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Daniel Herring: With limited headroom, simple tax changes would let Hunt unlock real growth | Conservative Home


Daniel Herring is Researcher for Fiscal and Economic Policy at the Centre Policy Studies.

The most important issue for voters at this election, as at pretty much every election, is their cost of living. Indeed, one of the big reasons for the Tories’ current poll ratings is that they have taken all the blame for a global inflation shock that has left people across the world feeling significantly poorer.

This on top of a decade in which growth, productivity and wages struggled to rebound in the aftermath of the financial crisis.

The most obvious priority for any party’s manifesto, then, is policies that make people better off, and get Britain growing – that (to quote our mission statement at the Centre for Policy Studies) support enterprise, ownership and opportunity. In the process, our leaders can show the voters that they support their aspirations.

We would therefore recommend that the Conservatives prioritise four key areas.

Tax cuts

The room for manoeuvre on tax is limited, not least given the handouts that have already been announced. But we have proposed two ideas that reward not only hard-working families, but show them that the Tories share their values.

First, ministers should significantly raise the stamp duty threshold, if not abolishing outright. As the CPS argued back in 2020, stamp duty is the worst tax in the UK because it bungs up the housing market, stops people downsizing, and raises the cost of home ownership.

In economic terms, it has been estimated as being four times as damaging to economic activity as income tax. Abolishing it is straightforward and supports the aspiration of everyone to live in a home that is suited to their needs.

Our second proposal would be to introduce a fully-transferable tax allowance for parents, as we suggested in a joint paper with Ranil Jayawardena.

Currently, a couple with two children earning £60,000 will pay over £7,000 more as a single earner than if both parents earned £30,000 each. This undermines a core conservative principle: that families are as important an economic unit as individuals.

By introducing a transferable allowance, a family can choose how to best divide their time and skills to maximise their wellbeing, rather than letting the arbitrariness of the tax system choose for them. Under this scheme, one in ten families would see their net income rise by more than five per cent.

Housing

There’s no doubt that the UK has a severe shortage of housing: around four to five million homes in the years since the Second World War. While both parties are making some of the right noises, it’s not clear either will actually be able to fix it. The next government should be unashamed of unveiling a series of pro-housing policies – even if it means facing down some of its own activists.

First, incentivise building. There are numerous ways a Conservative government could remove the barriers to housebuilding. For example:

  • Increase the 300,000 housing target substantially, and give it real teeth;
  • Match this by reducing net migration, which has driven up demand for housing hugely (greatly to the disgruntlement of many Tory voters);
  • Continuing the plan to expand Cambridge, and to force London to build;
  • Delivering on plans for ‘street votes’ and supporting a new generation of estate regeneration programmes;
  • Ensure councils are assessed on the basis of how many homes they deliver, rather than on planning permissions granted, with financial penalties for not delivering;
  • Accelerate the sale or lease of public land, with local SMEs being prioritised on the resulting projects.

Second, while the main focus should be on housing supply, we should also make it easier to buy homes. Part of this is about cutting stamp duty, as above.

But the next government should also adopt our new Right to Buy, which would allow tenants of councils and housing associations to own more of their own homes, with their monthly rent paying off a mortgage, while supporting the construction of a new generation of social housing.

Ministers could also incentivise landlords to sell to tenants by writing off the capital gains tax bill, and revisit the CPS’s plans for long-term, fixed-rate mortgages, to protect buyers from future spikes in interest rates.

Business

One of the most depressing aspects of the Conservatives’ record in office has been a failure to robustly and consistently support business when it is business, not the state, that generates the growth on which we all depend. That needs to change.

The Tories should start by eliminating and preventing bad regulation. Businesses are increasingly overwhelmed by the sheer volume of new regulations: between 2010 and 2019, we estimate that, on a net basis, costs to business increased by £6.0 billion a year in today’s money – almost equivalent to a 2p rise in corporation tax.

The Government should introduce a regulatory moratorium: no new regulations without personal sign-off from the Secretary of State. Even better, as we outlined recently, would be to introduce a regulatory budget, limiting the total cost of new regulations each year.

Furthermore, new regulations would have sunset clauses and a central ministry could be charged to query and veto new regulations.

We can also make things easier for small businesses. For example, we proposed that businesses with revenue below £1 million should be given the option of being taxed on turnover alone, a simple consolidated tax that replaces VAT, corporation tax, and employer’s National Insurance. This would have a transformative impact on small businesses up and down the country, and show them that the Tories really are on their side.

We can also be more ambitious for larger businesses and overseas investors. Instead of abolishing non-dom status (a crazy move that will cost our country dearly) we should be making ourselves the best possible home for global investors, and extracting large amounts of tax from them in the process.

We’ve made a whole series of recommendations on this, but among them is empowering city regions to promote themselves as investment destinations, by enabling them to issue Investment Bonds, aimed at attracting global capital.

The Conservatives can also go harder and faster on Opportunity Zones, turbocharging Rishi Sunak’s free ports (proposed by him in a CPS paper). These have the potential to transform UK regions and attract the best global companies to base themselves in the UK.

Education

Finally, education is an area where the Tories have a great story to tell. Reforms proposed by the CPS and championed by the Tories – synthetic phonics – have made England the best country in the West at reading.

The Government should build on the massive success the Conservatives have had in creating academies across the country, by making it easier for more schools to convert and by encouraging faith schools to become academies. It can also make it easier for schools to join multi-academy trusts.

And rather than taxing private schools, the Government should fund places at the best public schools for children in care. A pioneering programme from the Royal National Children’s Springboard Foundation has shown the transformative impact of giving children with the worst life experiences access to the best education.

We do not expect the Government to adopt all of these policies. But making the Tories the party of growth, opportunity and ownership is the best blueprint for recovery and success, now and in the years to come.



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