The UK needs a far more radical Budget for growth than what has so far been leaked.
By Sally Thompson
George Osborne should be focusing on creating the ideal conditions for the private sector to expand and flourish. Popular measures such as credit easing for small businesses are often counterproductive (it could cause a replay of the 2008 subprime mortgage crisis) and do little to make businesses more confident about the future. Instead of tinkering around the edges or ploughing money into prestige spending projects like HS2, the chancellor must bring radical changes to our tax system to send out a clear message that the UK is a good place to do business in.
The first step should be to scrap the 50p tax rate. Merely reducing it to 45p is wet and ineffective. The 50p rate doesn't just affect the amount of revenue, but has a broader impact on the economy. It causes companies to expand overseas rather than in the UK and investments are delayed and cut back. This means less tax take but also fewer jobs. Reducing the top rate to 40p would send out a clear signal that Britain is open for business again rather than punishing success and would stop wealth creators leaving the country.
At the same time the threshold for the 40p tax rate should be increased to £60,000. The current threshold is far too low and when factoring in NI contributions leads to marginal rates of tax of 49%. This is far too much and by 2015 a quarter of taxpayers will be in this tax bracket. To help the squeezed middle the chancellor should raise the threshold by £6,000 each year for the next three years until the threshold reaches £60,000.
If we want growth we also need a Budget that helps the working poor, making conditions easier for them to find work and prosper through their efforts. It is wrong that people on minimum wage have to pay income tax and therefore we would like to see the personal allowance raised to £12,000 to take the country’s lowest earners out of tax altogether.
Our tax system also needs a serious shake up. The tax code needs to be rewritten and simplified. Rather than introducing a General Anti-Avoidance Rule (GAAR) to tackle tax avoidance, the chancellor needs to rewrite the tax code with no tax deductions or loopholes. Simplifying our tax system would deliver significant savings – up to £80 billion – which would allow for a significant cut in the standard rate of income tax.
It's clear that economic growth will not come through high taxes. Rather than focusing on 'cracking down' on tax avoiders and soaking the rich, the chancellor needs to listen to the concerns of businesses and wealth creators. Now is not the time for more regulations, more subsidies, or more credit easing and public spending projects. Instead we need a Budget that gets to grip with the root causes stifling our economy and embraces an unleashing of the private sector through lower taxes, less regulation and a simpler and more transparent tax system.
Sally Thompson is Communications Director at the Adam Smith Institute, a leader free market think tank.
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- budget 2012