George Osborne's speech this morning on The Principles of Tax Reform is well worth reading. The pledge to create an Office of Tax Simplification, originally proposed by Lord Forsyth's Tax Reform Commission, is welcome and the overall desire to stop taxation by stealth and on the hoof changes to the tax system is undoubtely desirable.
Road hauliers will welcome Mr Osborne's response to a question from my colleague Matt Sinclair, who asked whether he would accept that the Pigovian case for green taxes implied an optimum level of green taxes, at the social cost, rather than unlimited increases in green taxation and whether he would accept that some green taxes are therefore already set too high. The Shadow Chancellor appeared to accept the logic of this point on fuel duty – arguing that the current Government’s use of it as a revenue raising measure was harming confidence in the case for green taxes. The Freight Transport Association launched a new campaign on fuel duty this very week, so if the Conservatives respond to this mounting concern it will be great news.
George Osborne was also questioned closely by a number of journalists about whether the tax changes he unveiled at Conservative Party add up. The Government estimates that they will raise £650 million from their £30,000 nom-dom fee, whilst the Conservatives expect to raise £3.5 billion from their £25,000 fee - a point Guido makes in his blog today. Mr Osborne replied by saying that the Inheritance Tax changes in the Pre-Budget Report meant that increasing the threshold to £1 million would now cost less than previously thought, so the sums still added up. I haven't been through the figures on this, but that would surprise me.
Earlier this week, the Conservative Party's policy team confirmed to the TaxPayers' Alliance that married couples would continue to be allowed to combine their inheritance tax allownaces. This implies that the soundbite "only millionaires would pay inheritance tax" is not strictly true. Only millionaire single people would pay inheritance tax, but married couples with assets of £2 million or less would also be exempt. This is great news, but it could have implications for the cost of George Osborne's tax proposals.
The Shadow Chancellor didn't have a lot to say about cutting the overall burden of tax. As my colleague Corin Taylor blogged this morning, Mr Osborne has said repeatedly (and rightly) that the Government's tax rises have been damaging to the economy. So why won't he come out and say that he will reduce them?
What worried me most was Mr Osborne's suggestion that the Government had accepted the principle of sharing the procceds of growth and that the tax burnden would now therefore fall over the economic cycle.
"Now the Labour Government have been forced by their own profligacy to adopt plans for the coming three years that halve the growth rate of government spending from 4% to 2.1%. They too will be sharing the proceeds of growth."
Well, not really. We're still waiting for the Conservative Treasury team to acknowledge that economic growth this year is almost certain to be below the 2.75% trend that Hammond alluded to on ConservativeHome's Platform last week and probably the 2.1 per cent growth in spending under Conservative and Labour spending plans. How will the gap created by lower than expected growth be filled? More borrowing, more tax or less spending?
