Tom Frostick: Osborne must target wealth in the Autumn Statement
This is the third in ConservativeHome's series of posts counting down to the Autumn Statement. Yesterday, Tim Montgomerie said that George Osborne's economic narrative is taking shape. And, earlier today, Peter Hoskin urged Mr Osborne to ditch his current fiscal rules.
Getting rid of unnecessary tax breaks and welfare for the rich is sensible at a time of fiscal consolidation. It will make the tax and benefits system fairer, simpler and more balanced. It will raise substantial revenue for the Treasury. And it will help to convince voters that George Osborne is genuine about us all being “in it together”.
In the build up to the Autumn Statement, there has been a lot of speculation around whether the Conservatives will bite the bullet on “wealth taxes” (a blanket, and arguably not very useful, term) in exchange for Liberal Democrat approval on further welfare cuts. But the conversation behind the scenes is likely to be less polarised. Wholesale rejection of “wealth taxes” by the Tories would be bad politics and depart from what Paul Goodman tells us are Osborne’s intentions.
As our submission to the Autumn Statement demonstrates, asking wealthier individuals to make a sacrifice like everybody else does not necessitate a fully fledged, President Hollande-style wealth tax. Osborne can be more judicious than that.
He can start by taxing universal pensioner benefits. Last week, the Conservative Free Enterprise Group called for free bus passes, free TV licences and winter fuel payments to be withdrawn entirely from the wealthiest pensioner households.
A much bigger revenue boost would come from ending unnecessary tax breaks. There are a huge number of them – the Office for Tax Simplification has listed 1,042 – and they do nothing but distort the efficient running of the market and make our tax system more complicated. As a matter of principle, governments should avoid introducing gimmicky, difficult-to-remove tax breaks (note the fiasco over Cornish pasties) and focus instead on broadening the tax base and keeping everyone’s taxes lower.
There is no robust justification for why some types of property should be exempt from inheritance tax. Why capital gains should be treated more generously by the taxman than wage income. Why the wealthiest pensioners should enjoy a tax-free lump sum of up to £375,000. And why the same pensioners should also be exempt from paying national insurance like the rest of us. Addressing these four anomalies would raise upwards of £9 billion a year – money that would be better spent on narrowing the budget deficit or on further reducing income tax.
Next: Osborne must (again) turn his attention to richer people’s welfare. This includes statutory maternity pay. At present, the state gives mums with an income of £150,000 the pro rata equivalent of £135,000 a year when their child is born – a significant oversight when you consider the Government’s determination to introduce a £26,000 household benefits cap. Limiting statutory maternity pay to £800 a week, roughly the higher rate tax threshold, would save £30 million a year.
We accept that none of this is politically easy. But then doing the right thing in government rarely is. The forthcoming Autumn Statement is a chance for Osborne to prove once and for all that the burden of deficit reduction is being shared by everyone, not just those at the bottom. Targeting “wealth” through the tax and benefits system might even strengthen his party’s appeal among non-traditional Tory voters.
Tom Frostick co-authored CentreForum’s submission to the Autumn Statement ‘Freedom, fairness and responsibility’.