The Budget should contain tax cuts for small businesses – while ensuring our defence and international diplomatic efforts are well funded, argues John Baron MP
One of Parliament’s great traditions is lobbying the Treasury, and the Chancellor in particular, ahead of Budget Day. As a great traditionalist, I am happy to indulge in this practice, recognising that a Budget is more than a collection of numbers and calculations. Its decisions affect every household in the land, and invariably set the tone for the political year to come – if not longer.
Since 2010, difficult decisions in successive budgets have done much to put the public finances back on an even keel. The economic mismanagement of the Blair and Brown years must never be underestimated or forgotten – their Labour administrations racked up more national debt than all previous Prime Ministers since the formation of the Bank of England in 1694 – and there is still work to do to repair this. Though the national debt continues to increase, the overall deficit has fallen significantly under the Coalition and Conservative governments, and it is very welcome news that Government borrowing in September was at the lowest level for 11 years. Meanwhile, the economy continues to grow steadily.
This has been achieved with record levels of employment, a fact which should also not be undervalued. Notwithstanding economics and the waste of talent, unemployment is a great social evil, denying individuals and families the security and peace of mind of a regular pay packet. Measures such as the National Living Wage, which continues to rise, are also helping the lowest-paid.
In the forthcoming Budget, the Chancellor must ensure that the principles of hard work and enterprise carry on being rewarded. This is most clearly articulated through the tax system, where continued tax cuts allow individuals and businesses alike to keep more of their income and use it accordingly to achieve their goals, whether it be home ownership or expanding their companies.
To this end, increases in the Personal Allowance should be accelerated. Since 2010, such increases have given an income tax cut to 31 million people, with four million of the lowest-paid being taken out of income tax altogether. This is a solidly Conservative measure, rewarding hard work and making it more worthwhile. The Chancellor must ignore the siren voices of those who wish to freeze these increases to raise more tax – as a society we would lose more than we gain.
On the same theme, the Chancellor should take small businesses out of Corporation Tax altogether. This would give a major boost to SMEs, which account for 99.9% of private sector businesses and which collectively employ 60% of the private sector workforce in the UK. These companies form the backbone of our economy, and removing Corporation Tax would allow them to expand, employ more people and grow our economy.
Evidence suggests, as illustrated by the ‘Laffer Curve’, that reducing taxes increases the overall tax take by reducing incentives to avoid (and evade) tax, encouraging further economic activity (which is taxable) and creating the conditions which persuade people to move their funds and assets into our country. President Trump’s recent tax reductions have produced record tax receipts for the US Treasury, and we should emulate this example.
The Treasury should also give serious consideration as to how to tax the massive tech giants such as Amazon, Facebook and Uber. When these firms make billions within the UK’s borders yet only pay comparatively paltry sums in tax to the Exchequer, something is definitely wrong with the tax system. This would also help ensure a level playing field with other businesses in Britain and keeps fairness within taxation. Perhaps Sir Nick Clegg might be reminded of his many on the record comments about his new employer in this regard.
Further gains for the Treasury could be obtained by the Brexit dividend and by cancelling the High Speed 2 rail link. This is a hugely expensive project, and costs will inevitably continue to rise as invariably happens with projects of such size and scale. In any case, the widespread availability of reliable, fast and secure WIFI and mobile data networks now permit working whilst travelling, negating the biggest single reason advanced for the new line. The tens of billions saved could be put to good use in other areas.
An obvious example is the situation of the Equitable Life policyholders. These people acted responsibly in saving with a well-regarded and longstanding institution. The ombudsman’s report underlined how maladministration, including by government, contributed to its collapse. Whilst the Government deserves credit for establishing the Equitable Life Payment Scheme, this has only covered a proportion of people’s losses, and it is right that these are covered in full as per the ombudsman’s report.
Moving on to other areas, the Budget must address our spending on international affairs. Recent events remind us of the importance of strong defence, and it is imperative that our ‘full spectrum’ capability is maintained. The RAF is too reliant on its aging Tornado aircraft – Typhoon as yet still unable to take over all ground attack roles – the Royal Navy struggles to fill the compliments of our warships, and the Army suffers from under-recruitment. An under-resourced military is not a credible force, and potential adversaries must not be permitted to draw the wrong conclusions from this.
Spending on the Foreign & Commonwealth Office remains alarmingly low – annual FCO spending has accounted for a mere 0.18% of total Government spending at £1.4 billion, against £150.8 billion on Health and £181 billion at the DWP. Given the consequences of misreading the international situation can be incredibly costly, both in blood and treasure, an increase in the FCO’s tiny budget would more than pay for itself.
In increasing resources to traditional diplomacy, greater support for our soft power institutions would also be sensible. The BBC World Service has a vast reach across the globe, broadcasting trusted news in multiple languages and articulating British values. However, recent funding uplifts are temporary, and the new language services may have to be cut once these run out.
Likewise the work of the British Council, which does so much to promote Britain and British culture abroad, is being hindered by reductions to its non-ODA funding in its government grant (which itself accounts for less than 15% of its income). This approach means the British Council is becoming overly reliant on commercial funding, which risks tarnishing its hard-won and excellent reputation. It is especially notable that both Russia and China are vastly increasing their spending on their cultural outreach institutions, and it would be short-sighted in the extreme if we ceded the ground and left a vacuum for them to fill.
Finally, looking further ahead, the Chancellor should be prepared where necessary to change UK financial law once we leave the EU. One good example concerns investment trusts, which are unknown on the Continent but which have a long pedigree in Britain. The EU’s core retail financial services regulations have at their heart a ‘key information document’, is supposed to be produced for every single investment trust – and from 2020 for every unit trust – in order to help investors better understand what they are buying.
However, many in the industry believe that these documents are grossly misleading on the assessment and comparison of risk, grossly misleading on the projection of future returns and certainly misleading on the comparison with similarly mandated sister funds within the unit trust sector. This makes for a perfect storm from which investors might seek redress in numbers if no corrective action is taken soon, and it is no wonder that all three of our major trade organisations believe that the regulations should be scrapped or reworked. The Chancellor would be well-placed to heed their concerns.
Overall, what we all really wish to hear from the Chancellor is a bit of optimism. The Prime Minister struck the right note during her Conference speech, in which she acknowledged that people had to feel that their hard work since the financial crash had been worthwhile, and indeed that had been rewarded. Optimism may not come easily to this Chancellor, but it will therefore be all the more valued if evident!