Where does George Osborne stand on the three big tax debates in British politics?
By Tim Montgomerie
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Some interesting developments on tax policy this weekend. Three stand out.
(1) THE JUMP-START-THE-ECONOMY WITH TAX CUTS ARGUMENT
The one that has got the most attention is Ed Balls' call for a "temporary reversal of [Osborne's] VAT rise". Guido takes Ed Balls seriously and thinks the Shadow Chancellor is closer to the true Lawsonian/ Reaganite path than George Osborne - the man he dubs "Chancellor Zero". George Eaton reminds us that at least one Tory MP - David Ruffley agrees with Mr Balls. I don't. Increasing debt in the middle of a debt crisis remains very dangerous. (A) we could easily unsettle international investors by making unfunded tax cuts and (B), as Douglas Carswell blogs, "rather than a VAT cut bung, designed to make us spend money we do not have, we should cut taxes on productive activity; tax cuts on income, labour and on businesses." Fraser Nelson agrees with Douglas. My preference would be tax cuts funded by tougher cuts in spending. It was also the preference of Tory members when ConHome polled them before last year's party conference. John Redwood has recently been outlining the kind of cuts that could buy Mr Osborne some tax cutting wiggle room. Better-than-expected borrowing numbers might also give Osborne up to £6 billion of scope for tax relief.
(2) THE WEALTH TAXES VERSUS INCOME TAXES ARGUMENT
The Liberal Democrat push for higher wealth taxes is getting stronger rather than weaker. The Independent on Sunday identifies a pip-squeaking Lib Dem grassroots plan for £16.5 billion of tax increases on the wealthy. This includes...
- A 1% annual levy on homes costing more than £2m, which could raise £1.7bn;
- A general anti-avoidance rule – expected in the Budget – could net the Treasury £1.4bn;
- Limiting pension tax relief, netting £7bn;
- Astamp-duty avoidance clampdown, £750m;
- A global financial transaction tax £4.4bn;
- Finally, targeting non-doms who have been in Britain for seven of the past 10 years would garner £1.3bn.
There is no way that most of these measures (notably number 5) would get past George Osborne but it is interesting that, according to The Sunday Telegraph, David Laws is about to join the argument. The Conservative Party's favourite Liberal Democrat will recommend a mansions tax and cutting pension relief for higher-rate taxpayers. This £9 billion of extra revenue could be used to immediately deliver a starting threshold for income tax of £10,000. Laws has previously been sceptical about wealth taxes but - if reporter Robert Watts is correct - the former Chief Secretary to the Treasury has decided that the greater evil is leaving low earners to struggle on through one of the nastiest income squeezes of modern times.
(3) THE TAX BREAK FOR MARRIED COUPLES VERSUS HIGHER INCOME TAX THRESHOLD ARGUMENT
Last week's Sunday Telegraph splashed with the news that George Osborne had ruled out any early introduction of a tax break for married couples. The Centre for Social Justice has been fighting back in the last couple of days with evidence that a marriage tax break is not only good for families and children but is more pro-poor than the Lib Dems' favoured policy of higher income tax thresholds. The CSJ is leaning on research by the Christian charity Care and which was platformed on ConHome a fortnight ago.
Two graphs from the Institute for Fiscal Studies show that "75% of the benefit of increasing the personal tax threshold to £10,000 would go to the richer half of families, whereas 70% of the benefit of a transferable tax allowance proposal goes to the poorest 50% of families";
One of the reasons for this perhaps surprising fact is that higher thresholds tend to disproportionately benefit two earner families and such households are already more likely to enjoy above average incomes. Download a PDF of the CSJ's "It is time to back marriage" report.
So we know what Ed Balls, Guido Fawkes, David Ruffley, Douglas Carswell, Fraser Nelson, John Redwood, Liberal Democrats including David Laws... and the Centre for Social Justice think. But what does the man who matters think? It might be sensible for George Osborne to speak before next month's Budget. At that moment, stood at the despatch box, he'll be announcing specific measures. Before then a philosophical speech setting out his thinking on which taxes are most economically damaging might help set the terms of debate. At the moment the debate is being led by too many others.