David Gauke: There are signs that the Treasury is winning. And that more tax rises are coming.

19 Jul

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.

When asked about the proposal by Henry Dimbleby that a new Salt and Sugar Reformulation Tax should be introduced, the Prime Minister responded by saying that he is ‘not attracted to extra taxes on hard working people’.

At one level, this is what one might expect him to say, given his reluctance to be the bearer of bad news. But some have taken this to be not just a holding response to the publication of the National Food Strategy, but a firm determination to hold the line against tax rises. If so, there may be problems ahead.

It was only a few months ago that Rishi Sunak delivered a tax-raising Budget, with the freezing of allowances and thresholds in the personal tax system, plus a hefty increase in the rate of Corporation Tax (which, in the end, will be paid by people because all taxes are). These increases may well be sufficient to meet the Chancellor’s fiscal rules ,but only if he maintains the current spending plans.

This looks unlikely. To take just three examples, the cost of Covid catch-up, social care reform and net zero could easily cost £10 billion a year a piece. Add to that the cost of levelling up, plus the risks that debt interest payments could increase significantly, the Chancellor’s target of current expenditure being paid for by current revenue and debt falling as a proportion of GDP looks precarious.

It would be fair to say that the cause of spending control has been strengthened in recent days. The Government saw off attempts to block the cut in overseas aid more comfortably than expected, with Sunak very heavily involved in talking round potential rebels.

The temporary uplift in Universal Credit is looking like it will indeed be temporary (although this is likely to store up problems, I suspect) and the Chancellor has – to all intents and purposes – ruled out a huge increase in the state pension, which would happen if the triple lock was applied in the normal manner. On the latter point, this is entirely sensible and has been met with little opposition.

A month ago, there were complaints from the Treasury that the Prime Minister was going around making unfunded spending commitments but Boris Johnson appears to have been reined in. Big promises on climate change seem to have been deferred to the autumn, and a supposedly big speech on levelling up involved a spending commitment of just £50 milliom. Whereas most observers considered the Coventry address to be one of the least impressive set-piece Prime Ministerial speeches ever delivered, the Treasury would have considered it a triumph.

An announcement on social care reform is imminent, but this does look like it may be properly funded by additional taxes, suggesting that ‘not attracted to extra taxes’ does not mean ‘no extra taxes’ after all. It is reported that it is the Chancellor who is sceptical about the proposed policy, although I suspect this is driven by Treasury doubts about pursuing a Dilnot-style cap on social care costs (which benefits those with the largest estates most), rather than by an objection to the principle that new spending commitments have to be paid for.

For the first time in a while, the cause of fiscal conservatism – ensuring that public finances are sustainable – is gaining the upper hand. There are two reasons for this.

First, the Chesham & Amersham by-election has caused some nervousness. The fear within Government is that high spending is all very well, but a section of the Conservative voting electorate will draw the conclusion that they are the ones who will have to pay for it. It was striking that the Prime Minister spent much of his levelling-up speech saying that he does not want to make rich places poorer, which may come as a disappointment to parts of the Red Wall, but is clearly designed to reassure the South East.

The second reason why a more cautious approach to the public finances might be pursued is the apparent return of inflation. This may be transitory as we return to some kind of normality, and adjust to Brexit frictions and labour shortages, but it may not be. If it results in higher interest rates, the costs for the exchequer in funding our debt could rise very quickly – as the Office for Budget Responsibility has pointed out. An increase in interest rates of one per cent would add £21 billion to our debt interest bill. If our fiscal policy is considered to lack credibility, our problems could be worse.

There remains, however, the question of how the Conservative Party maintains the support of the new supporters it gained in 2019, whose views on tax and spend are much closer to those of the Labour Party than the traditional Conservatives. On spending on public services in general ,plus investment in their localities, they will want to see evidence of delivery.

Boris Johnson will be given the benefit of the doubt and, I suspect, be able to retain most of the Red Wall at the next general election but the pressure to spend money – not least from Red Wall MPs – will be considerable. The Treasury has won a few battles of late, but with a Prime Minister prone to change direction like a shopping trolley (as one prominent Westminster pundit likes to put it), he may be on the other side of the aisle before long.

There is also another reason for raising taxes, as well as funding public services. Tax can be used as a lever to change behaviour. The Prime Minister has declared that he is on a mission to reduce obesity, and it is hard to see how this could be done without using tax to change behaviour.

Ultimately, this may not mean consumers paying much of a price because producers reformulate their products (as happened with the Soft Drink Industry Levy) in order to prevent consumers facing higher prices. It was an effective way of using the price mechanism to achieve a Government objective, but it did mean legislating for a new tax.

A similar argument can be made for using taxes to help achieve net zero. If we want people to consume less carbon, the most efficient way to do this is to ensure that the cost of carbon is incorporated into the price of products by using a carbon tax. (By the way, those of us who value markets as a means of allocating resources should be instinctively more sympathetic to meeting environmental objectives by using the price mechanism where possible, rather than through regulation which can be cumbersome and ill-targeted.)

In both cases, tax increases, as a behavioural stick, may be required. They are also likely to be regressive, which may mean compensating mechanisms of some description which – in turn – will need to be paid for.

All of this means that extra taxes on hard working people may be necessary to deliver sound public finances and to meet other Government objectives, however unattractive the Prime Minister considers them to be.

David Green: Wealth extraction, not wealth creation. The Morrisons takeoever – and why government should be prepared to intervene.

11 Jul

David Green is Director of Civitas.

The Government is in a philosophical quandary. Its commitment to levelling up implies economic interventions in favour of left-behind regions. As a result, it has been attacked for abandoning the ideal of low taxes and small government. Simultaneously, it is pursuing some policies that imply continued commitment to the principle of non-interference in economic policy – not least in its approach to takeovers of British companies by private equity, brought to a head recently by offers to buy Morrisons.

The paradox was particularly striking when Kwasi Kwarteng announced new subsidy rules under the Subsidy Control Bill. He felt bound to say that the Government was not returning to the industrial strategy of the 1970s. There would be no ‘picking winners’ or bailing out of unsustainable companies. Producers will be backed only if they have good prospects of success and especially if they are supportive of decarbonisation. An innocent observer might conclude that a policy of avoiding lame ducks and backing promising ‘green’ technologies was picking winners.

The Government appears to have no clear criterion to help it distinguish between policies compatible with personal freedom and those that undermine it. Fortunately, one of the greatest defenders of liberty in the last 100 years grappled with this very problem.

Hayek argued that the main criterion was the rule of law, by which he meant that the Government should act through general laws that applied equally to all, including itself, and specifically that it should not grant preferential treatment to specific people. To do so would undermine the process of competitive discovery by which we reveal better ways of meeting human requirements.

What would this criterion imply for decarbonisation policy? It suggests not pre-judging which producers or technologies will be preferred. In vehicles, for example, there may be a role for hydrogen, hybrids, diesel, petrol, or all-electric. We should allow the competitive system to reveal the best approaches through trial and error.

But what should the Government do about private equity taking over British companies. Must it be accepted as an inevitable consequence of a free market and its ruling doctrine of non-interference?

Again, Hayek thought it through. It was the character of government activity that was important, he said, not the volume. Many measures were compatible with freedom. Moreover, he thought that a government that was ‘comparatively inactive but does the wrong things’ could do much more to ‘cripple the forces of  a market economy’ than one that is active, but confines itself to measures that assist ‘the spontaneous forces of the economy’.

How should this reasoning be applied today? The Morrisons takeover has come under strong fire from others in the financial sector. Legal and General, the City’s biggest fund manager, cautioned against loading Morrisons with debt and selling off its property assets on the cheap. Andrew Koch, a senior fund manager, feared that this strategy would lead to reduced tax paid to the Exchequer (because debt interest is deducted from profits).

Concerns in the City have been multiplied by the experience of Cobham, the defence group, which was sold to American private equity owners about two years ago. At the time, many warned that the new owners would break up the company, but the Johnson Government authorised the deal after getting some promises. Today, more than half of the business by value has been sold. James Anderson of Baillie Gifford, one of the world’s most successful investors, has recently described the underlying problem as a ‘deep sickness’ in UK capital markets.

The claims of these critics is consistent with the thinking of Adam Smith who warned against misplaced trust in manufacturers, speculators and merchants. They were ‘an order of men, whose interest is never exactly the same with that of the publick, who have generally an interest to deceive and even to oppress the publick, and who accordingly have, upon many occasions, both deceived and oppressed it’.

The Government should not fall into the trap of thinking that it should never intervene in corporate takeovers. There is a public interest in stopping the Morrisons takeover. The company’s model is to own the vast majority of its shops and run some its own manufacturers and farms. It is profitable. Private equity has been granted preferential advantages. Owners are allowed to pay tax as if they make capital gains and not profits subject to higher corporation tax. And owners are able to take advantage of the preferential treatment given to company debt compared with equity. A government that used its powers to encourage Hayek’s ‘spontaneous forces’ would equalise the treatment of debt and equity to preserve responsible private ownership.

If the Morrisons bid is allowed to proceed the owners will probably sell off the shops to another company they control and lease them back, giving them a capital gain and an income stream at the expense of Morrisons. This is wealth extraction not wealth creation. If the Government allows its squeamishness towards intervention to paralyse it into inaction, it will drop helplessly into the trap described by Hayek: that of crippling the spontaneous forces of a market economy by inaction.

Ryan Bourne: The tax hikes that could fall in the south. And tear the Tory coalition apart

22 Jun

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

Who’s going to pay for all this? Andrew Neil’s GB News interview of Rishi Sunak has changed the fiscal conversation. The Chancellor deflected the question by saying he couldn’t discuss tax policy outside of Parliamentary “fiscal events.” Convenient. But many commentators are “rolling the pitch” for higher taxes to fund all this higher government spending already – often devoid of context of today’s true burden.

Much debate starts with the ahistorical view that the UK is a “low tax” economy. Yet revenues from taxes are already forecast to exceed 34 percent of GDP every year from 2023/24 onwards—a threshold not breached in consecutive years since Hugh Gaitskell and Rab Butler were Chancellors in the early 1950s. The world wars don’t bode well for the longer-term legacy of an acute borrowing shock either. Ten years’ after World War One, the tax burden was 12.5 per cent of GDP higher than pre-war; ten years’ after WW2, it was 11.4 percent higher again.

The pandemic is shorter and less destructive than mass mobilisation wars. We also don’t need a second welfare state. But we do have an aging population and slower growth. With those pressures, any government unwilling to reform age-related entitlements and committed to major new state investments will need revenues eventually.

Internationally, many Western European countries tax their populations more heavily than us. The UK was just below the OECD average as a share of GDP in 2019. But UK taxes are already higher than in English-speaking developed economies: Australia, New Zealand, Ireland and the United States. The rises that Sunak has pre-announced would take us close to the levels of pre-pandemic Spain and Poland. Go a bit further, and we will have gone Germanic.

That, sadly, appears where we are headed. ConHome’s Editor explained yesterday that  “levelling up” need not mean just more tax-and-spend, but might be centred on the supply-side. He should tell CCHQ. The “levelling up” member survey recently used that banner to ask for views on more NHS spending, the “lifetime skills guarantee,” catch-up schools funding, infrastructure investment, the Towns Fund, and money for high-street regeneration. The direction of travel is clear: levelling up means more redistribution—hence why a strange coalition of fiscal conservatives and certain level-uppers want to whack up taxes on the old Tory base to shower the new.

This is where the politics of tax becomes interesting though. For the “progressives of all the parties” have talked so far as if “someone else will pay” for any largesse. Polly Toynbee says that UK voters want a Scandivanian welfare state with US-style tax rates. But it’s the redistributionists that are selling the Red Wall something for nothing. How about “asking for more” from the top one per cent, big tech companies, wealthy homeowners, tax-avoiding multinationals or other bogeymen, they say? Ordinary hard-working families will be spared for all the goodies.

As a new Institute for Fiscal Studies tax tool shows, however, the difference between the UK and the big governments of Western Europe is not lower taxes on the rich. No, broad-based social security contributions are higher in Europe. The evidence there suggests a more generous welfare state or higher permanent spatial redistribution requires tax rises “larger for the median worker than for one near the top of the distribution”. Good luck selling to your new blue-collar voters.

And so, thus far, an unwillingness for broader hikes, coupled with an uncertainty about the wisdom of burning the old base, has meant that the “tax debate” has been all smoke and mirrors. Efforts to raise revenues have been stealthy. The headline Corporation Tax rate is being raised again, with Sunak stating that it was “fair and necessary to ask businesses to contribute.” Of course, research shows the ultimate burden of profit taxes falls on workers, as well as shareholders – not the message the Chancellor would be keen to promote.

Income tax thresholds have similarly been frozen until 2026, and the 45p rate threshold has been kept at £150,000 since 2010. This will slowly lure more and more upper middle income families into higher tax nets. The problem is that spiralling spending demands quickly use up the options which voters don’t notice. Eventually you need other big sources of revenue, and that’s when the discussion usually re-centres on taxing savings income or pensions more heavily, or indeed hiking property taxes—despite the fact that the UK has the highest overall property tax burden in the OECD already.

Let’s leave aside the economics here. What do these policies all have in common? Well, the highest earners, the more expensive properties, and those with the highest savings are more likely to reside in the South East. The only Conservatives making the running on the “who is going to pay for it?” question so far, then, are those level-uppers who want to whack the South East to keep the goodies for the north flowing.

Yet not all are convinced. This is a growing Conservative faultline among MPs and the party’s voters. The Brexit coalition incorporated relatively affluent home counties’ areas and a working class elderly base nationwide. For some Westminster types, it simply makes sense to deliver for the new voters by squeezing the south.

Others, though, think the older working class Northerners don’t want Labour-lite, and that the best way to deliver for both would be targeted hawkishness on spending. For what it’s worth, Dominic Cummings told me: “the gvt wastes so much I’d rather save and not put up taxes.” He usually understands what these voters truly want, but would Johnson’s government slay any meaningful spending projects without him?

Tax policy, I suspect, will really test this Tory coalition. Hot housing markets in the South East have widened regional wealth inequality in the past 15 years, but after-housing-cost incomes have risen slower in London as people rent or service large mortgages. So many people feel squeezed, even before new tax bills come in. And massive geographic redistribution occurs already: London and the South East generate large public sector surpluses—averaging net public surpluses of £4,350 and £2,380 per person.

Now I’m not going to go all Mary Riddell and suggest last week’s by-election result already reflected a middle-class tax revolt. But if the mood music is for higher and higher spending in the North, and the conversation about paying for it focuses on raising property taxes, raiding pension pots, taxing savings, alongside stealthy income tax squeezes for the middle-classes, would it be surprising if voters in traditional Tory heartlands reassessed their allegiances? In a world of ever-rising spending and an unwillingness for broadening tax bases, there’s only so long the Chancellor can obfuscate on who will really pay.

Matt Kilcoyne: The G7’s aim to establish a global tax cartel is at odds with national independence. It deserves to fail.

6 Jun

Matt Kilcoyne is Head Of Communications at the Adam Smith Institute.

In a statement immediately following his meeting with Finance Ministers from the G7, Rishi Sunak said an introduction of minimum corporate tax rates will “finally bring our global tax system into the 21st Century.”

It’s a curious phrase. We don’t operate a global tax system. There isn’t one, we operate national governments, and sovereign states set tax rates within their borders. A quarter of a millennium ago the Americans famously broke from Britain to make the point that you can’t set the tax policy of others without their consent, and just five years ago the British decided that the prospect of sharing tax policy and ever closer union with the Continent was to be taken off the cards. And yet, seemingly, that has just changed.

A decade-long debate by the world’s most powerful western countries has broken through to set the terms of taxation that will see competition between states diminish. The reform to force corporations to book their tax in the places where they take revenues is seen as an immediately popular policy.

It is intuitive to people that if you’re selling a good in Britain, you have to book the sale in Britain and tax be levied in full here.

Yet little thought is given to what got the good to you buying it in the first place: the investments, the logistics, the marketing, the IP, the trade, the staff, the pensions and various insurances. Booking activity and cross-subsidising operations across jurisdiction has led to us having the greatest living standards and the greatest variety of choice in human history.

The cost of thinking simply and trying to straightjacket every company into operating as global finance ministries desire will be borne by the likes of you and me through higher prices, and via lower choice as firms decide to shift operations and cut operations.

It is one thing to say something out loud and another to implement it. Any changes to our legal system will require Parliamentary consent, anything that could even possibly represent a powergrab over devolved laws will undoubtedly see resistance from Sturgeon and Drakeford.

A policy being announced as a fait accompli on a sunny Saturday afternoon via social media does somewhat undermine the convention that Parliament hears its matters first.  While the Treasury’s usual response to those inquiring about their works is to say that “tax matters are for the Chancellor,” Sunak may find that backbenchers remind him that tax matters are actually for them.

And of course the Crown Dependencies and Overseas Territories that have just seen, without so much as a by-your-leave from UK Central Government, their independent fiscal policies smashed to pieces. Our Caribbean states help drive the global system of trade. They’re not just brass plates, ask The Guardian about the benefit of being able to move investment offshore to ensure the continuation of the free press.

That’s just the internal battles. The G7 is a bit of a misnomer, because it includes the largest seven free world nation states (the USA, UK, Japan, Canada, France, Germany, and Italy) but also the EU as a whole. It is unclear if the EU can sign up its members to a new tax reality when fiscal powers are explicitly reserved by its member states.

Ireland has come out already to say that they expect to lose around 20 per cent of their corporate tax revenues under the reforms agreed at the G7 — about €2.2 billion. With Sinn Fein on the rise in the South and desperate to secure largest party status in the North, despite their historic left-wing positions, we await to see how they will respond to this curtailment of Irish sovereignty and prosperity.

When Estonia was acceding to the bloc in 2002 Mr Vahur Kraft, Governor of the Bank of Estonia, said:

“In my view it is obvious that as long as the European Union remains to be the alliance of independent member states, there will be neither need nor possibility for any additional communitisation.”

Either the alliance is transformed without treaty to the status effective of a nation state or the Council President Charles Michel and Commission President Ursula von der Leyen have spoken without authority. Whether they have the power to force the issue is very much questionable. Can the bloc carry the likes of Ireland and Cyprus and Hungary while sticking two fingers up to the model on which they’ve built their economy in recent decades?

The UK itself of course already has a corporate tax rate above 15 per cent, and the Chancellor presumably sees little threat in letting our competitors agree to raise those under their thumb to that level (including our nearest and of course dearest neighbours Ireland) to give him a bit more room to raise our own rate back to 25 per cent by April 2023. But that might not always be the case and why should a Conservative want to create a ratchet effect that only ends up with higher tax rates?

The crux of the matter for all cartels is what mechanism keeps them all pulling in the same direction. Finance Ministers have the dual responsibility and joy of having to maximise the revenue that they take from their citizens to finance the projects that their fellow politicians push, but also for promoting and inducing economic growth.

While all the stars have aligned and G7 Ministers managed to agree for once to work together to extract a little bit of extra tax revenue from the likes of Facebook, Google and Amazon the consensus is unlikely to hold between states that are friendly but highly competitive.

When it is to be implemented too is debatable. The Treasury insists it’s after the issues of superdeductability have passed and so our investment strategy is sound, but the tax cartel has to hold for a long time to work. Consensus requires trust and that’s short between Britain and the EU, it was non-existent between Trump and the EU. There’s little to say it will be there with the next occupant of the White House.

Chris Giles, Economics Editor at the FT, recalls a G20 meeting where a deal restricting profit shifting was announced. He asked them to commit to a date he voiced for full implementation. Only the Chinese Finance Minister half raised a hand to agree to it, realised he was alone and dropped it. The idea is back at a smaller scale. Which tells you that it failed once to get traction with more competitive partners, partners that are on the rise and which will be eyeing up business that is looking at less onerous markets elsewhere. But also that it’s taken a decade to get to this point suggests it’s weak in its current form too.

The mood of Sunak’s announcement was upbeat but the tune we are asked to dance to is miserable. The West’s states are closing ranks against the private sector that is the cornerstone of our prosperity just as we need it most to build back better after the pandemic.

 

Sorry, Matthew, but there’s a Centre Party already – Johnson’s Conservatives

3 May

It’s easier to define what the centre ground of politics isn’t than what it is.  So here goes.

It’s not the same territory in one generation as in the next: political landscapes change – sometimes because of a volcanic eruption, like the financial crash; sometimes more slowly, because of eroding attitudes (on eugenics, say, or over women).

Nor is it found by picking some point halfway between that held by the two main parties.  Most voters aren’t engaged with them in the first place, or with politics at all.

Polling will help you to find it, but the map it provides is confusing – at least to political afficiandos.  For example, most voters are broadly pro-NHS but anti-immigration.  Does that make them Left or Right?

Those two examples help to find the answer – as close to one as we can get, anyway.  Voters lean Left on economics and Right on culture. To their being anti-migration (though less than they were) and pro-health service, we add the following.

English voters are also: patriotic, pro-lockdown, anti-racist, pro-armed forces and supportive of public spending over tax cuts (if forced to choose).

They are somewhat isolationist, pro-Joe Biden rather than Donald Trump, unsupportive of the aid budget when push comes to shove, punitive on crime, and paralysed over housing, where the interests of different generations net out.

Centrist voters, like a lot of others, are also closer to teachers than Ministers, at least if they have children of school age – a headache for reforming Ministers of all parties.

They are pro-environment, but in a certain way: our columnist James Frayne has suggested that there is a consensus for improving food safety, animal welfare, protecting areas of natural beauty and reducing the use of plastic.

(Welsh voters are broadly the same; Scottish ones are divided over patriotism and, as the inter-SNP dispute over trans has demonstrated, probably a bit more to the Right on culture, as well as rather more to the Left on economics.)

James himself, whose fortnightly column on this site we call “Far from Notting Hill”, isn’t himself a million miles away from where this centre currently is.

If you wanted to pick out some issues that give the flavour of it, you could do worse than the following: hospital parking charges, pet kidnappings, the proposed Football Superleague, and the decline of high streets (which doesn’t stop those who complain using Amazon).

This ground was getting bigger, like a widening land enclosure, before Brexit; and leaving the EU has allowed it to become even bigger.  You can see where all this is going.

Theresa May, under the guidance of Nick Timothy and Fiona Hill, had first dibs at occupying this territory – or, if you distrust the metaphor of ground, winning the support of these voters – remember “citizens of nowhere”, and all that.

She made a botch of the job, and Boris Johnson had a second go.  Do you want to go Left on economics?  If so, you’ll welcome his government’s proposed Corporation Tax rises, the record borrowing, the superdeduction for manufacturing, the net zero commitments.

Do you want to go Right on culture?  There’s less for you here, given the quiet shift to a more permissive migration policy.  Even so, you can rely on Johnson not to “take a knee”, unlike Keir Starmer; and to commission the Sewell Report; and to protect statues.

We are over five hundred words into this article, and haven’t yet deployed those two reverberating words: “Red Wall”.  But now we have, that the Conservatives hold, say, Burnley, Redcar and West Bromwich East says something about this new centre and who lives in it.

Whatever this week’s local, Mayoral, Scottish and Wesh elections may bring, these voters are Johnson’s to lose – if Starmer can’t grab enough of them: he has done nothing to date to suggest that he can.

If you want to know why this is so, consider the three most coherent alternatives to today’s Johnsonian centre party.  First, one that begins by being to the right of it on economics.

It would be for a smaller state, free markets, lower taxes and personal freedom.  This outlook is likely to drag it to left on culture: for example, it would not be uncomfortable with the present immigration policy, and not always exercised by “woke”.

It members might include: Liz Truss, Kwasi Kwarteng, Matt Ridley, Steve Baker, Lee Rowley, Sam Bowman, Crispin Blunt and our columnists Ryan Bourne, Emily Carver and Dan Hannan.

We see no reason why it shouldn’t include economically liberal former Remainers other than Truss – such as, talking of this site columnists, David Gauke.  Or, if you really want to put the cat among the pigeons, George Osborne.

Next up, a party that starts by being to the left on culture.  This already exists.  It’s called the Labour Party.  It’s Dawn Butler going on about “racial gatekeepers” and Nadia Whittome refusing to condemn the Bristol rioters.

It’s Angela Rayner claiming that the former husband of the Conservative candidate in Hartlepool was once a banker in the Cayman Islands.  (He was a barrister and the head of banking supervision at the islands’ Monetary Authority.)

It’s Zarah Sultana calling on prisoners to be prioritised for Covid vaccinations, and Labour voting against the Crime and Policing Bill.  It’s Starmer himself taking a knee in his office rather than in public – so seeking both to placate his party’s left while also hoping no-one else notices.

Finally, we turn to a party that begins by being to the right on culture: a successor to the Brexit Party.  The Conservatives may be leaving a gap for it here with their new immigration policy.

Which means that it would be likely to pick up more voters outside London and the Greater South-East, which in turn would drag it leftwards on economics.

This is the ground that Nigel Farage occupied, that his Reform UK party is now trying to recover under Richard Tice, and that a mass of others are sniffing around: Reclaim (that bloke from Question Time), the Heritage Party, the SDP (no relation; not really).

In electoral terms, this new Labour Party would be best off junking its efforts in provincial working-class seats altogether, and competing with the Greens and Liberal Democrats for the urban, university-educated and ethnic minority vote. Think Bristol West.

Our new economically liberal party could begin by diving into the blue heartlands from which city workers commute into the capital.  Think St Albans.

And the various revamp parties would try to paint the Red Wall purple, where voters may have backed one of the two main ones, but have no love for either of them. Think, say…well, anywhere within it.

We apologise for coming so late to the cause of this article: Matthew Parris’ column in last Saturday’s Times, where he yearned for a “sober, moderate, intelligent and morally reputable centre party”, and asked “where is it”?

He’s right that the Conservatives’ grip on the centre will weaken sooner or later: because another volcanic eruption blows it apart, or it sinks below the sea…or Johnson blows himself up or sinks instead.

But he’s mistaken about what the centre is.  Or, more precisely, he identifies it with himself.  But many sober, moderate, intelligent and reputable voters backed the Tories in 2019, if only for want of anything else – and still do, it seems.

The real centre isn’t where Matthew or ConservativeHome or anyone else wants it to be.  It’s where it is, as cited above.  Johnson’s bottom squats on it, and he’s no intention of moving.

John Redwood: Why now that we have left the EU are we still yoked to Maastrict austerity?

26 Apr

Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.

The UK economy is currently being run on the Maastricht rules as if we had not left the EU. The Office for Budget Responsibility made clear in its March report that whilst it awaits the Government’s conclusions on a new fiscal framework, the economy will be guided by the two familiar requirements that we get the running deficit down below three per cent of GDP, and that state debt as a percentage of GDP is declining all the time it is above the 60 per cent level.

It is clear that the whole five year budget in question is dominated by the perceived need to get state debt falling as a percentage of the economy by the end of the forecast period. This has led to a range of measures to increase the tax take, with a large increase in the Corporation Tax rate, and a big increase in the numbers of people paying higher rate income tax through freezing allowances.

My critics will argue that because we were outside the Euro we never had to follow the Maastricht rules. The truth is we did. We still do because we have never changed the rules, even though now we are free to do so.

We faithfully reported each year on progress with hitting the debt rules, and made clear that policy was primarily steered by the need to control debt. That was the central driver of George Osborne’s so-called austerity economics. The latest Government figures after Brexit continue to report our progress against these EU rules. This quote from the OBR’s March Report shows nothing has yet changed:

“The Chancellor has not set new fiscal targets in this Budget (despite two of the existing ones expiring this month) and is instead proceeding with the review of the fiscal framework proposed in last year’s Budget. But the absence of formal fiscal targets does not mean that the Chancellor has not been guided by particular metrics when selecting his medium-term Budget policies. The tax rises and spending cuts he has announced are sufficient to eliminate all but a £0.9 billion current budget deficit in 2025-26, while they are just enough to see underlying public sector net debt as a share of GDP fall by a similarly small margin of £0.7 billion in 2024-25 and £4.1 billion in 2025-26.”

I rest my case.

Requiring states to keep their overall state borrowing low makes a lot of sense in a single currency area where different governments have the right to borrow in a common currency. They need to avoid the free rider problem, whereby some states run up excessive debts, taking advantage of a low interest rate facilitated by the prudence of others.

The UK has no such problem. The UK as a single state with its own currency and central bank cannot take advantage of others. It does of course have to decide how much to borrow with affordability in mind. Borrow too much, and the interest bill could become unaffordable. Borrow excessively, and lenders could start demanding penal terms.

This means the best type of control over debt build-up for the UK should be a control over the size and growth of the interest burden. The UK has a tradition of borrowing long, and can do so in current markets. This protects taxpayers against sudden rises in rates, and reduces any strain from refinancing the debt. The Government has used debt interest targets, and should draw up a new realistic one. Given the way debt interest has fallen despite the increase in debt, this should not prove difficult.

The idea that we should carry on controlling the economy by state debt as a percentage of GDP is particularly silly given the great monetary experiment the UK along with the USA, the ECB and the Bank of Japan is carrying out.

The state-owned Central Bank is buying up large quantities of the state debt. Claiming that the gross debt is still a real debt is therefore wrong. The Treasury pays interest on nearly £975 billion of the debt to the Bank which it owns. If I had bought in my own mortgage but still kept paying the interest, I would not regard it as a real debt in the way I did before I bought in the loan, since I would be paying myself. Despite this obvious anomaly, the Budget is constructed on the basis that we need to get gross debt down, not the debt net of that owned by the state itself.

So what should we use as guides for economic policy? To a control on state interest payments to others, we should add a growth target and we should keep the important two per cent inflation target as a restraint on excessive credit and money expansion. The growth target should encompass aims to increase employment and productivity. What we need is to promote a higher wage, higher productivity economy. Our economic targets should reflect those aims.

The current state debt target is acting a constraint on faster growth. Offering tax rises and threats of tax rises for the years ahead damages confidence and deters new job creation and new investment. The UK’s productive capacity has been damaged by years in the single market where we lost out in many areas from steel to consumer electronics and from temperate food production to electricity generation.

We now need a favourable tax regime on self employment, investment, enterprise and individual incomes to promote a substantial increase in our productive capacity. The state debt control implies more of the same old policies which we had to follow in the later single market years which did not do enough to boost high paid jobs through industrial investment and higher productivity.

James Frayne: The scale of the unpopularity of Council Tax is staggering

19 Apr

James Frayne is Director of Public First and author of Meet the People, a guide to moving public opinion.

Several years ago, before the surge of political and public interest in the environment, I struggled to explain to a visiting American political consultant why the Conservatives didn’t ‘go for’ the then-Labour Government on motoring taxes and charges. He couldn’t understand why, when so many people were being whacked by high fuel tax, car tax, parking charges, and all the rest, the Conservatives barely campaigned on it. Such is the clarity that outsiders sometimes bring. I couldn’t do any better than say, “they just don’t”.

I would similarly struggle to explain why the Conservatives don’t do more on Council Tax. My agency recently ran a comprehensive poll for the TaxPayers’ Alliance on Council tax – the most detailed recent poll on this subject I’m aware of. The scale of the unpopularity of the tax is staggering. In my mind, I can see some of you rolling your eyes: “of course it’s unpopular, who knew?!” What was interesting about this poll was that we looked not just at the top lines on Council Tax, but we also looked at Council Tax in relation to other taxes and also in the context of people’s views on local government more generally. From the standpoint of this poll, if anything, opposition to Council Tax looks more serious and more embedded.

In our poll, we found the following:

  • By 61 per cent to 15 per cent, people said they would oppose an above-inflation Council Tax increase this year; by 74 per cent to 16 per cent, people think Council Tax should be frozen or cut;
  • The Conservatives’ new base – the working class – are particularly hostile: by 64 per cent to 16 per cent, C2 voters said they opposed an above-inflation Council Tax increase, with DEs opposing it by 65 per cent to eight per cent; ABs opposed it by a much narrower margin of 51 per cent to 25 per cent; by 81-12, C2s favour a freeze or cut, compared to 74-11 for DEs and 68-23 for AB;
  • Thinking about the issues people will vote on in the council elections, Council Tax levels are third overall, sitting just below people’s perceptions of their local council’s general competence (36 per cent) and how much money they waste (32 per cent), which, of course, are related.

More interesting are the figures on Council Tax compared to other taxes:

  • Given a list of taxes that could go up in this Parliament – if the public had no choice but to accept such rises – just ten per cent of people said they thought Council Tax should rise. This compares to 29 per cent for Inheritance Tax, 27 per cent for Stamp Duty, 23 per cent for Income Tax, and 22 per cent for National Insurance Contributions and Vehicle Excise Duty;
  • In a series of questions about the relative fairness of a series of taxes, only the TV licence fee was viewed as less fair. 40 per cent of people said Council Tax was unfair, compared to 54 per cent saying that of the TV licence fee, 38 per cent Inheritance Tax, 34 per cent fuel tax, 25 per cent VAT, 24 per cent Income Tax, 21 per cent Vehicle Excise Duty, 18 per cent Capital Gains Tax, 17 per cent VAT, and 15 per cent Corporation Tax.

Council Tax is hugely visible given the way it’s levied and communicated. It constantly rises without apparently sufficient justification – people don’t think they see enough for it.

So, why don’t the Conservatives do more on Council Tax? To be fair, as the flare up over the prospect of replacing Council Tax with a property tax showed recently, many of the alternatives look worse. And there’s clearly no public agreement on what alternatives might work better. The TPA poll showed:

  • Given a list of options that might be introduced to replace Council Tax, the top pick was an increase in Income Tax (backed by 26 per cent), followed by “none of the above” (24 per cent) and then charging for the use of leisure facilities (15 per cent). There were relatively few differences between social groups or political affiliation. In other words, the public are split on alternatives;
  • Asked whether people support a new property tax being brought in to replace Council Tax, around 30 per cent each supported and opposed it;
  • Thinking more narrowly about alternatives to raising Council Tax, unsurprisingly people overwhelmingly prefer alternatives to new taxes or charges. The most popular options councils should take to keep Council Tax down were: limiting senior staff salaries (59 per cent); more actively pursuing debt collection (51 per cent); and merging teams between councils to improve efficiencies (39 per cent). While the figures were a little lower in terms of people’s views on the actual impact of these measures on keeping Council Tax down (a question we asked separately), they still chose them in this order;
  • Incidentally, asked about the number of exemptions, a third of people (32 per cent) said there should be no Council Tax exemptions and that everyone should pay something; 24 per cent said they should be kept the same and 12 per cent said they should be increased;

While it’s unquestionably complex, the Conservatives should think about the implications of what would happen if Labour got serious on this issue. Yes, they’re a bit late to all this, but Labour finally seem to have realised the power of Council Tax as a political weapon; they’ve begun attacking the Conservatives on the issue. Conservative activists might think this is a bit rich, but the public generally don’t mind political opportunism of this sort; generally, they will take what they can get from whatever political parties are standing at a given moment. The Conservatives should look to head off this potential problem and find a way to replace Council Tax, or at least find a structural, long-term alternative to endless rises.

David Gauke: Is Britain really set to become a low tax, less regulated, free trading, buccaneering country?

13 Mar

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

Conversations about tax policy can take unexpected turns. It was during one such conversation in the late 2000s – I was the shadow tax minister at the time and developing our plans for corporation tax – that a senior tax lawyer at a city firm recommended a series of books on naval battles.

Peter Padfield’s Maritime Trilogy is, in truth, somewhat broader than that. Padfield alternates accounts of the most important maritime confrontations since the Spanish Armada with a broader account of the social, economic and constitutional development of the great powers.

His central argument is that there is a distinction to be drawn between maritime nations – with linked strengths of sea-fighting, trade, financial innovation and constitutional constraints – and land-based empires. The later relied on closed domestic markets, rigid hierarchies and centralisation, the former distinguished by liberty, flexibility and enterprise.

It is an analysis that many British Conservatives would share and, the argument goes, makes the UK well suited to the era of globalisation. We are historically and culturally accustomed to trade and with that comes a recognition that trading partners have other options. Our prosperity is dependent upon those partners wishing to continue to trade with us. Political stability; the rule of law; paying our debts; limited government; competitive and predictable taxes – all qualities that are necessary to succeed as a maritime nation and in the era of globalisation.

It was in this spirit that the Prime Minister’s first big speech following our departure from the EU was at the Old Naval College in Greenwich where – in extolling the virtues of free trade – he talked of recapturing “the spirit of those seafaring ancestors immortalised above us whose exploits brought not just riches but something even more important than that – and that was a global perspective”.

So how are we doing? Are we on course to be the open, outward-looking nation of which the Prime Minister spoke? Are we becoming a more flexible, enterprising, maritime nation?

My last column assumed that corporation tax rates would increase and argued that this would be a mistake. When I heard Government ministers defend the rise by saying that our corporation tax rates remained the lowest in the G7, I was reminded of my conversation with the tax lawyer.

The lawyer’s argument (which I found persuasive) was that we became economically successful from the 1690s onwards because our model was more like that of a small country dependent upon foreigners choosing to trade with and invest in us, taking inspiration from the Dutch rather than the French. Our modern tax system should seek to emulate this, he argued, encouraging international businesses to locate activities and investment in the UK. Our rates may be lower than other G7 economies but, if we see ourselves as nimble and competitive, our ambitions should be greater than that. A better corporate tax regime than France is not a proud boast.

How about freeports? The name could not be more evocative of our trading and maritime traditions. But the evidence suggests that they will achieve little other than displacing activity from one part of the country to another. And if we were really ambitious about a deregulated, low tax, low customs solution to our economic woes, why give these advantages to some places, why not everyone?

The emphasis on freeports reveals an approach to the levelling up agenda that I worry is more about creating grateful localities in exchange for pots of spending rather than a clear sighted vision for improving productivity. The suspicion must be that the preference for ad hoc ministerial decisions over a more defined industrial strategy will lead to a less economically rigorous approach. The suspicion will linger that party political considerations will be to the fore.

There is one surprising, if qualified, bright spot. We are becoming more open to talent. It was already the case that the requirements to get a work visa were much less restrictive than previously, and the Chancellor’s announcement on the skills visas is worthwhile. The qualification, of course, is that it is still much more bureaucratic for EU citizens to work here than it was – which brings me to Brexit.

Our history as a maritime nation is one often identified by supporters of Brexit – like the Prime Minister in his Greenwich speech. Even the word ‘Brexiteer’ evokes the naval escapades of buccaneers (although the Oxford English Dictionary also defines ‘buccaneer’ as ‘a person who acts in a recklessly adventurous and often unscrupulous way’). Liz Truss tops the ConHome Ministerial popularity charts largely on the basis of her energetic advocacy of Global Britain and for free trade as a benefit of Brexit.

The reality is that Brexit involves the erection of trade barriers with our largest market, as January’s appalling trade numbers suggest (although, to be fair, a clearer picture will only emerge over time). Given the Prime Minister was willing to agree to the Northern Ireland Protocol, it even involves trade barriers within the UK.

While good progress has been made by the Department of International Trade in completing free trade agreements with third countries, these have primarily rolled over existing agreements that we had as members of the EU. There was a flurry of excitement last week when the US dropped punitive tariffs on UK products that were in place because of a longstanding dispute with the EU over Airbus and Boeing. Brexit supporters rushed to declare it a triumph due to our new status, the Trade Secretary wrote a self-congratulatory piece in The Daily Telegraph. A day later, the US announced that it was dropping the punitive tariffs against the EU, too. The search for a trade benefit from Brexit continues.

What about regulatory flexibility? It is nearly five years since we voted to leave the EU, but there are still no bold plans to regulate in a different way. Plans to review workers’ rights have been dropped on the basis that this would be politically unpopular.

If the hard Brexit delivered by the Government has made trade with the EU much harder, the combative manner of our dealing with the EU has not only reduced trust but even undermined a key attribute for a trading nation – the rule of law. Having threatened to breach international law for three months over the autumn, Lord Frost has now decided to extend the grace period before internal checks come into place – unilaterally changing the terms of our agreement with the EU. A second breach of an international treaty only recently agreed begins to look like a habit. It does nothing for our reputation for trustworthiness.

The attributes of an outward-looking, open, trading nation are ones to which we should aspire. But in terms of our openness to trade, competitiveness on tax and adherence to the rule of law we are going backwards. In terms of the State telling businesses what they should do and where they should do it, we are becoming more centralised and more arbitrary.

For years, many in the UK have characterised the EU as centralised, interventionist, uncompetitive and protectionist. It would be a sad irony if our departure from it makes us more like the type of inward-looking, land-based power that we once used to disparage.

Looking back at the Budget a week on, its plan for growth is not convincing

12 Mar

The only worse judgement about a Budget than a snap article is an opinion poll – and we write that regardless of the reception that polls gave last week’s.

For just as a snap view can be based on less than the full picture (a particular feature of Gordon Brown’s), so a polling one tells one nothing about whether a Budget will work, or indeed will be as popular a month after its release rather than a day after.

Our own snap take was largely restricted to asking whether the tax rises announced for future years will really happen at all – or whether Boris Johnson will be able to take advantages of higher revenues to cancel them, and then seek a quick general election.

The end of the week after the Budget may be a better time to take a fuller view.  It would start by trying to understand the position that Rishi Sunak is in.

The post-Budget piece on this site by his Treasury colleague, John Glen, set out the scene as the Chancellor sees it in the latter’s first presentation since Brexit was done in full, and vaccines gave us hope that the pandemic will end.

The economy has shrunk by 10 per cent, the largest fall in over 300 years.  And our borrowing is the highest it has been outside of wartime.

That suggests going for growth in the short-term, as this site has recommended, with fiscal consolidation taking place later, as it will have to do in spades if the growth doesn’t come.  The timing of Rishi Sunak’s measures suggest that he agrees.

We believe that tax rises inevitably have to play some part in that consolidation along with spending cuts, and recognise that the run-up to an election is a difficult time to do either: the Chancellor is cursed by the economic and electoral cycles being out of kilter.

Certainly, government will always have to tax something to pay for public services, and the sensible view is that that something should be spending rather than income (or business).

Which explains why early Thatcher and Osborne budgets alike put up VAT, and why the latter wanted two new council tax bands on more expensive properties – as he confirmed to ConHome last year.

However, Sunak is boxed in on VAT.  The final headline pledge of the last Conservative Manifesto was “we will not raise the rate of income tax, VAT or National Insurance”.

We may know more about his plans for property taxes if any on tax day, March 23rd.  There is a plan on the table to replace council tax (and stamp duty) with a new property tax, but it is revenue neutral.

Since it would already create losers in more expensive properties in London, Sunak is unlikely to adapt it to create even more of them there and elsewhere.

Business rates were a dog that didn’t bark during the Budget, and any eventual reduction to them looks to come largely from a digital sales tax, not a residential property tax.  Some who would pay it belong to an interest group with little direct leverage: foreign companies.

But unable to turn to VAT and unwilling to turn to property – or so it appears – Sunak targeted income tax allowances and business in his Budget, via corporation tax (assuming, as we say, that these hikes ever happen at all).

On the first, the Office for Budget Responsibility says that the allowances freeze will haul a million more people into the higher rate band.  Fiscal drag is scarcely new – as the Institute for Fiscal Studies noted two years ago – but the move will do nothing to improve incentives.

On the second, there are some detailed arguments for the increase, as set out by Anthony Browne on ConservativeHome recently, but a general one against, which is based on certainty.

In essence, lower rates of corporation tax have been a feature of Conservative policy from Thatcher through to Osborne and beyond – together with an emphasis on lower income tax rates, supply side reform and a smaller state.

If these higher ones ever come in, the Chancellor will essentially be trading off higher corporation tax from some companies for the new super deduction for some companies.

That would mean a shift from a relatively simple and neutral system to a more complex and partial one, which would be more likely to help firms in the Midlands and North, according to sources that this site has spoken to.

We are not convinced that such a switch, if it ever happens, is a net plus for Britain.  But now that Sunak has turned on the super deduction it would be best for him, in order to help provide that certainty, not to turn it off in two years.

Elsewhere, those Thatcher-to-Osborne orthodoxies are also in flux.  They were first challenged in recent times not by Johnson, but by Theresa May, with her mantra of “the good that government can do”.

The Industrial Strategy was a product of her approach.  We are all for one in principle if it has a clear aim, namely turning pure research into translational research.

As Greg Clark, who had charge of it under May, conceded yesterday on this site: “it may have tried to do too much in one White Paper”.  His successor, in his swashbuckling way, dismissed in the Commons this week as “a pudding with no theme”.

That directness is a part of what makes Kwasi Kwarteng such an engaging politician, and it may be that he plans a slimming down of the strategy that will deliver results.

But one source close to the process worries that “individual policies will continue anyway but without consistency, ownership or scrutiny”.  And Clark has a point when he says that any strategy must be linked to place as well as sector – in other words, to levelling up.

We’re concerned that the Government has come to see such levelling up as incompatible with supply side reform and institutional change.  We can’t see much of the former in Build Back Better – the Government’s “plan for growth”.

It’s big on intrastructure and net zero; smaller on skills and innovation: as May said in the Commons this week, there’s a limit to how many times Ministers can review research and development tax credits.

If it really wants to go for sustainable and more even growth, the Government will need to devolve more power.  As a former senior Minister put it to ConHome recently: “we can’t deliver levelling up, a skills revolution, an industrial strategy and zero carbon from the centre”

“The new mayors have a convening power: they can get local businesses, the Chief Constable, the NHS bigwigs, the university vice-chancellors, the local enteprise partnerships round the table, and come up with a plan.”

On supply side reform, we understand why Kwarteng killed a planned review of workers’ rights.  But what is the plan to ease supply elsewhere – especially on housing?

On institutional change, there are commitments to reform the civil service and the courts, but almost none that apply to the major public services, especially health.

To date, tax rises are taking the strain of future consolidation, and the danger for the Chancellor is that he finds himself boxed into that position permanently – with Downing Street spooked by the consequences of a proper spending review for Tory red wall seats.

The Budget promises infrastructure spending, possible tax rises, pots of money from the centre for those provincial seats, limited localism, plus some levelling-up but little reform.  That’s a mix of pluses and minuses, but not a plan for growth.

Anthony Browne: Why the Chancellor is right to increase Corporation Tax

5 Mar

Anthony Browne MP is a member of the Treasury Select Committee and former CEO of the British Bankers’ Association.

There is a change of direction in the Budget that is causing murmurings on the low-tax side of the Conservative Party: the increase in Corporation Tax (CT).

A decade of sharp cuts to CT were justified by saying that they not only boosted investment and growth but also actually increased tax revenues. Ireland too is cited as an example, where the sleepy Celtic moggy cut CT rates to 12.5 per cent, the lowest in the industrial world, and was transformed into a Celtic tiger.

I too want low taxes, and this Laffer curve argument is appealing because it suggests that tax cuts can pay for themselves. But the Government is now planning a sharp rise in CT from 19 per cent to 25 per cent in 2023 for the most profitable firms, with the Budget Red Book showing the Treasury expects this to raise more than £17bn extra a year by 2025. But hang on! If lower CT rates increases revenue, then raising them can’t. Why the change?

So, in technical language, just what is the peak revenue-raising rate on the Laffer curve on Corporation Tax?

Laffer curves exist for all taxes, and their peak rates depend on many factors, such as the substitutability of the product, the elasticity of demand, mobility of production, the fungibility of capital and labour, and what other tax authorities are doing. Tax on sugary drinks probably has a very low Laffer curve peak because a small tax just prompts people to drink otherwise identical zero-sugar drinks. The Laffer curve on fuel is very high – well over 100 per cent – because people can’t do without fuel to drive.

On Corporation Tax, the Laffer curve would be lower for highly mobile sectors that can shop around for the lowest tax regimes in the world, and higher for ones that can’t easily move.

It is absolutely true that CT receipts have increased dramatically since George Osborne started cutting the rates, from £36.3bn in 2010-11 to £55.1bn in 2018-19. But that is largely because corporate profits were hugely depressed in 2010 in the wake of the deepest recession for a century. Corporation tax profits – and so CT revenues – are super-cyclical: exaggerated versions of the underlying economic cycle. Aggregate company profits on which CT is charged fell from £203.6bn in 2006/7 to £151.6bn in 2010/11, and then bounced back to £267bn in 2018/19.

After both the 1990/91 recession and the dotcom crash, CT revenues took just three years to return to their long run average as a percentage of GDP, but after the financial crisis, it took eight years, presumably because of the lower rates. Other changes have also increased CT revenues since the financial crisis including the corporation tax surcharge on banks (about £2bn a year), and widening the base of corporation tax. As it happens, CT revenues also rose sharply before the financial crash, and that had nothing to do with their rates because they were static throughout the entire period.

But CT is one source of tax revenue – what about the others?

Lower CT rates leads to lower cost of capital for companies, and so should increase investment and thus increase jobs, wages, GDP growth and consumption, leading to higher rates of income tax, VAT and so on. HM Treasury started doing dynamic modelling on the effects of cutting CT tax, to take into account the overall effects. In 2013, HMT and HMRC published a detailed analysis from the dynamic modelling, showing an increase in investment, in GDP (between 0.6 per cent and 0.8 per cent) and wages (£405-£515 per household). That lead to greater tax revenues, but only enough to reduce the loss of direct revenues by between 45 per cent and 60 per cent.

In other words, even a Treasury analysis, presumably designed to support Treasury policy, admits the CT cuts reduce overall tax revenues rather than increase them. It also surveyed the academic literature from around the world on this, and they all estimated that between 45 per cent and 90 per cent of the revenue loss would be made up – not enough of an impact to actually increase revenues.

There are other reasons to cut CT taxes than raising revenues. Another argument used is that cutting CT increases investment, but that also isn’t really supported by the evidence. Business investment is the same now when CT is 19 per cent as it was in the late 1990s, when CT was 30 per cent. Between 1997 and 2017, we had the lowest CT in the G7, but also the lowest average non-government investment at 14.3 per cent of GDP (compared to G7 average of 17.3 per cent).

Whatever the impact of low corporation tax in Ireland, it is really not comparable to the UK. When it introduced them, it was a much more agrarian economy with little inward investment and a major exporter of skilled people. There was not a big corporate base, and so it had little to lose from cutting CT.

If you want to use tax policy to increase investment, then it is better to target the tax cuts directly at investment decisions, as the Budget is doing with its “superdeduction” on investment, which will mean the Government will write off 25 per cent of any investment any business makes against its tax bill. Here is a suggestion for the corporate world: cutting corporation tax has not lead to a surge in investment, and it is now it is going back up. If you want to keep the “superdeduction” investment relief and make it permanent, prove to the Treasury that it works.