This cautious Chancellor has no money and is constrained by the Lib Dems. What tax cuts could he still offer?

By Harry Phibbs
^{Follow Harry on Twitter}

In the Sunday Times yesterday David Davis called for (£) a "psychologically inspiring budget." This morning in The Times he was rebuked by Lord Lamont who said (£):

Perhaps he needs to discover opera.

An amusing line, but Mr Davis is right and Lord Lamont is wrong. Even if we concede that substantial spending cuts are not possible (and I don't - they are not only possible but essential) there is also the question of cuts of those cuts in tax rates that would be likely to increase tax revenue. Here the response from Lord Lamont (and David Cameron and George Osborne) is a tiresome retreat into erecting a straw man.

Lord Lamont says:

Some Conservative backbenchers seem to believe that all tax cuts pay for themselves through higher growth and increased revenues.

Names!

I don't know of any backbencher who has claimed that cutting any tax under any circumstances will increase revenue.

In making such a pretence that they have Lord Lamont dodges a convincing response to the evidence: That at this time of high taxation cutting particular tax rates probably would increase revenue.

One example would be cutting the top rate of income tax from 45p to 40p. That is not going to happen for political reasons - not because anyone seriously claims it would lead to a loss of revenue.

Very well. Let us accept not only the financial constraints but also the political ones.

What tax cuts could the Chancellor still deliver?

Which ones, albeit that some might be modest, but which would be "psychologically inspiring" while posing minimal risk to the public finances and doing little to antagonise the Lib Dems:

• Abolish Stamp Duty on shares for small-cap equity transactions. As proposed by the London Stock Exchange. This is a small, fiddly tax wich makes us uncompetitive with other countries. It is strongly argued this tax cut would boost treasury coffers.
• Scrapping Airport Passenger Duty  would, PriceWaterhouseCoopers estimate, be likely to raise revenue than would be lost.
• The Bingo Association cites a report for them from Ernst and Young which argues that cutting the profit tax on bingo from 20% to 15% would produce an increase in revenue for The Treasury. 
• The Scotch Whisky Association, subject to exceptionally high tax compared to other alcoholic drinks, have produced evidence that lower tax rates on whisky would result in increased revenue.
• Stamp Duty Land Tax, too. It's gumming up the market, but not a small thing.
• Make the primary and secondary NI thresholds the same (there's only a £1 difference at the moment).
• Put employer's NICs on payslips.
• Exempt newly-built properties from Council Tax/Business Rates for one year.
• Uprate the Rent a Room tax relief to £9,000 a year. The point here is slghtly different. There could bbe a loss of tax revenue but there would also be a reduction in public spending as the cost of Housing Benefit would be reduced.
• Abolish IR45. This is the tax on consultants which raises negligible revenue but causes great irritation.
• Abolish Capital Gains Tax. The analysis that this would increase tax revenue is offered in this Centre for Policy Studies paper.

Those who argue against tax cuts must do better than being breezily dismissive about the potential for increased revenue. It is not convincing merely to have the generalised platitude that revenues will not be increased under all circumstances. Something more detailed is required. If there is credible evidence that a tax cut would help the public finances then there is a duty to take this seriously.

There would also be the psychological aspect which people such as Mr Davis and Boris Johnson are quite right to emphasise.