We can’t tax our way to growth. But we can ‘tax reform’ our way to growth.
The Financial Times reports (2 June) that ‘Keir Starmer has rejected calls from senior Labour figures to fill a growing fiscal hole with big tax rises, warning “we can’t tax our way to growth”.’ Starmer is correct. We can’t tax our way to growth. But we can ‘tax reform’ our way to growth. Some ideas:
Corporation tax simplification. The UK corporate tax system is currently less competitive than Italy or Greece, never mind Sweden and Denmark.
Eliminate crazy high income tax marginal rates. When people face marginal tax rates of 60%+, they often choose not to work. Sometimes our tax system creates marginal rates of over 100%.
Simplify VAT. End the irrational distinctions (cake vs biscuits). Do it in a way that doesn’t raise tax overall – so VAT on more products, but at a lower rate.
End the tax system’s bias against employment. Kill national insurance and move it into income tax. Don’t raise tax overall – so for the average worker it would be a tax cut.
Our VAT threshold is the highest in the developed world and there’s compelling evidence it stops small companies growing. Cut the threshold; use the proceeds to reduce the rate.
Reform capital gains tax. Right now real investors pay too much CGT; they’re taxed on inflationary gains, which aren’t gains at all. Others, who didn’t make an actual investment, pay too little tax: 24% is much lower than the 45% top income tax rate.
Property tax is broken. Stamp duty stops people moving house, and gums up the labour market. Business rates share responsibility for the state of the high street. Council tax is a farce, based on 1991 valuations. Replace it all with a modern land tax.
There are so many more. But politicians have to stop seeing tax as just a tap you turn to raise more or less money. It’s also intrinsically linked to economic growth. And any growth agenda that doesn’t include tax reform is a bust.
We can’t tax our way to growth. But we can ‘tax reform’ our way to growth.
The Financial Times reports (2 June) that ‘Keir Starmer has rejected calls from senior Labour figures to fill a growing fiscal hole with big tax rises, warning “we can’t tax our way to growth”.’ Starmer is correct. We can’t tax our way to growth. But we can ‘tax reform’ our way to growth. Some ideas:
Corporation tax simplification. The UK corporate tax system is currently less competitive than Italy or Greece, never mind Sweden and Denmark.
Eliminate crazy high income tax marginal rates. When people face marginal tax rates of 60%+, they often choose not to work. Sometimes our tax system creates marginal rates of over 100%.
Simplify VAT. End the irrational distinctions (cake vs biscuits). Do it in a way that doesn’t raise tax overall – so VAT on more products, but at a lower rate.
End the tax system’s bias against employment. Kill national insurance and move it into income tax. Don’t raise tax overall – so for the average worker it would be a tax cut.
Our VAT threshold is the highest in the developed world and there’s compelling evidence it stops small companies growing. Cut the threshold; use the proceeds to reduce the rate.
Reform capital gains tax. Right now real investors pay too much CGT; they’re taxed on inflationary gains, which aren’t gains at all. Others, who didn’t make an actual investment, pay too little tax: 24% is much lower than the 45% top income tax rate.
Property tax is broken. Stamp duty stops people moving house, and gums up the labour market. Business rates share responsibility for the state of the high street. Council tax is a farce, based on 1991 valuations. Replace it all with a modern land tax.
There are so many more. But politicians have to stop seeing tax as just a tap you turn to raise more or less money. It’s also intrinsically linked to economic growth. And any growth agenda that doesn’t include tax reform is a bust.
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