Enough tinkering, now is the time for a more radical approach to tax and social policy
November 22, 2016
If you are the new Chancellor of the Exchequer, with the task of making the economy more resilient, if not watertight, then what do you do with tax policy right now? Do you use this unique opportunity to reset policy, or do you focus on uncertainty and so play it steady? Bearing in mind all eyes will be on you as you take the stand at the despatch box for an Autumn Statement which will signal the direction of the UK's fiscal stance for years to come.
The Chancellor, no doubt, has some tough decisions to make but I would urge the Chancellor to be visionary and to grasp this unique opportunity to map out the new deal for post Brexit Britain.
To deliver on the Government’s worthy ambition of making success work for everyone, we need fundamental reform of fiscal policy. Tax and social policy need to be viewed in the round. We need a consensus on the right level of tax for the economy, the behaviours to be encouraged and what role tax will play in spreading the rewards of success and building in some of the resilience needed. This doesn’t have to be about swingeing changes overnight - but embarking on a new settlement for the decades ahead. A settlement which will provide fairness, competitiveness and ultimately drive productivity.
Where to start? Here’s a few pointers of things to look at.
Employment is our lifeblood. In a future world where many jobs are automated, how do you protect people's incomes and broaden the skill base? New thinking is needed to better link tax with social policy, particularly education, pensions, and end of life care. We need to harness the skills and experience of our older generation - what’s the succession plan for our workforce? We may need a radical new approach - for example, some thinking could be given to a minimum income guarantee. Might a guaranteed income also encourage people to take time out for training or education, helping plug skills gaps and boost UK productivity?
Housing is a huge priority. Can tax policy play a part in tackling this? The property tax regime needs a complete overhaul. Each budget sees piecemeal change that does little to address the fundamental problems. Do we want a system that encourages people to hold property to accumulate value; a system that discourages people to move; a system that creates a generation of renters? Small changes like restricting tax relief on buy-to-lets are like using a sticking plaster to treat a fever. We need to move from transaction taxes that are a disincentive to the behaviour we need right now; wealth taxes are unpopular because they are typically suggested as additional taxes - on top of what people already pay. But shifting tax from income to wealth over a longer period would unlikely meet the same resistance.
Part of the contribution of business is in supporting an economy that helps growth, increases the tax take and creates more jobs. UK business currently bears around £164bn in tax each year and whilst corporation tax remains an important source of tax revenue, it is becoming a smaller part of the tax mix, as governments shift the balance to less volatile taxes including business rates. Is this shift the right way to go, given it hits some sectors disproportionately. What is the right tax for a competitive UK in the digital age?
How many of these questions will we get answered from the Chancellor on Wednesday? Even if he doesn’t say much we will learn a lot from this Autumn Statement so stay up-to-date with us on what comes out of the announcement through our Autumn Statement web pages. We also have a live webcast to bring you right up to date on the afternoon’s events so click here to register for our live ‘on the day’ webcast where our specialists from across the firm will read between the lines of what was said – and give views on what it all means.
Stella Amiss: [email protected]