LITRG is a part) to resolve the issue and is hopeful they’ll be addressing it soon. “I’m sure my esteemed colleagues at the Treasury are all over these particular problems as are HMRC,” he said. Among the other panellists at the event, Laura Miller (a journalist) said it was a big issue that needs fixing. Mark Williams of the Institute and Faculty of Actuaries said addressing this sounded sensible.
Asked by CIOT about the same issue, Secretary of State for Work and Pensions Thérèse Coffey said her focus was on tackling ‘in work poverty’.
Welfare – minister defends universal credit
Secretary of State for Work and Pensions Thérèse Coffey reaffirmed the Conservative commitment to use welfare to get people into work – and that the DWP must not be just a ‘dishing out place’. Coffey is concerned about high marginal rates on people in work but either in poverty or the edge of it, stating her aim is to make ‘every extra hour [of work] pay’. She was a bit critical of government IT systems, going as far as suggesting a mobile phone app for teenagers would help. She said Labour’s policy plan to see the transfer of one per cent a year of shares from shareholders to workers over 10 years, will leave no incentive for companies to invest.
In her Conference speech, Coffey talked about the dignity of work, the security of a regular wage and the pride and self-worth of making a success of life. Coffey said welfare reforms are based on these key principles: that people want independence from the state, not dependence on it; that people want to be resilient and not reliant; and ensure you are better off in work than if you don’t work. She slammed Jeremy Corbyn as someone who would scrap our benefits system (universal credit) that makes work pay, saying last year working people have benefited from a £1,000 increase in work allowances in universal credit.
She said her priorities were to continue to improve universal credit ‘to ensure people get the money they need in a timely manner are helped into work, and onto an escalator up to better work, to help with the cost of living across the country and to support everyone in society – especially disabled people’.
Last but not least… Brexit
The conference, of course, took place as Brexit negotiations continued, and with uncertainty about what would happen just a month later hanging over events. A report on all the Brexit discussions at the conference would be long, repetitive and almost immediately out of date. But it is worth briefly summarising a few of the contributions around post-Brexit customs, borders and tax.
In conversation with the Centre for Policy Studies, the Chief Secretary, Rishi Sunak, was cited as an early proponent of Free Ports, having authored a paper for the think-tank in 2016 on the subject while a backbench MP. Sunak said that free ports, supported by the creation of ‘opportunity zones’ and infrastructure investment, could help drive the UK economy in the post-Brexit era. He also acknowledged the need for new customs procedures post-Brexit and the “massive job” required from HMRC in order to be prepared for the UK leaving the EU. He added that Brexit offered opportunities for the UK in the form of economic innovation, global trade and greater control over borders.
Victoria Hewson of the IEA also told a CPS event that government could and should do more to simplify and improve post-Brexit customs arrangements. She suggested a move towards self-assessment and periodic inspection of imports as a means of reducing bureaucracy and a move towards a single window for customs declarations, similar to the model used in Singapore. Hewson also called for more investment in the training and skills of HMRC staff.
Fareham MP Suella Braverman said Brexit offered the opportunity to remove the UK from European fiscal rules that had been in place since the Maastricht Treaty of the early 1990s and reckoned that UK GDP could grow by as much as eight per cent with the introduction of free trade agreements. International Trade Secretary Liz Truss said that she is pushing for a ‘free trade, free enterprise’ agenda’. Brexit is all about the UK regaining freedom to do trade deals with the rest of the world, she said.
Business Secretary Andrea Leadsom told a fringe that there will be no infrastructure on the NI-Ireland border; there will be strict security checks but not for customs. She complained that the government does no know what the Irish intend to do. She said: “[The] better businesses just get on with it”. She went on to complain that businesses have spent money to prepare for a March 2019 Brexit and an extension to the October 31 deadline will just add to their costs a second time.
And if it’s ‘no-deal’?
Sajid Javid claimed Brexit means the UK has ‘taken back control of our financial destiny, just as we take back control of our laws and borders’. The Chancellor announced that to give organisations and Devolved Administrations extra certainty for the year ahead, in the event of No Deal, he will guarantee all £4.3 billion of EU-directed funding that they would have been expecting. At a Taxpayers Alliance event, Javid said there would be a Budget in ‘due course’ later in the year following on from last month’s one-year spending round. Javid said the type of Budget would depend on whether the UK left the EU with or without a deal, but that there would be some tax changes and simplifications that he would push for in either scenario. Tax changes and simplifications are on his radar, he said.
Before he became Chancellor Javid was said to have suggested in cabinet a “shock and awe” response to a ‘no deal’ Brexit that included both significant tax cuts and supply-side reforms such as slashing red tape. The Times reported in August that he was ‘dusting this down’. It is understood that this could include deregulation, changes to competition policy, tax breaks for R&D, investment in skills and changes to planning law, said the paper. Asked about slashing VAT rates, Javid told The Times he would use whatever levers are available, but denied that the country’s economic model will be radically different.
At a CIOT/IFS/IfG fringe event, Paul Johnson, Director of IFS, worried that if Brexit does not go well, such as there being a ’no deal’ exit, it could lead to a shrinking economy, leading to lessening tax take. All in all there was a good chance there might need to be an additional dose of austerity in the near future, he concluded.
This report was compiled by George Crozier, Hamant Verma and Chris Young