Adam Corlett: A chance for the coalition to scrap an entire tax

Adam Corlett is a researcher at CentreForum and author of a recent report on National Insurance for the self-employed. You can follow him on Twitter here.

The government has launched a consultation on simplifying one form of National Insurance for the self-employed. But the Conservatives and Liberal Democrats can be bolder. For a cost of under £260m, it could scrap this entire class of National Insurance. We all know that National Insurance makes the tax system unnecessarily complicated and opaque. For a start, there’s Class 1 (both primary and secondary), Class 1A, 1B, 2, 3 and 4. It’s disappointing therefore that  the coalition has shied away from major reform in this area.

Those with self-employment income pay Class 4 - at a basic rate of 9 per cent - as well as Class 2: a fixed charge of £141 per year. At present, these are dealt with through two separate processes. Following advice from the  Office of Tax Simplification, HMRC has just launched a consultation on bringing these within the same, end-of-year assessment process. But by sticking within the OTS’s revenue-neutral remit, the Chancellor is missing a trick.

Spending Review Expert Panel: Adam Corlett: A review that drifted into Budget territory

Adam Corlett is an Economic Researcher at Centre Forum. You can follow him on Twitter here.

Today’s 2.8% cut in departmental spending should be seen in light of the further 7.6% reduction still pencilled in for 2016-18. The next election will take place just one month into the 2015-16 year discussed today, and any new government could choose to alter the Chancellor’s settlement or replace it with tax increases. But if current forecasts prove correct, it seems likely that today’s cuts are here to stay.

Reflecting the welcome shift of opinion over the past year, there was much emphasis on capital spending. Whether the amount of investment (too little), the timing (too late) and the allocation can help growth in the short-term remains to be seen. Tomorrow’s update on infrastructure spending will hopefully inform whether the promised support for affordable housing is significant, and whether there has been any progress on the many projects and schemes announced over the past few years. On localism, Ed Balls derided George Osborne for delivering a Single Local Growth Fund of £2bn, compared to the £49bn (or even £70bn) pool that Lord Heseltine called for, but that begs the question - would Labour free more resources for the single pot if they won in 2015?

Across this parliament, defence has fought off the kinds of cuts felt by many other departments, and it sounds like the military's 494 horses are safe for now. As the Chancellor said, it “will remain, at over two per cent of our GDP, one of the largest defence budgets in the world”. Among the 28 NATO countries, Greece and the US are the only other countries spending more than the 2% target. Given this, the Treasury must stick to its insistence that any spending on replacing Trident will come out of this budget, and continue to question whether this is the best use of funds.

It’s hard for those outside to know whether the intelligence agencies need the increased funding they received. Let’s hope that this was not simply a political exercise following the Woolwich attack, and that this money will not be wasted on any measures that are illiberal and ineffective.

At times the Chancellor seemed to drift into Budget territory, with tax bungs and not insignificant welfare savings. The continuing support for freezes in council tax is notable, not least in contrast to Lib Dem and Labour calls for more property taxation for the wealthiest. Owners of mansions have seen their annual tax decrease in real terms. 

On the “welfare cap” and whether the basic state pension should be excluded, Labour are right. The cap is little more than a political trap, designed to cause embarrassment to any government which breaches or removes it. But what remaining use does the cap have in clarifying trade-offs if the biggest area of welfare spending is excluded? Further views from CentreForum on what ought to have been contained in the Spending Review can be read here.

Adam Corlett: Conservatives should want to tax property fairly. Here's how they could

Adam Corlett is an economics researcher at CentreForum. He has worked recently on SME finance, quantitative easing and National Insurance.

Many of the ideas here are explored in detail in Tax by Design from the Institute for Fiscal Studies.

For many Conservatives, any tax on home ownership seems an unfair wealth tax. But a number of real estate taxes are both justified and pro-growth. It’s the absence of those taxes that distort choices, reduce productive investment in businesses, and push up taxes elsewhere. The UK’s current property taxes - stamp duty, council tax and business rates - are in need of significant reform or abolition, and no party has presented a complete solution. But there are strong arguments for taxing property in a number of ways.

Firstly, there’s VAT. It is sometimes claimed that taxing property is wrong as it is bought with income that has already been taxed. But if true, this should apply to VAT too. As it is, we levy a consumption tax on most spending but not on property construction. Why should the state favour the enjoyment of a slightly larger house over other goods and services? VAT exemptions are a poor way of targeting help at those who need it, but exempting all housing is especially inefficient.