Slash taxes and sack George Osborne

Gordon Brown did so many terrible things to the economy it was hard to keep track. He also created the impression that chancellors could never be moved. That has allowed George Osborne to sit tight in No. 11 so long as David Cameron is living next door. Maybe it’s time he was moved on.

The idea that you keep the same chancellor for a parliament or two is fairly new. They used to change quite regularly, often in mid-term. Mrs Thatcher got through three during her decade in office: Geoffrey Howe, Nigel Lawson, and John Major.

John Major went through a couple – Norman Lamont and Ken Clarke. Harold Wilson went through three: James Callaghan, Roy Jenkins, and Denis Healey. Even Edward Heath managed a couple, although admittedly his first one, Iain Macleod, died of a heart attack shortly after taking office (after an operation, as it happens, rather than after looking at the state of the books).

Prime ministers in the past have regularly moved their chancellors on after three or four years, either because they weren’t doing a great job, or because they felt they needed a fresh pair of hands at the wheel. If Osborne can’t make any bold moves in next month’s Budget, David Cameron should think about making the same move, because, as dire as Osborne’s inheritance was from 13 years of Labour profligacy, he’s still done far too little to improve the nation’s prospects.

Britain needs a radical, determined programme to unleash the supply-side of the economy. Interest rates are at 300-year lows and the budget deficit is running at record levels for peace time. There isn’t any more that can be done to stimulate demand: that horse has been flogged into the grave already. The deficit is too high to cut taxes by much – even if there is an argument for being a lot bolder on that front. But a gritty attempt to simplify the tax system, and encourage new business, would help.

Yet Osborne has shown little appetite for the task. Instead, he has tinkered with minor taxes in the way that Brown did. In his three years in office, Osborne has shown more interest in raising taxes than cutting them. VAT has been put up to 20%, which has at least raised some revenue, even if it has hit retail spending.

Capital gains tax (CGT) has been raised to 28%, but shows little sign of raising any extra revenue. Stamp duty has been pushed up for houses valued at more than £2m, hitting the millionaire market in London, which just happens to be about the only vibrant part of the economy.

The only significant tax cut has been the lowering of the top rate from 50% to 45% and even that left Britain with one of the highest top rates in the developed world. It looks good compared to France, but that’s hardly a benchmark for competitiveness.

There are three major areas of tax reform Osborne could be tackling – if he had the courage. First, business rates need to be cut before the high street turns into a wasteland. They’ve been increased by 10% over the last two years and are set to rise even further this year. The headlines tell you that chain after chain is shutting down because the internet is hitting their sales. That’s only part of the story.

Sure, shoppers are switching to online retailers, but at the same time traditional shops are being hit by higher taxes while their sales are also weakening. It is hardly surprising so many have shut down, and that empty shops don’t find new tenants. As the rates rise, web retailers (who only have to pay tax on one warehouse rather than chains of shops) get more competitive. The high street will be destroyed if there isn’t a change of policy soon.

Next, the increase in CGT should be reversed. The figures aren’t in yet, but there is no sign that the increase from 18% to 28% has bought in any more revenue. The rise could be reversed at a cost of only around £400m in lost revenue and perhaps much less since the increase has bought in less cash than the Treasury predicted. Even better, why not go the whole hog and abolish CGT? According to research by the Centre for Policy Studies, that would only cost around £4bn.

There is no cheaper way of encouraging new firms. We would see even more French start-ups coming across the Channel. French entrepreneurs are now taxed at 75% on any money they make by starting up a business. It would make Britain the best place in the world to set up a business, a hub for start-ups across Europe: precisely what the country needs if it is to start creating wealth again.

Finally, tax credits need to be swept away to end welfare dependency. They have created a culture of hand outs and encouraged the growth of low-paid, low-productivity jobs by subsidising work that otherwise wouldn’t pay enough for people to live on. Britain can’t remain a first-world, or even second-world, country unless it improves its productivity. It would be better to target tax cuts to help the lower paid and families, rather than giving them credits.

Even within a broadly neutral Budget, it is still possible to reform the economy by targeting tax breaks where they are needed. Geoffrey Howe managed it in the early 1980s, yet so far Osborne has shown no appetite for real reform. If the economy is to be salvaged, he should be replaced with someone else.

5 Responses

  1. 08/02/2013, N BREEZE wrote

    Osborne is useless as you say. The PM and chancellor seem to arrive on a “dream-ticket” with close personal ties that are put before their performance and responsibility to the people they serve. Cameron probably finds the idea of sacking Osborne one that makes him shake in his boots but deep down he must know it’s what needed.

  2. 11/02/2013, Realist wrote

    We all want more money – of course with less taxes, more welfare, more freedom to do as we please, more and better wages without more work, and generally improvements all round without us getting the bill of course.

    How on earth can any government possibly keep up with these sort of demands ? If it were possible any government would try to be popular, get re-elected, and generally keep in power for an age. But this is not realistic, and everyone knows it.

    This country is in a deep bind, the cause of which goes way back before WW2. Due to loss of power, loss of empire, lack of the hard work ethic, and all the other small causes which add up to a collective unsolvable problem. Who ever played back the record to see what 45 years of nationalization really cost UK plc. Who ever tries to calculate the efect of this. Most of your readers can hardly list the industries that were state owned.

  3. 11/02/2013, Mr Grumpy wrote

    We need to rid ourselves of the dependency culture and celebrate success rather than tax it to death. Even sacred cows like the health service need to be challenged, yet the present incumbents seem stuck in a mentality of tax more and more. 20% VAT only encourages the black economy, in the same way as high levels of personal and corporate taxation encourage tax avoidance. Instead of criticising people and companies who seek to minimise their tax burden, lets have a Chancellor who writes the rules so that avoidance is eliminated but more importantly reduces the rate of tax to a level where it is not worth trying to avoid it!

  4. 11/02/2013, adwilliams134 wrote

    Raising VAT has had minimal effect on retail spending. A £500 flkat screen TV went up £511. If you could afford £500 then you can afford £511. In fact, prices in big items (PCs, TVs DVDs white goods etc) went DOWN because of lack of demand.

    People have stopped buying because they have had their hours cut, they are getting rid of their credit and store cards and the have no confidence in the future.

  5. 12/02/2013, Tony Hart wrote

    Corporation Tax should be scrapped immediately. All the profits that businesses earn are paid out in wages, salaries and dividends evntually, on which we pay tax.

    Chancellor could make a start by exempting all businesses that are exempt from paying/charging VAT.

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