May’s Deal 1) Andrew Feldman – Party members must back it and her. Let’s not give Corbyn the crisis he craves.

If he can’t get an early election, he would take a disorderly departure from the EU, leading to a recession – and to victory at a later date.

Andrew Feldman is a former Chairman of the Conservative Party.

In recent months, I have spent time talking to business leaders in the UK and around the world. They all have two questions for me. Is there going to be a Brexit deal? Is there a chance that Jeremy Corbyn will become Prime Minister? My reply is always the same. That those two questions are inextricably linked.

If there is a sensible deal, then it is likely that the UK will enjoy an economic boost, releasing pent-up investment from a period of deep uncertainty. Businesses based here would stop sitting on their hands and commit to the new factories, warehouses and capital projects that we need. Investors abroad would once again feel confident that the UK was ‘open for business’, and would seek out the immense opportunities that we offer.

If this happens, the prospects of Corbyn being elected recede dramatically. Improving economic growth and confidence would facilitate continuing high levels of employment, wage growth and investment in public services. The Conservatives would secure their hard-won reputation for responsible government, fiscal prudence and effective management of the economy.

On the other hand, if there is not a deal, and a chaotic exit from the EU, the picture will change dramatically. Businesses will not only sit on their hands, but may start to withdraw activity from the UK. Investment from abroad may be replaced by dramatic divestment. Now of course, over time things may settle down. But there will undoubtedly be a risk of serious economic dislocation – causing substantial job losses, slowing growth and curbing the ability to improve public services.

And of course, Corbyn and John McDonnell are desperate for that to happen – some kind of shock to the UK that can help to win them power. Ideally, they want to force an early general election, because the Conservatives can’t agree on a plan. Failing that, they would take a violent and disorderly departure from the EU, leading to a recession – and then to election victory at a later date.  Chaos and uncertainty are their route to power.

This is more than ruthless ambition; it is rooted in ideology. Karl Marx predicted the inevitable demise of capitalism as part of the great tide of history. Frustratingly for him, it never happened. Living in England until the end of his life, he marvelled at the ability of the British to adapt their system. To accommodate the needs and demands of their changing industrialised economy. His theory did not predict the peaceful emergence of the NHS or the welfare state. He died miserably ruminating over his unfinished sequel to Das Kapital.

The Marxists in Britain have been continually disappointed. They have lurked at the fringes of Labour politics for many years. Unfortunately, they have now entered the mainstream. They are waiting to seize their moment to impose their already discredited ideology on generations who have not experienced its horrors first hand.

It is the duty of the Conservative Party to stop this happening. A Corbyn-led Labour Government would be a disaster for this country. And although Brexit is undoubtedly a seismic event; there is no need to for it to lead to a Tsunami, destroying all before it. The Conservative Party has faced momentous moments before. The reaction has always been pragmatism. Evolution not revolution. Steadiness and deal-making.

In her speech in Birmingham, Theresa May reminded us of this legacy. She asked her Party to come together in the national interest to deliver a solution to the Brexit conundrum. To help her to thread the needle of respecting the democratic result of the referendum; of preserving our proud Union; of keeping the economy on track and business on side, and of finding a fair basis for trading with our close neighbours and allies.

We are leaving the EU: the referendum result must be respected. As with all marriages, it may end with sour words and slamming doors. But once the anger has subsided, we need to come together to work out the future, to protect the interests of the next generation. We need to be grown up enough to accept that although we are going through a divorce, we cannot just walk away from our responsibilities and move on. This can take time and involve ongoing obligations.

And as the Prime Minister reminded us, it is not just Conservatives who need to stand firm. Our friends in the DUP know what a Corbyn Government could mean. They know that his well-documented Republican sympathies would risk the break-up of the Union. He longs for a United Ireland with the same passion that he dislikes the United Kingdom.

So we need to make sure that we rally behind the Prime Minister and help her to deliver a sensible, measured deal. We need to do this to frustrate Corbyn and McDonnell. We need to do this in the national interest. And we need to do this to keep Marx spinning in his grave up in Highgate.

Howard Flight: The best part of a week on, we can see that last week’s Budget was a popular one

The Chancellor has been fortunate that the public finances have improved substantially at a particularly convenient time.

Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.

Philip Hammond has been fortunate that the public finances have improved substantially at a particularly convenient time. Economic growth has been revised up next year to 1.6 per cent; employment has been revised up, with 800,000 more jobs than forecast in 2023; wages will rise above inflation for the next five years.

The borrowing target has been met three years early, with the deficit now down to 1.9 per cent of GDP. The debt target has also been met three years early at a peak of 85 per cent of GDP. Borrowing is £11.6 billion lower than forecast at 1.2 per cent of GDP. This has improved significantly the scope of what the Budget can seek to address.

Overall public spending will increase by 1.2 per cent per annum, between 0.2 per cent and 0.4 per cent less than forecast growth. The improved tax yields have enabled the Prime Minister’s NHS commitment to be fully funded.

The Chancellor presented a pragmatic “micro” Budget, seeking to address virtually all of the issues which came up as needing attention. Yet perhaps its most important ingredient was a significant cut in taxation for the majority next April – increasing the personal allowance to £12,500 and the higher rate to £50,000 a year.

Local Authorities are getting an extra £1 billion of funding and business rates for retailers with rateable values below £51,000, will be cut by a third for two years. A further £1.7 billion each year will be provided to benefit working families on Universal Credit with the work allowance – the amount families can earn before losing credits – being increased by £1000 per annum.

A new two per cent digital services tax to insure that large digital firms pay a “fair share” of tax, is expected to raise £400 million per annum. Schools will get a further 400 million this year and defence will get a further £1 billion this year and next. There is also £160 million for counter-terror police. The national living wage will increase by nearly five per cent to £8.21. The national productivity investment fund will be increased to £37 billion and will be extended to 2024. Large roads will get £28.8 billion for 2020-25, and even potholes will get £420 million! PFI will be abolished, leaving a bill for £200 billion to be honoured.

There was a range of extra funding largely for small business – extending the annual investment allowance to £1 million; extending the start-up loans programme for 10,000 entrepreneurs; delivering the lowest corporation tax rate in the G20; keeping three million small businesses out of VAT; reducing the cost of taking on apprentices by halving the co-investment rate for non-levy payers; £121 million to support cutting-edge digital manufacturing; £78 million to fund electric motor innovations; £315 million in quantum technologies and £50 million for new Turing Fellowships.

Measures to help more people into home ownership include abolishing stamp duty retrospectively for first time buyers of all shared ownership properties of up to £500,000; an additional £500 million for the housing infrastructure fund; committing over £7.2 billion to a new help to buy equity loan scheme to support 110,000 new home buyers and the abolition of the housing revenue account cap controlling local authority borrowing for house building.

There are measures for those keen on the environment and more money for the Transforming Cities fund. Remarkably, the Chancellor has addressed virtually all the issues of concern to citizens and, as a result, I think, the best part of a week on, that this has proved to be a very popular Budget. The one important reform it has not addressed is the confiscatory rates of stamp duty on larger properties in London and the South East. This had led to a freezing up of the market – bad for revenues and for economic mobility.

Tom Clougherty: Make Work Pay. A new agenda from the CPS for fairer taxes – including an end to pernicious marginal rates.

If one of a couple claiming the marriage allowance becomes a higher rate taxpayer, there is a 23,800 per cent effective marginal tax rate on the penny that pushes them over the threshold.

Tom Clougherty is Head of Tax at the Centre for Policy Studies.

We often hear that the political tide has turned since the financial crisis, and that the British public are in the mood for higher taxes and bigger government. Yet a new YouGov poll for the Centre for Policy Studies (CPS) paints a rather different picture. We find that only 17 per cent think people in the UK pay too little tax. What’s more, only 21 percent think that the official top rate of tax – 45p on incomes over £150,000 – is too low.

Another striking finding came from asking people to choose between different aims for the tax system. Twenty-three per cent said the goal should be to raise as much money as possible for public services; a quarter said redistribution from rich to poor was the key. But the most popular option by a clear margin, with 35 per cent support, was “to provide people with the strongest incentives to work”.

None of this suggests much of a mandate for hard-left government. On the other hand, it does suggest that the central theme of my new report for the Centre for Policy Studies – Make Work Pay: A New Agenda for Fairer Taxes – is one that resonates with the public.

Here’s the context: we all know that Britain is experiencing a “jobs miracle”; that employment is at a record high, while unemployment is at an historic low. We’re also all aware that wage growth has been sluggish (at best) since the financial crisis, while the cost of living has rocketed up people’s list of concerns.

The goal of my research for the CPS was therefore to come up with ways of putting more money in people’s pockets – but not by going down the usual route of government handouts or heavy-handed market intervention. Instead, the focus would be on making work pay – first by ensuring that everyone could earn a basic minimum before they had to pay any tax at all; and then by ensuring that they always got to keep at least 51p of every additional £1 they earned.

Clearly, the Government has already made great strides on that first point with its policy of raising the personal allowance. But we too often forget that millions of those supposedly “taken out of tax” are still paying National Insurance – a second income tax in everything but name. I suggest it’s time to right that wrong by establishing a new “universal working income” – a combined £12,000 threshold for income tax and National Insurance, which would allow people to earn £1,000 a month completely tax free.

This would be significantly more generous than the government’s current plan – to raise the personal allowance to £12,500 next year, while only lifting the National Insurance threshold in line with inflation. Compared with the current tax system, the universal working income would give anyone earning more than £12,000 an extra £459 a year of spending power. But it would also cut taxes for the 2.4 million people who currently only pay National Insurance – helping to make work pay for those on the lowest incomes.

I realise that my second point – that people should never lose more than 49p of the next pound they earn in tax – might not sound like much. After all, even if you factor in National Insurance, the headline top rate of tax in the UK is “only” 47 percent.

Yet in reality, this principle – which I call “the work guarantee” – is violated at numerous pinch points in the tax system. The effective marginal tax rate on earnings between £100,000 and £123,700 is 62 per cent, thanks to the withdrawal of the personal allowance. Someone with three children and £50,000 of income will face an effective rate of 67 per cent on the next pound they earn, as a result of the high income child benefit charge. And a couple claiming the marriage allowance face losing hundreds of pounds if one of them becomes a higher rate taxpayer – as things stand, there’s a 23,800 per cent effective marginal tax rate on the penny that pushes them over the threshold.

Fortunately, there are simple – and relatively inexpensive – solutions to all these problems: the marriage allowance could be replaced by a more generous “family responsibility allowance” aimed at married couples with young children or other care responsibilities; the high-income child benefit charge could be levied at a much lower rate; and the withdrawal of the personal allowance could simply be abolished, with the 45p threshold lowered from £150,000 to £100,000 (and then linked to inflation) to minimise any revenue loss.

But we can’t talk about making work pay without also thinking about those trying to make the transition from welfare into work. After all, those at the bottom of the income distribution – who may pay tax on their earnings while also having their benefits withdrawn – often see less reward for their labour than anyone else. And while Universal Credit certainly represents a big improvement on the legacy benefits system, it doesn’t fully solve this problem: someone subject to income tax, National Insurance, and the Universal Credit taper will still face an effective marginal tax rate of 75 percent. That can hardly be described as making work pay.

To ensure that the benefits system does not take away what the tax system gives, my report therefore also advocates bold action on Universal Credit, suggesting that the taper – the rate at which benefits are withdrawn against each pound of post-tax earnings over any work allowance – should be cut from 63p to 50p. This would give a huge boost to the lowest earners, while also giving them a strong incentive to increase their hours and make progress in the workplace.

This may, I suppose, sound a bit like a policy wish list – and an expensive one at that. All told, the reforms outlined in my report would cost up to £13.5 billion, with the lion’s share going to raise the National Insurance threshold and cut the Universal Credit taper rate. (The cost could be covered by a move to ISA-style pension tax relief, reforms to National Insurance, and a range of other savings that will be detailed in full in a forthcoming CPS report.)

But while it’s true that each of the proposals I’ve outlined here would be a good thing in its own right, taken together they add up to something much bigger – to a new approach to tax and welfare reform organised around a single, universal principle: that government should do everything in its power to ensure that work always pays.

The polling we carried out as part of my research makes clear that this agenda would be popular: 76 per cent of those polled supported the idea of the universal working income (against 9 percent opposed), while 61 percent backed the work guarantee (against 18 percent who disagreed).

Ultimately, though, making work pay is about much more than political popularity: it’s about a fairer deal for middle-class families; it’s about people being able to work harder and longer without the taxman punishing them for it; and it’s about letting the poorest workers keep more of their hard-earned cash. It is – as Lord Saatchi wrote in the foreword to my report – about giving people more control over their finances and over their lives. And that is surely an appropriate goal for any Conservative Government to pursue.

Brexit was the elephant in the room as Philip Hammond presented his Budget

Fiscal activism underpinned by a resilient and sound economy was the main message of this Budget. In recent months it became clear the budget deficit had turned the corner and was on a credible improving trend. The Chancellor has taken advantage of this not to pay down debt and achieve a balanced budget sooner, but […]

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Fiscal activism underpinned by a resilient and sound economy was the main message of this Budget. In recent months it became clear the budget deficit had turned the corner and was on a credible improving trend. The Chancellor has taken advantage of this not to pay down debt and achieve a balanced budget sooner, but rather opt for what he called a balanced approach to the public finances. This means spending more, not raising net taxes and instead allowing the budget deficit to persist, albeit at low levels. This fiscal year the budget deficit is 1.2% of GDP and is projected to be 0.8% by 2023/24.

Despite this, the Budget was trying to be all things to all people, and heavily interventionist, with 86 new tax and spending measures.

The Budget confirmed a sizeable net £103.5 billion fiscal boost over the six fiscal years from 2018/19 to 2023/24. Of this, £98.5 billion was increased spending, the vast bulk being the previously announced boost to NHS spending. For four of the six fiscal years, net tax cuts were announced, and these will be particularly large next year at £4.2 billion, led by an increase in personal tax allowances.

The Chancellor stressed a “Double Deal Dividend” but was unable – probably because of the ongoing negotiations – to focus on saying whether there will be any Brexit Dividend. Brexit was the elephant in the room. Of course, it is not just Brexit, but what you do when you leave the EU that is key and that will help deliver this dividend.

I agree with the idea of a Deal Dividend in that once there is clarity about what lies ahead then this will trigger a rebound in investment. Uncertainty over the last two years is likely to have dented or delayed investment plans. The Double Deal, as the Chancellor called it, is that he is keeping back some fiscal fire power in case he needed to act and boost demand in the event of a No Deal. But it is the Brexit Dividend – including how to spend domestically the sizeable sums we send to the EU, as well as delivering a pro-growth economic agenda – that is key.

The economy has suffered from a lack of demand. But it also needs a supply side agenda too and the Chancellor was right to acknowledge this. Given this, the economic and fiscal numbers were credible.

The good news is that the budget numbers are on an improving trend. As long as the market believes the projections are credible, and borrowing rates stay low, then the current economic environment provides a powerful dynamic in which the budget deficit can fall further, as it did post-war when public debt plummeted from 240 per cent of GDP. Last year’s debt of 85.2 per cent of GDP was a peacetime high and is projected today to fall to 74.1% by 2022/23.

This Budget was partially aimed at showing austerity is over. The trouble is, there is no clear definition of this, but you tend to know it when you see it. For many, it will mean an end of the squeeze on departmental budgets – and we will have to wait until next year’s Comprehensive Spending Review to see what will happen, particularly to the previously non-ring-fenced areas.

While I am an advocate of fiscal activism, the reality is that the UK needs to save in good times to be able to spend in bad. It did not do this and the financial crisis blew the fiscal numbers off course. Not only did austerity restrain demand at a time when the economy needed it, but also the government then missed the opportunity to borrow at record low rates to fund necessary infrastructure. Now, one could argue tax cuts should be high on the agenda, hence it is welcome that personal tax allowances were raised from next year.

Ending austerity should not mean unlimited public spending. There clearly needs to be ongoing reform, including regional wage policies. Ending austerity should not mean keeping taxes high to fund spending. It also does not mean sacrificing capital spending to fund current expenditure. Thankfully the Budget showed both a desire to avoid further tax hikes, an aim for cuts and to protect capital spending plans.

It is important to appreciate that the margin of error on these one year ahead fiscal numbers is huge. Thus, we should resist the temptation to aggregate forecast changes over the next five years, as it makes little sense to do so. The key is: what happens to growth?

The trouble is the UK’S economic picture is one of low growth, low inflation and, presumably, low interest rates. The UK’s trend rate of growth has previously been revised down since the global financial crisis. At this Budget the growth forecast was tweaked lower by the independent Office for Budget Responsibility (OBR), to 1.3%, and higher from 1.3% to 1.6% for next, and averaging around 1.5% up to 2023.

This leaves the UK vulnerable to any global setback. Vital is what happens to productivity growth and this would be boosted by increased investment and innovation – and it is helpful there were incentives to try and boost these. I would not be surprised if UK growth in 2019 is higher than expected: as consumption could be boosted by rising wages, higher employment and the announcement of an increase in personal allowances from next spring, while a Brexit deal would likely boost investment.

The most striking aspect is that the OBR projects a further 800,000 jobs by 2023, bringing to 4.2 million the net new jobs since 2010. This puts to shame Project Fear’s misplaced projection of massive job losses in the wake of a vote to leave.

Previously I have described the EU as like the Titanic. Despite warnings of impending problems and the need to reform, it will not change direction and we are lucky to be jumping ship. The trouble is, after a Budget like this, and with a Chequers Deal pending, the UK is in danger of becoming like the Marie Celeste – in touch of the new world, it is being left to drift with no-one at the helm. One hopes that once a credible deal is agreed the sense of direction will be clearer.

What about a no deal? Clearly we want to avoid a no deal, but a valid question is that the implied threat on the eve of the Budget that if there was no deal then the Chancellor would have to take action to make Britain universally competitive – including cutting taxes and easing the regulatory burden on firms, as well as to use fiscal policy to provide support to the economy – was a bizarre one. It must surely have been aimed at our EU neighbours, to encourage them to reach a deal.

But one wonders why this is couched in a threat and should it not be the focus of policy now – deal or no deal? Of course, the Chancellor is constrained from pushing this, while the negotiations are ongoing, but it should highlight that the UK should be in a better position once it can determine its own post-Brexit destiny. Of course, this makes it vital we do not box ourselves in with a Chequers-style deal and instead edge towards a free trade agreement like Canada Plus.

Photocredit: UK Parliament/Jessica Taylor

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