At a conference where the Government’s tax policies for the Parliament were virtually invisible economic debate focused on the general case for low taxes and free markets – contrasted with Labour’s agenda – and, of course, Brexit.
This is part of a series of reports on tax policy discussions at the main party conferences. A further report will follow on the SNP conference. Reports on the Lib Dem and Labour conferences are already available here.
Tax policy silence
The Conservative conference was remarkable for not just the lack of any new announcements on taxation but for the lack even of restatement of the policies the Government was elected on in June. Neither the Chancellor nor the Prime Minister nor any other minister referred to the Government’s plans for income tax and corporation tax cuts in their conference speeches. Does this mean the proposals might be dropped? Probably not. The corporation tax proposals (cut to 17 per cent by 2020) were restated by ministers as recently as Finance Bill second reading on September 12th, and are a key part of the plan to appeal to businesses post-Brexit. The income tax cuts have cross-party support and a failure to deliver would be seen as a major u-turn. But it may be that the Government are keeping their options open on the timing of the changes, should economic circumstances demand flexibility. Presumably we will hear more on November 22nd.
The absence of any dramatic new policy announcements on tax at the conference will be welcomed with a sigh of relief by most tax professionals. Regardless of party, conference ‘rabbits from hats’ are often driven by political imperatives and tend not to have had the consultation consistent with good policy making.
Low taxes and free markets
In the absence of policy specifics the ‘traditional Conservative principles’ of low taxes, deregulation and free markets loomed large in a non-specific way at the Manchester conference. PM Theresa May, Chancellor Philip Hammond and Foreign Secretary Boris Johnson were among those including passages in their keynote speeches making the case for these objectives as part of a general defence of market-based capitalism. May spoke of why the ‘idea of free and open markets, operating under the right rules and regulations, is precious to us’. She did qualify this, however, saying that the Tories will ‘always take action to fix [markets] when they’re broken’ and always take on monopolies and vested interests when they are holding people back. The Chancellor accepted that ‘no one suggests a market economy is perfect’ but said it is the best system yet designed for making people steadily better off over time. It is the profits from such businesses that underpin our savings and our pensions, and the tax revenue that a strong market economy creates which, in the end, pays for our public services, he said.
The focus on free markets reflects a widespread view in the party (and elsewhere) that this case has not been adequately made in recent years, leading to increased public support for higher taxes, state planning and big government, reflected in the showing of Jeremy Corbyn’s Labour Party at this year’s election. Polling released ahead of the conference bears this out, finding – among many other things – that a majority favour ‘increased taxation, bigger government and more spending’ over ‘lower taxes, smaller government and less spending’.
Contrasting with Labour
The defence of free markets by senior Conservatives was generally accompanied by aggressive assaults on Labour’s ‘hard left’ agenda, illustrating the extent to which the conference agenda had been set by the result in June. By abandoning market economics Labour has abandoned the aspirations of ordinary working people, argued Philip Hammond. Boris Johnson called Labour’s renationalisation programme ‘a display of economic masochism that would do incalculable damage to the future of our children’. He criticised Labour for talking about taxing robots and asked the audience if Manchester had become great by taxing the ‘spinning jenny’. He claimed not a single successful global economy would dream of implementing the ‘semi-Marxist’ agenda of McDonnell and Corbyn of nationalisation and state control. The analysis of the Institute for Fiscal Studies, that Labour’s proposals would increase taxes to ‘the highest level in the peacetime history of the United Kingdom’, was much quoted at the conference. Business Secretary Greg Clark said it was an ‘illusion’ that these taxes would be paid by some distant multinational, rather they would be paid by working people already struggling to get by.
The case for free markets is not the only area where Conservatives feel the party failed during the general election campaign. New Treasury Committee chair Nicky Morgan was one of a number who felt the party had not made enough of economic issues during the campaign. (Philip Hammond had said something similar shortly after polling day.) Morgan said there had been ‘lots of good stuff’ in the Conservative manifesto but that it had not been stitched together into a story about people’s lives.
In the absence (see above) of any mention of future tax policies in ministers’ speeches, discussion of taxation was mostly limited to the conference fringe. Two Chartered Tax Advisers, Stephen Herring (Institute of Directors) and Heather Self (Pinsent Masons) took part in a debate on tax reform sponsored by the TaxPayers’ Alliance, which also featured Treasury Committee member Charlie Elphicke MP. Contributions from the floor ranged widely from complexity (bad) to business rates (too high) to whether it was finally time to merge income tax and national insurance. On the latter Elphicke asked how many of the over-65s in the audience fancied paying national insurance, to illustrate the challenges of making reforms of this kind. Herring suggested there was scope to reform VAT without increasing the amount raised. Self warned that the tax system should not be seen as the solution to everything.
Tax policy process
A fringe organised by the Institute for Government and PwC explored the nature of public debate on tax. Matthew Taylor, fresh from his report on modern employment practices, praised the Better Budgets report and said that with sufficient effort the public can be engaged. Treasury Committee chair Nicky Morgan told attendees that her committee were looking at taking their hearings around the country.
As noted above ministers chose not to highlight the Government’s future corporate tax plans at the conference, though absent any evidence to the contrary we should assume that corporation tax will continue to fall to seventeen per cent by 2020, as planned. (The Chancellor was reported before the conference to be resisting pressure to drop these further cuts.) Some ministers did draw attention to the Government’s record in this area, most directly David Gauke, Secretary of State for Work and Pensions (and former minister for tax), who said the cuts in corporation tax have encouraged investment and thus contributed to the ‘British jobs miracle’. Gauke made a general point that without the tax receipts that a strong economy provides, a government cannot support those that need it most.
Unlike at some previous Conservative conferences there was little chastising of business for poor tax (or other) behaviour. In contrast to her speech last year, which contained a substantial passage attacking ‘tax dodging’ and other corporate misdeeds, Theresa May asked her party to ‘celebrate the wealth creators, the risk takers, the innovators and entrepreneurs - the businesses large and small - who generate jobs and prosperity for our country, and make British business the envy of the world’.
Business Secretary Greg Clark said only that his party needed to champion good work by ‘responsible employers’, listing ‘paying their taxes’ as a criterion for this, alongside paying employees well, training their workers, treating small business suppliers fairly, competing vigorously and not wielding monopoly power He also said that the Conservatives will make sure that in takeover battles bidders have to publish their plans and ‘can’t renege on them’.
As with business tax, ministers said nothing about future personal tax plans at the conference, though there was no such reluctance to highlight past achievements. In her speech, Theresa May said her party had given an income tax cut to over 30 million people and four million people have been taken out of paying it at all. Income inequality is at its lowest for thirty years, she claimed. While not mentioned at the conference, it was claimed in the run up that Philip Hammond favours changing pension tax relief so that it is not so focused on higher earners. The Chancellor of course tried to increase national insurance on the self-employed in the spring Budget before withdrawing the proposal. Unlike the 2015 manifesto the 2017 Conservative manifesto did not rule out future national insurance cuts. However a Downing Street spokesperson said in July that the Government would ‘not be going back’ to the withdrawn proposal. While not technically a tax, one thing the Conservatives did announce at the conference was an increase from £21,000 a year to £25,000 in the threshold at which graduates start repaying their tuition fee loans.
Back in the days when the Conservatives were last in opposition, before 2010, flat taxes were a fashionable idea, with even George Osborne saying their merits should be looked at. Boris Johnson – conference darling for half those present and bete noire for the other half – brought the idea back in his keynote address, teasing delegates with his take on the tax arrangements of east European countries, linking it to how these countries had got richer and freer since the Berlin Wall fell. He said: “You see it in Estonia, tech hub with a high degree of social protection – where they have a flat tax of 20 per cent. In Romania they have a flat tax of 16 per cent and free health and education and higher education. In Hungary they have a tax rate of 15 per cent – 15 per cent? We are all tax-cutting Tories but even I think that is going a bit far.” Much though activists on the free market right would love the idea, there are a long list of reasons – from pressures on government finances to Theresa May’s desire not to allow the Conservatives to be presented as the ‘party of the rich’ – why a single income tax rate is not going to become reality in the UK any time soon.
The challenges of responding to alternative forms of work to traditional PAYE employment have been prominent at all the conferences, and the Conservative gathering was no exception. Business Secretary Greg Clark said the Taylor Review made the UK the first country to think seriously about how the gig economy can drive economic success. At an event held by CIOT and IFS, Employment Minister Damian Hinds espoused the Conservatives’ achievement in bringing ‘employment up to a record high and unemployment down to a historic low’. He set out the Government’s perspective on the ‘gig economy’, reminding people that the sector was not quite so new (e.g. franchises and commission-only in the past), pointing out that most ‘giggers’ have another job’ and that, generally, they work in this sector through a ‘positive choice’. He refused to be drawn on his view of the different NICs treatment of self-employed and employed, saying it was a matter for the Treasury. He said the Government would respond formally to the Taylor Review in ‘due course’.
Last year’s conference rhetoric about activist government has been turned down a bit but the Government remains committed to a ‘modern industrial strategy’. This seems to mean identifying the industries that are of strategic value to the UK economy and supporting and promoting them through policies on trade, tax, infrastructure, skills, training, and research and development. As with Labour, many Tory speakers told of wanting Britain to be at the vanguard of the ‘fourth industrial revolution’ or ‘new industrial revolution’, which means robotics and artificial intelligence. Greg Clark said the industrial strategy means positioning Britain as the world’s most innovative economy, an example being offshore wind power. As battery-powered autonomous cars take over, Britain will be the go-to place for new battery technology, he said, announcing the consortium of businesses and universities who will form the Faraday Battery Institute – advancing Britain’s place in the vanguard of the next generation of this technology.
Brexit of course dominated talk in the main hall, fringe and around the conference venues. Theresa May said ‘our first and most important duty is to get Brexit right’. There was little new on the Government’s strategy, the Prime Minister having set out her approach in a speech in Florence the previous week, including accepting that there would be a ‘status quo’ transition period of ‘around two years’. However Boris Johnson stirred things up by setting out his own Brexit ‘red lines’ in an article ahead of the conference, including stating that Britain should not accept new ECJ rulings or EU regulations during the transition period. According to newspaper reports the Prime Minister’s office believes this will be unavoidable. This is just one of the aspects of Brexit where it seems inevitable that the Prime Minister will upset some of her party. Secretary of State for International Trade Liam Fox told the conference that the Government has a dedicated network of Trade Envoys, and will shortly have a fully established complement of Trade Commissioners to lead nine new regions across the world, bringing together expertise in export promotion, investment and policy at our posts abroad.
Work and Pensions Secretary David Gauke confirmed that the rollout of Universal Credit will continue, and to the planned timetable. “We’re not going to rush things – it is more important to get this right than to do this quickly, and this won’t be completed until 2022”, said Gauke. However he announced that his department is refreshing the guidance to DWP staff to ensure that anyone who needs an advance payment will be offered it up-front. Claimants who want an advance payment will not have to wait six weeks. They will receive this advance within five working days. Those in immediate need will receive the advance the same day, he added.
In her main conference speech, Ruth Davidson, Scottish Conservative leader, said Scottish people are tired of being offered ‘free unicorns’ by SNP and Labour and would rather vote for a ‘strong economy so they’ll always have the security of work’. She wants the Government to ‘spread more of our Union outside the capital’ in order ‘to see our great metropolitan cities have a larger share in the government of our country.’ In his keynote speech, David Mundell, Secretary of State for Scotland, said the Tories had delivered the Smith Commission in full. The Scottish government will have new freedom to cut taxes or to raise them, he said. To attract businesses in or drive them away. To trap people on benefits or support them into work. “I may not like that the SNP want to tax families and businesses by £1 billion more than in England – but that is their choice and they will have to account for it to the Scottish people at the ballot box.” He added that UK’s pooled risk means the Scottish Government can increase spending by over three per cent when their tax revenues fall by over five per cent, and the UK has delivered the biggest boost to the oil and gas industry in over 20 years.
The Conservatives remain committed to the devolution of corporation tax powers to Northern Ireland subject to the executive demonstrating fiscal stability. Northern Ireland Secretary of State James Brokenshire said he will take forward manifesto pledges to develop city deals in Northern Ireland and to explore the potential to establish a UK Government hub as part of a move of public bodies out of London. “And to see the devolution of corporation tax … to enable Northern Ireland to compete for business on a level playing field with Ireland.”
The consequences of Brexit for Ireland, north and south, worries many. David Davis MP, Secretary of State for Exiting the European Union, said both the UK and the European Union are fully committed to protecting the peace process and ensuring that there is no return to the problems of the past. However there is growing concern that the technological solution promised to the ‘Irish border problem’ will not be deliverable on a realistic timetable.
Welsh Secretary Alun Cairns said economic interests need to be Wales’ priority, mostly because of Brexit, ‘when we should be reaching out to new markets, securing new trading opportunities and increasing our exports’. As a result he was critical of Welsh Labour leader Carwyn Jones for demanding a constitutional convention, more joint ministerial committees, another Wales Bill, his role in Brexit negotiations and calls for federal frameworks and structures at every stage.