If you want a decent private sector recovery you need to cut taxes

Labour are wrong, wrong, wrong to oppose the Conservative policy of cutting National Insurance taxes. They put substantial extra tax into their budget deficit cutting plans for the next four years which will only materialise on the scale imagined if they cut tax rates on company and individual incomes. As I have often argued on this site, the way to increase the tax take is to cut the tax rate.

Labour’s case against George Osborne is that his NI cut is “unfunded”. Well, that’s a bit rich from the people who have brought us £167 billion of wasteful and unfunded expenditure this year, and are planning almost as much again next year.

The Tories are right that the UK is no longer tax competitive. That matters. If we do not change that soon, more businesses will leave, fewer will come here to set up in the first place, more UK entrepreneurs will go on strike. The Tories say they will cut Corporation Tax to 25%, cut small business tax to 20%, and take 1% off NI. The only worthwhile question to ask is “Is that enough?” Once a country gets a reputation for being uncompetitive, once it gets out that the government hates the private sector and clobbers enterprise, a new government may need to send a very strong message that things have changed.

Holland offers a lower Corporation Tax rate and a 36% top rate of income tax. The UK at 28% and 50% is way off the pace. There need to be more tax cuts for stronger growth, more tax cuts even to hit Labour’s targets for the amount of extra tax we will get in from growth. I want to tax the rich more. To do so we need a top rate of 40%, not 50%.

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27 Comments

  1. Posted April 1, 2010 at 8:55 am | Permalink

    No it's not enough, it's merely a holding pattern.
    For a model on small business taxation and enterprise look to our English-speaking neighbour, Ireland. 12.5% Corporation tax, employment subsidies for jobs at risk (maximum allowable Eu 500k), R and D support. Lower CT rates attracted major US Companies to invest there, giving employment and customers for smaller indigenous enterprises.
    I know it's EU money, but given that we're printing ours, this might be a better place to put it than giving it to the equality/diversity brigade.

  2. Posted April 1, 2010 at 8:59 am | Permalink

    Messrs Cameron and Osborne should spell it out as clearly as this. Rather than the blurry “Tax on jobs”

  3. Posted April 1, 2010 at 10:20 am | Permalink

    Absolutely right, the UK is completely out of the game. We need more than a scalpel to lower tax rates, a machete is more like it.

  4. Posted April 1, 2010 at 10:24 am | Permalink

    If some tax cuts are good, more tax cuts are better so why not go the whole way. Abolish income tax and NI completely. You'd be surprised just how effectively this would end unemployment if it was accompanied by a commensurate abolition of the welfare culture.

  5. Posted April 1, 2010 at 10:59 am | Permalink

    Labour only knows one way – tax and spend (waste). Your party's job, which it hasn't been doing very well until recently, is to ram home the dangers of this policy which far from being benevolent is destined to bankrupt us all.

  6. Posted April 1, 2010 at 11:14 am | Permalink

    Yes, reversing the socialist proposed increase in NI charges is the right way to move but it really is no more than gesture politics.

    Neither George nor Dave have indicated that a reduction in taxes forms a central part of their strategy and until they do we have to assume it does not.

    Government now spends 53 percent of our income which shoud be a big wake up call. We should forget the idea that a reduction in tax rates will increase the tax take; we should not be looking to take any more tax from the private sector under any guise.

    What did you do in business when the P&L was looking as sick as a dead parrot. Increase prices? I'll bet you didn't. You cut the size of the organsation including headcount. You might have also cut prices a tad just to fox the opposition.

    No, the answer is to drastically cut the size of government and to use the proceeds to both cut our indebtedness and to reduce taxes, and if Dave is worried that to do so will be to invite the socialists to label him the nasty party then it will be a jolly good thing for him to lose the next election.

    A re-elected socialist party will undoubtedly take us to the poor house, but then there is nothing that will concentrate minds more than a bit of poverty and, far better that the socialists take us down that road than the Conservatives.

  7. Posted April 1, 2010 at 11:17 am | Permalink

    One of the worst taxes, in my opinion, is the tax on fuel. This increases the price of everything. With the weak pound, the government should be reducing fuel taxes to make Britain more competitive. High fuel taxes means more unemployment, and, probably some fuel dependent companies going to the wall. You would think even "Brown the incompetent" would understand that.

  8. Posted April 1, 2010 at 11:48 am | Permalink

    I suppose Osborne is going to have to wait until the statistics show the Laffer curve at work unequivocally before he can act. It might be worth keeping a beady eye on the emigration data too – and making sure that it is well captured. Not always so easy to do when companies are moving head offices to Holland to take advantage of the better deals there (expatriates get some extra discounts I think so their top rate is just 30%), because movement data within the EU is hard to come by. Such data as we have suggest that the brain drain has been in full swing during the Brown years. If there's immigration we want, it would be returnees who have the skills and ambition to make something of themselves who have gone abroad to do so.

  9. Posted April 1, 2010 at 11:56 am | Permalink

    Darling said clearlyhe expects recovery to come via the public sector. These idiots just never learn.

  10. Posted April 1, 2010 at 12:21 pm | Permalink

    Completely agree with your post. National Insurance taxes are an extra income tax on workers and an extra tax on businesses, directly related to how many people they employ. As far as youth unemployment is concerned, it is another reason not to hire a young inexperienced worker on top of the minimum wage problem. Admittedly, our minimum wage is not as high as France or Ireland, where the minimum wage is equivalent to $12 per hour, compared to us at about $9 per hour. However, we are a lot less competitive than practically every other country in the world, including the USA, but excluding most of western europe.

  11. Posted April 1, 2010 at 12:22 pm | Permalink

    It is the language that Labour, helped by the card carrying media, 'gets away' with that is wrong!

    Halving a proposed increase in a tax is NOT a cut – it is a reduction in the tax rise. It is still a tax rise.

    If, as History, and Mr Redwood has referred to, shows that lower taxes lead to higher tax take then it is Labour which has to explain where the money, other than borrowing, will come from to pay for the tax hikes.

    A Labour spend of £100bn on a service this year with a previously proposed spend next year of £110bn but now expected to be £105bn is not a cut as Labour claim but an increase spend of £5bn.

    The National debt is not the deficit – the annual deficit increases the National debt. We are charged interest on the National debt which has to be paid for. If we are running a deficit then we are borrowing to pay the interest on the borrowings. A recipe for disaster – if it is not too late?

    The Channel Tunnel did this – ending up defaulting on the interest due on the interest due – if my memory serves me correctly.

    The facts are straight forward – it is clearing the NewLabour smokescreen which is vital – which seems unlikely given the growing anti-Conservative media groundswell.

  12. Posted April 1, 2010 at 12:37 pm | Permalink

    When asked if national insurance was a tax on jobs on the today programme, Mr Byrne said that 'when national insurance has gone up in the past to increase spending and investment in the health service then the number of jobs in the economy has gone up not down'. Surely he was using the expansion in government spending and employment to make this claim. We all know that Labour have reached the end of the road with government spending because of the debt and so any increase in jobs at this point in the cycle can only come from wealth creation in the private sector which will lead to improvement in the balance of payments. He is comparing state spending during a boom with taking money away from the private sector wealth creators during a bust, they are not comparable and we know as do our business leaders that to generate tax take you have to reward everyone for their effort. The Laffer curve in other words.

  13. Posted April 1, 2010 at 12:43 pm | Permalink

    It is a question of 'Is it enough' but on the other hand you can definitely say 'It's a step in the right direction'. Labour have shown themselves willing only to move the tax burden in one direction by inventing ever more stealth taxes, expanding the number of people caught by existing taxes and raising existing taxes.

    The Conservative leadership should be applauded for signalling that if they gain power they will stop this one way traffic and start getting us back to a position where we can start to rebuild our shattered economy.

    The way I think of the NI rise is (and I don't know if this is correct) for every 100 employees in a company this tax effectively either makes one redundant or stops someone from being hired. A simplistic view, but one that I feel captures the essence of this tax rise.

  14. Posted April 1, 2010 at 1:35 pm | Permalink

    New Labour. All tax is good because we can spend your money better than you can.

    Me (and I hope the Tories). Applying the 80:20 rule. 80% of tax is bad because I (and everyone else) can spend my money better than the Government, especially if its New Labour.

  15. Posted April 1, 2010 at 1:42 pm | Permalink

    John, can you PLEASE get your tory colleagues to explain that you do not FUND excessive spending – you cut it instead and then you do not need to raise NI.

    The NI "tax cut" only needs funding if govt intend to keep overspending. Stop the overspending.

    It is a simple enough message.

  16. Posted April 1, 2010 at 1:49 pm | Permalink

    The Conservatives need to ask the Treasury to make a clear statement on (1) the total debt – including PFI and public sector pensions and (2) the total cost of red tape.

    Growing a company in the current climate is extremely difficult with all the red tape.

    The most efficient cut of all is to cut the red tape so companies can grow. Complex tax laws, gathering statistics that are then skewed by politcians, little personal responsiblity by management.

    The second most efficient cut is to cut benefits so people want to work. The faux-disabled taking money off the real disabled. Single parents working only 16 hours a week to get tax credits.

    The third most efficient cut is to cut invisible public sector benefits, such as pensions.

    The fourth most efficient cut is to cut contracts to the public sector and make the rest of the contracts public.

    The fifth most efficient cut – is to cut senior management who earn more than the PM.

    Front line cuts are a long, long way off.

  17. Posted April 1, 2010 at 2:07 pm | Permalink

    It isn't enough but it is a strong step in the right direction & Osborne must hold his nerve. This is a genuine & important difference between Labour & Tory & as you say Labour are, who defend massive unfunded government spending on the grounds it is needed to stop recession are not in a positiion to object to minor expense in tax cutting to promote growth in the private sector – the only productive sector.

    It is about time we had some differences.

  18. Posted April 1, 2010 at 3:04 pm | Permalink

    One thing we don’t need and that the private sector doesn’t need is the proposal for 5,000 “community organisers” to get people to “volunteer”! Is there no-one in the Conservative campaign organisation capable of realising that people are fed up to the teeth with having their lives organised by governments and that businesses are fed up with having to foot the bill for this kind of nonsense? I thought this was an April Fool’s Joke but then saw it was a day early for that and that only the “Fool” part was right. How can we be taken seriously with talk of cutting taxes and bringing about a job-creating recovery when we get this kind of nonsensical proposal, on a par with the “street football co-ordinators” and “diversity co-ordinators” and the like that we’ve all laughed at for the last thirteen years? People will volunteer of their own accord, not because they’re marshalled into doing so by another load of tax blood-sucking jobsworths. Are the Conservative “leadership” so bereft of ideas that this is the best they can do?

    • Posted April 2, 2010 at 8:27 am | Permalink

      moulin a paroles

      Absolutely correct, we have many, many voluntary organisations in the UK already, which cover most areas of concern.

      These people often do charitable work, at a cost to themselves (paying their own expenses), because they want to put something back into Society, but they are being frustrated by:

      Health and Safety Regulation (for Events like Fairs, Carnivals).
      Local Council Regulation (for street collections, Public Liability Insurance, fees for road closures and use of Public space).
      Government CRB checks (to protect vulnerable people)
      The Banning List (to protect vulnerable people)
      The Insurance claim culture (Risk Assessments, Method Statements required for everything).
      And many other too long to list hoops to jump through.

      For too long the Government have accepted and come to rely upon the volunteer sector to often fulfill poorly worked out Policies.

      The problem now is that people are LEAVING the voluntary sector, because they are already getting fed up with Government rules and regulations.

      • Posted April 2, 2010 at 10:15 am | Permalink

        Alan, I also had a quick stab at the cost of this Conservative proposal. Taking salaries of £20,000 a year, adding on social security and NI, adding on gold-plated pensions, adding on the inevitable assistants, administrators, managers and co-ordinators of the co-ordinators that the scheme would spawn, I doubt whether, for 5,000 of them, we'd get away with less than £300m a year. Now that would build at least a dozen schools or polyclinics a year, perhaps more if the money was actually just given to voluntary groups who'd be sure to drive a better bargain in spending the money while making sure they got something that satisfied their needs.

  19. Posted April 1, 2010 at 4:13 pm | Permalink

    John,

    Unfortunately, there is no Conservative policy of cutting National Insurance taxes. As spelled out by George Osborne, the policy is to not fully implement the rises planned by Labour. Overall, National Insurance will increase, albeit (thankfully) by a rather lesser amount than Labour have planned.

    Employment is something we should be encouraging, not penalising. The sooner that employers' NI is reduced and then abolished, the better.

  20. Posted April 1, 2010 at 5:20 pm | Permalink

    A tax on jobs doesn't worry the large number who have no intention of ever working.
    Tories should freeze all unemployment benefits at the level that they were initially paid to a claimant, so that they get less in real terms as time goes by. (the government does this to pensioners who have the audacity to go and live abroad outside the EU). Why not the same for the unemployed?

  21. Posted April 1, 2010 at 5:23 pm | Permalink

    Glad to see that there are others at CCHQ who share your satirical humour or were you behind this spoof? http://dogw.co.uk/

  22. Posted April 1, 2010 at 5:32 pm | Permalink

    I am glad that John Redwood mentioned the need to increase the total tax take. The UK's present and prospective debt is so horrendous that we need to increase the total tax take from 36.1% of GDP to 38.5% of GDP. That is necessary even with the most drastic of public expenditure cuts – John Redwood's 10% by Spring 2012 and then some more.

    We can get half of what is required by raising VAT to 20% and reducing the low rated, zero rated and exempt items. We could increase the duty on wine which, on a tax per litre of alcohol basis, still carries less duty than beer and spirits. The rest will probably have to come by sqeezing a bit more out of income tax – but in an economically dynamic way.

    There is an excellent summary on line "A survey of the UK tax system" by Stuart Adam and James Browne, an IFS Briefing Note. Here are some of the stats on income tax:

    The top earned income tax rate came down from 83% in 1978/9 to 60% in 1979/80 to 40% from 1988/9 onwards. The threshold at which higher rate tax rates (40% plus) start has, in terms of constant prices, come down by £5000 between 1978/9 and 2008/9 (most of the change occuring since 1993). The number of people paying tax at the top rate has increased from 674,000 in 1978/9 to 3,640,000 in 2008/9.

    Shares of the total income tax liability of the top 1%, top 10% and top 50% of income tax payers have been 11%, 35% and 82% in 1978/9 and 23%, 53% and 89%. If you look at the stats for the intervening years, it is clear that the big change followed Nigel Lawson's 1988 budget.

    All of this backs what John Redwood is saying.

    Further down the income scale, the personal allowance has risen in real terms since 1978/9 (although maybe not if you include the former married man's allowance). The standard rate of income tax has come down from 33% in 1978/9 to 25% in 1979/80 and in steps down to the 20% of today. If a mistake has been made, it is probably in reducing the standard rate too much but, hey, there is an election to be won.

  23. Posted April 1, 2010 at 7:41 pm | Permalink

    We do not need a top rate of 40% at all. what we need is a flat tax rate in the middle 30s with a high personal allowance. When will the Conservatives do this?

  24. Posted April 1, 2010 at 9:46 pm | Permalink

    Unless something sensible is done eftsoons and right speedily, I think the sacred Armageddon is just round the corner.
    We need some flair, for heaven's sake! Haven't people ever heard of Pinochet and Chicago? (Sorry, that is forbidden territory).

  25. Posted April 2, 2010 at 7:23 pm | Permalink

    Tell us about the rabbits George. This character is just the puppet of the City. What knowledge or experience of the economy does he have? Most business students could spin a better yarn.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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