Tax

Robert Halfon MP: Cutting the 50p tax rate must NOT be a priority for modern compassionate conservatives

Robert Halfon is Conservative MP for Harlow.
Tax cutting is as much political as it is economic.  That means that it is no good just to argue the economic case for cutting the fifty pence tax rate without any consideration of the political consequences. 
And the political consequences of such a tax cut - at this point in time during the economic cycle - are enormous. 
At a stroke, it would allow our opponents to re-characterise the Conservatives, as being the party of the rich - for the few, not the many.  The signal that such a tax cut would give to the public - many on average wages of £20,000, struggling with rising prices, would be that Conservatives were looking after vested interests:  not so much a dog whistle - more a full blown trumpet.  It is not hard to imagine the response on our doorsteps, and the leaflets from the Labour Party that would result.
For years, - particularly in the dark days of Opposition - Conservatives allowed themselves to lose the low tax argument. Conservatives and tax cuts came to be synonymous with a belief that were not so much the nasty party, but the party of vested interests. That is what made it so much easier for Gordon Brown to slap on the fifty pence tax in the first place - knowing how hard it would be for a future government to undo.
To win the tax-cutting argument, we need to first prepare the ground, explaining why lower taxes are literally about social justice:  a fool proof mechanism for empowerment.  Then we need to demonstrate that tax cuts are for the the many not the few. That tax cutting is indeed a moral creed designed to help the poor.
So more tax cuts for lower earners - raising the tax threshold even further to eliminate the poverty trap.  Cuts in petrol/diesel taxes which millions of motorists will benefit from. Later, when the deficit is under control - some serious income tax cuts - again strengthening the whole country.
I am not saying we should never reduce the fifty pence rate - but it could be implemented once the economy has recovered. It can only come when the public are convinced that 'tax cuts' and Conservatives mean a fair deal for everyone.
I despair at the fifty pence tax rate becoming the main part of the tax cutting debate. This stuff just plays into the hands of our enemies and those who wish to stereo-type Conservative activists or policy.
All this does is make it harder for us to win a real Conservative majority - so as to implement a real long term tax cutting agenda, without the constraints of the Coalition.
Why not use the language of tax cuts for social justice; lower tax cuts for lower earners; empowerment for all.  These would make a much better trumpet sound and give us a real chance of demonstrating that we really are the party of social justice - whatever the socialists might say.

Full article here

Taxation

What was the problem with the 2012 budget? The problem was not so much what the Chancellor did but rather what he did not do. There was precious little in this budget to address the most pressing need of the British economy – and indeed the world economy – the need for growth.

 Tax Troubles: A lack of principles

Take the Big Media Story first. The Chancellor fed some red meat to the Tory heartland by reducing the top income tax rate from 50 per cent to 45 per cent but needed to sell this to his Lib Dem partners. This was done by a number of wheezes including the hopes-spring-eternal tightening of tax loopholes. But the main soak the rich policy was a new 7% rate of land stamp duty rate on houses worth over £2m. Her Majesty’s Treasury puts the cost of the 45p tax at only about £100m per year, but the stamp dutyrevenues at well over £200m per year. What could be better? More tax revenue and the only people complaining are the London prime real estate agents and the whinging Labour front bench!
Unfortunately, the Chancellor has missed a chance to make a real reform to the dumb tax of stamp duty. Basic public finance principles say that taxing an immobile factor like land is a good thing because it creates less distortions to behaviour – for example it cannot up sticks and leave the country. But Principle 2 says that we should tax property values rather than just the proceeds from selling a house. Someone who doesn’t sell a house has been sitting on a huge untaxed capital gain. Council taxes hardly touch this, not least because successive governments have backed away from properly revaluing the housing stock for fear of upsetting voters. But taxing transactions reduces the incentive to move, say for purposes of finding a job. Rather than reform the tax system to make it “fairer, more efficient and simpler”, this complicates it further.
Reducing taxes on the very rich such doesn’t seem fair in an age of austerity, but will the reduction in the top rate of tax make a big difference to incentives? The truth is, as my CEP colleague Alan Manning has written, no one really knows. The lower than expected tax take from the 50p tax could simply be because of changing wage patterns rather than the rich slacking off.
Reducing child benefit for the rich is a reasonable move, but it would have been better to integrate this properly into the existing system of child tax credits and benefits. Instead it is being bolted on to the whole system which is going to create more complexity and perverse incentives.
What this whole episode of tax at the top illustrates is the triumph of political manoeuvres over sound public policy principles.

The Big Picture: We need an alternative to Plan A

As expected there was no movement away from the Chancellor’s current austerity programme. In my view, the rate of fiscal consolidation is too fast and unnecessarily raising unemployment and slowing growth. Economic forecasting is a conservative profession but most regard austerity as directly knocking a third of a percent off growth last year and more this year. Unfortunately macro models do not fully factor in the way in which austerity damages the productive potential of the economy as unemployment begets more unemployment as scrapped workers lose their skills and motivation. Putting these in to their equations would result in an even larger depressing long-term effect of austerity on growth. And since in 2011 GDP growth was a pathetic 0.8 per cent, this is a big, big cost.
The Chancellor’s defence of his tight fiscal stance is that it is needed to calm the nerves of over-anxious bond traders. But I can see no reason why the markets would panic from a set of policies to boost government investment in shovel-ready projects like school buildings or road repair. Unfortunately these types of investments have been curtailed the most severely over the last few years. Nor do I see major costs to our fiscal credibility in offering temporary NI breaks to mitigate the scourge of young unemployment which is at record levels.
Putting aside the overall fiscal position though, there are two concerns over the Chancellors’ economic strategy.
But it’s not all bad news…  
There are many welcome aspects of the Budget – the increase in personal allowances, longer term government bonds, credit easing, and implementation of the Vickers proposals to reform banking. There are worthy consultations over local pay, integrating NI with income tax and controls over tax deductions. Of course we need to see whether consultation becomes action. But none of these welcome moves are enough to counter the deeper intellectual vacuum at the heart of the Budget and the government’s whole approach to economic growth.

Read more here.