“It is a radical vision but it is also a realistic one,” so said Rishi Sunak two summers ago. Many want to forget the leadership wars of that July, when the Prime Minister squared off against Liz Truss on the issue of tax. Truss, the victor at the time, pledged to slash taxes immediately without a properly costed plan, which was followed with the inevitable messy ending. But it was the runner up who set a trajectory that is worth revisiting as Westminster’s eyes turn to 6 March.
General elections are split into the long and short campaigns: the drawn-out shadow slog, where both sides are brawling with each other without really acknowledging it, followed by the formal period when polling day is set and the panoply of rules and restrictions kick in. With Jeremy Hunt announcing the date of the Spring Budget next year — likely the last fiscal event before the 2024 election — much of the wrangling between now and then will be all about tax.
There is scant doubt on the need for action. Even after the Chancellor slashed the main rate of National Insurance (NI) in the Autumn Statement, the overall tax burden is on course to reach a 70-ear high (much of it due to the Covid pandemic spending). The NI cuts will kick in from next week and the next Budget will look to the new financial year in April. So if some fiscal headroom opens up, what options do Sunak and Hunt have?
The first is to return to what the Prime Minister mooted that summer. From 2024, Sunak pledged to cut the basic rate of income tax by 1p to 19 per cent as the start of a trajectory down to 16 per cent by 2029, the end of the next parliament. Such a cut would aid 36 million people with about £200 extra each year, according to the Resolution Foundation think-tank. But it is not cheap, costing roughly £7bn for each 1p cut.
The next option is raising thresholds for income tax — tackling the so-called “stealth taxes” that are dragging middle income earners into higher brackets. One criticism of the Autumn Statement was that, for some, the monies gained from the National Insurance cuts were being wiped out by more people dragged into the 40p tax rate thanks to higher inflation. At the moment, the thresholds are due to be frozen until 2028. It was left alone in November, but the thresholds must be a top target for the next fiscal event.
A combination of these two could be the sweetest spot for the Budget. Focusing on income tax would yield the most support from the electorate. According to polling earlier this year by Ipsos MORI, cutting income tax on income paid between £12,570 and £50,000 is by far the most popular tax cut across all ages and all parts of the country with 44 per cent of voters backing it. Meanwhile council tax comes second on 34 per cent and VAT on 26 per cent.
But some in the Conservative party are angling at inheritance tax. The most articulate case for cutting or scrapping it was made by Boris Johnson, who argued that baby boomers have accrued great assets that should be more swiftly passed onto future generations. But instead of scrapping it, the Government would do better to look at more granular changes within the current system, such as preventing the super-wealthy from using loopholes to help their descendants or reducing the 40 per cent rate. With Tory MPs from Jonathan Gullis to Neil O’Brien arguing it’s the wrong priority, scrapping it right now risks backfiring when the cost of living is the prime concern.
Although much of the 6 March debate will focus on taxes, Sunak and Hunt should not forget supply-side measures to increase investment. One of the most welcome announcements in the Autumn Statement was the introduction of permanent “full expensing” — a tax relief for businesses purchasing new machinery or equipment that will unleash capital spending. These allowances should be expanded: the Treasury should look at pushing “full expensing” beyond a narrow section of physical infrastructure, thereby helping tech startups who need more cloud computing power, for example.
Younger housebuyers should also not be forgotten either, and the obvious target is stamp duty. As Onward has argued, it is fundamentally a bad tax. It creates friction in the housing market and is preventing people from buying their first home, or moving for work, or downsizing to free up housing stock. The Government should examine significantly ramping up the level at which stamp duty kicks in, presently at £425,000, to help with getting on the first step on the property ladder.
Everything about this Budget will be seen through the lens of the general election, especially amid the feverish gossip of a potential spring campaign. But the policy focus should remain on helping working people and families the most — and doing so in a sustainable way. The overriding principle for this fiscal event should be targeting those on low and middle incomes, while not forgetting the younger millennials who are amenable to tax cuts but are presently turned off by centre-right politics.
Any tax and supply-side measures must be sustainable. Whereas Labour has tied itself in knots over the £28bn of green investment, the Government should ensure that any cuts are based on sound money without wholly unrealistic spending constraints in the future. Battling to reduce inflation has not been easy, not least due to the ensuing shallow growth, but the trade off was totally necessary. Now, figuring out how to help those who need it the most must be key to what is revealed on 6 March.
Sebastian Payne is director of the centre-right think-tank Onward
Rishi Sunak should cut income tax if he wants millennial votes
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28.12.2023
“It is a radical vision but it is also a realistic one,” so said Rishi Sunak two summers ago. Many want to forget the leadership wars of that July, when the Prime Minister squared off against Liz Truss on the issue of tax. Truss, the victor at the time, pledged to slash taxes immediately without a properly costed plan, which was followed with the inevitable messy ending. But it was the runner up who set a trajectory that is worth revisiting as Westminster’s eyes turn to 6 March.
General elections are split into the long and short campaigns: the drawn-out shadow slog, where both sides are brawling with each other without really acknowledging it, followed by the formal period when polling day is set and the panoply of rules and restrictions kick in. With Jeremy Hunt announcing the date of the Spring Budget next year — likely the last fiscal event before the 2024 election — much of the wrangling between now and then will be all about tax.
There is scant doubt on the need for action. Even after the Chancellor slashed the main rate of National Insurance (NI) in the Autumn Statement, the overall tax burden is on course to reach a 70-ear high (much of it due to the Covid pandemic spending). The NI cuts will kick in from next week and the next Budget will look to the new financial year in April. So if some fiscal headroom opens up, what options do Sunak and Hunt........
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