Review of this autumn's Conservative Conference in Birmingham, from a tax perspective
Almost everything said at this year’s Conservative Conference in Birmingham has to be seen through the prism of the vote to leave the European Union. New Prime Minister Theresa May struck a strongly anti-elite note throughout her keynote speech, declaring that “the referendum was “not just a vote to withdraw from the EU… It was about a sense – deep, profound and let’s face it often justified – that many people have today that the world works well for a privileged few, but not for them.” Thus she would ‘face down the powerful when they abuse their positions of privilege’ and ‘always act in the interests of ordinary, working class people’. This promise appears to encompass everything from immigration controls to housebuilding to cracking down on corporate tax avoidance May has not missed an opportunity to condemn ‘tax dodging’ businesses since she announced her candidature for leader and rhetorically there is not much to choose between her and Labour leader Jeremy Corbyn in the tone they take with multinationals they deem not to be paying their fair share.
In tax as elsewhere we appear to be in for a period of activist government. This theme ran through the Prime Minister’s main conference speech, with lines like ‘government can and should be a force for good’ and ‘where many just see government as the problem, I want to show it can be part of the solution too.’ This tone worries the more libertarian wing of the Conservative Party for whom low taxes and a small state are cornerstones of their beliefs. They see measures such as the soft drinks levy as ‘nanny statism’.
However, for all the rhetoric about active government, this was actually a conference fairly light on new policy announcements. This was particularly true in the area of tax. It would be nice to think that the Chancellor has taken the exhortations of CIOT, the Institute for Government and the Institute for Fiscal Studies in our joint open letter - which included eschewing ‘rabbits out of hats’ in favour of more considered policy-making - to heart. However as the letter would only have been received the week before the speech this is probably a stretch. Nevertheless the new Chancellor’s focus on self-confessedly long-term goals like boosting productivity and building world class infrastructure, combined with his reputation for caution and unflashiness (colleagues have dubbed him ‘Spreadsheet Phil’), suggest that he may not be as drawn to lapine prestidigitation as some of his predecessors. The Prime Minister’s reputed disdain for the ‘game playing’ of his immediate predecessor is another reason why those hoping for a ‘boring’ Chancellor pursuing an economic strategy of incremental economic improvements may just be in luck.
The big economic announcement of the conference – Brexit process aside – was of course the abandonment of the fiscal target of achieving a budget surplus by the end of the Parliament. Though widely expected the significance of this move should not be understated. This was a key dividing line at the general election, pored over by commentators and analysts, but has now been cast aside in the wake of Brexit. What will replace it? Hammond was clear that fiscal consolidation will continue, it is just likely to be slightly slower. The new fiscal plan – to be set out at the Autumn Statement on November 23rd – is thought likely to broadly continue the planned cuts in current spending but announce significant additional investment in infrastructure.
What about tax? Hammond noted in his speech that ‘fiscal policy may also have a role to play” in restoring economic confidence. Some took that as signalling tax cuts. Given the new PM’s focus on helping ‘ordinary working people’ it seems likeliest that any tax cut would be focused towards the relatively low paid – perhaps a speeding up of the increase in the income tax personal allowance to £12,500 or an increase in the employees’ NI threshold, or a VAT cut at a pinch. The move towards a corporation tax rate of 17 per cent was reaffirmed at the conference but the Chancellor has distanced himself from George Osborne’s suggestion that it could be cut further as a Brexit-countering boost to competitiveness.
Tax will reportedly may have a role to play in the Government’s industrial strategy. Devolution of business rates is part of this. Might there be discrimination by area through, eg, more generous capital allowances or R&D credits in areas where the Government wants to encourage job creation. Could there be more reliefs for particular sectors such as the ones which have benefited the video games and film industries (though the Government will be keen to avoid the abuse which has plagued the latter)? With the Government promising an active industrial policy interventionism and the ‘chains’ of state aid likely soon to be lifted both these must rate as possibilities.
Defending the current system of corporation tax is a pretty lonely task at any political gathering these days and the Conservative conference was no exception. The TaxPayers’ Alliance want to replace it with a tax on distributions (an approach endorsed by Lord Leigh of Hurley at the CIOT/IFS conference fringe meeting). The Institute of Directors are advocating a simpler system for SMEs. That corporation tax is ‘broken’ and either needs radical surgery or scrapping altogether seems the majority view of those without tax technical knowledge (and the view of a significant minority within the tax profession). That ministers, including the new Financial Secretary, were pretty much absent from tax debates on the fringe meant that this point of view went largely unchallenged.
CIOT Head of External Relations
19 November 2016
NB. This article is part of a series on this autumn's party conferences. Together they expand upon an article published in the November edition of Tax Adviser