Ahead of Wednesday’s Budget, our columnist calls for radical action to save the UK from economic oblivion
Welcome to the biggest non-event of the year: the Budget 2013. Surely it can’t be worse than last year’s attempt? Pasty tax and granny tax unravelled Budget 2012 quicker than snaffling a tasty, flaky pastry pie.
This year will be the equivalent of moving the deck chairs around the deck of the Titanic. I’m not expecting great things from George Osborne’s Budget on Wednesday. The economy hasn’t recovered as he and others had hoped and the LibDems will shackle any attempt to do what needs to be done.
Budget 2013: The issues we face with tax
From the Church of England to public protestors to certain quarters of the media, there are waves of concern with an interminable focus on this new measure of everything: “fairness”. We live in an era where tax, to some, has become a moral issue. It’s not.
If you take money out of an economy and don’t replace the lost spending with something, at best you’ll flatline and at worst you’ll contract. That’s what has happened in simple terms.
Contrary to popular belief, you can’t stimulate the UK economy by taxing more to spend more.
Nor will you stimulate it by borrowing more to spend more, as you’ll just put up the cost of borrowing and enter the downward spiral of paying more to service debt. Yet that argument seems to be lost on most people. (Perhaps that’s why payday loan companies do so well here?)
The tax system is just too complicated. The number of pages of guidance has doubled since 1997
Like many people, I am fully supportive of a welfare system that provides health and education to all and welfare benefits to those who need them. But I’m not sure what’s so fair about having to shell out even more money to those who cannot be bothered to work. Indeed, I am not sure what’s fair about condemning the next generation to an economy that’s flatlined.
Before you think I have gone mad and am going to advocate Keynesian economic government spending and higher taxation, I’m not, and I haven’t. Sadly those ideas seem to be gaining traction. The sooner we realise that government is nothing more than a regulator and stimulator, the better.
Give money to a government and invariably they’ll spend it on the wrong things, they’ll waste money, and, rather like a sugar rush, there will be no long-term gain.
Should the government borrow more to spend on housing projects? No. There isn’t a single example of good government or local government-backed housing.
Should the government embark on massive infrastructure projects to kickstart the economy? No. Whilst they should spend on improving infrastructure, they should be encouraging private investors to do their work for them.
Should the government increase benefits in line with inflation, so it can be “fair”? Absolutely not. The welfare bill is too high. Somehow we have to ensure that those who need help receive it and those who merely want it are encouraged back to work.
For nearly two decades the UK has spent more than it should. Easy credit allowed this to happen and creative techniques of shovelling large amounts of expenditure off balance sheets facilitated this massive explosion in central government involvement in our economy.
This has led to billions being wasted on people, systems and infrastructure we neither needed nor wanted. For all their shouting about democracy, the process is hardly democratic, and there is little – if any – accountability.
What George Osborne really needs to do is become radical. Rip up the rulebook and work out what will turn the economy around. In essence, he needs to reduce government expenditure, cut waste, increase incentives for private sector investment, reduce tax and cut red tape.
It’s not easy, but someone’s got to do it! The tax system is just too complicated. The number of pages of guidance has doubled since 1997. Too many loopholes, too much complexity and tinkering have left the system almost incomprehensible.
Indeed it’s the inconsistencies that lead to many of the problems. No tax on a wasting asset, for example. Wine and racehorses are two of the most popular ways for the rich to invest. Visit the HMRC website and you will find the most extraordinary pontificating over the whats, whys and wherefores as to what does or does not qualify. Interminably dull and unnecessarily complicated.
Simplify the tax system and we could save a lot of everyone’s time and money.
So here’s what I would do.
1. Cut the top rate of tax to 40 pence
The cut from 50 pence to 45 was a waste of time. Either the Chancellor should have left it saying a Conservative government would cut it at the next election, or agree to bin it altogether.
2. Cut VAT temporarily to 15%
Advocated by Ed Balls, this is his only policy I agree with. If we stimulate spending then this could help in the short term. VAT at 20% with the income tax rates we currently have is just too high. It would also reduce inflation.
3. Cut fuel tax by 5 pence a litre
Like many people, I am bored of the green rhetoric about fuel. All we are doing is punishing ourselves with higher tax rates to get around and move produce around. It would help to reduce inflation too since it has such an important part to play in living costs. Reduce inflation and you reduce the welfare bill.
4. Reduce Stamp Duty to 2% on all transactions above £250,000
Stamp Duty has become a nightmare. It’s punishing that one aspirational measure in the economy: home ownership. Regardless of means, your main property should not be taxed in this way.
Indeed, what this tax has done is to reduce the properties coming to the market, reduce the amount people spend on moving home and hold up prices due to a lack of supply. It’s a counterproductive and pernicious tax that should go. If it’s oligarchs you want to hit, then change the rules for overseas nationals owning UK property. At the moment it’s lower tax if you don’t live here than if you do. Madness.
5. Abolish Stamp Duty for the first £250,000 of any property purchase
First-time buyers are essential in any property market. They are being punished with lower wages, less free income, no incentive to save, a scarcity of mortgage products and further tax on money that has already been taxed.
6. Introduce a National Insurance holiday for new workers under 25
Instead of the schemes that subsidise private employers to pay less than the going rate, it’s about time we got rid of work credits and payments to people in work and simply made employers pay what they should pay. It’s a highly inefficient system that takes tax and redistributes money in the most cack-handed way.
7. Reduce Corporation Tax
The last measure and perhaps the most important one is to simplify the rules and reduce corporate tax rates. London is a global city. We’ll only keep that opportunity for growth if we can attract not only companies to locate here but locate their HQ’s here. Some may not want them but in order for our economy to develop, evolve and grow, this is our only option.
In essence George Osborne has a choice: either say that he doesn’t have much flexibility and do nothing while focussing his political capital on deficit reduction; or do what he should do, which is to encourage the private sector to get us out of the mess left by his predecessors.
If he doesn’t do something radical, and fast, he’ll find himself out of a job and we’ll be back to square one: left with a government from the spend-more tax-more brigade, condemning the UK to a generation of public sector waste and economic oblivion.
James Max presents Weekend Breakfast every Saturday and Sunday mornings on London’s Biggest Conversation, LBC 97.3 FM. He is a qualified surveyor and worked in property and finance for 15 years. After working for one of the country’s leading property advisory firms, he completed healthy stints in investment banking and private equity, before becoming a candidate on The Apprentice, which launched a career in broadcast media. Visit JamesMax.co.uk.
You need to read: