Johnson sacrificed the Tories low tax reputation and will pay the price for it
THE TORIES are becoming a high-tax party because they have become a low-growth party. So said the Shadow Chancellor Rachel Reeves recently. And she’s right.
The Conservative Party has increased taxes to a 71-year high. Government spending is the most it has been since the late 1970s.
Meanwhile, our economic recovery remains fragile. Despite solid GDP growth in November, Capital Economics estimates a 0.5 per cent month on month drop in GDP for December and January.
And the Tories planned tax rises will further decrease demand and dampen business investment.
At a time when Boris Johnson is fighting for his political life, the
gaping hole in the Conservatives hallmark policies has left him weak to scandal.
The new Health and Social Care levy will add a further 1.25 per cent to National Insurance Contributions for employees and employers.
In response, employers will already be cutting back on their plans to take on more staff as they know the cost of doing so will soon rise. The UK’s so-called “jobs miracle”, one of the few economic positives, will be put under pressure.
Employees will spend less as they know their pay packets will take a hit. And this is on top of soaring energy bills and rising food prices – already putting household finances under significant strain.
Then, in April 2023, corporation tax for firms making more than £250,000 profit a year will rise to 25 per cent, up from 19 per cent now.
As a result, companies will reduce their investment. Firms will look to lower tax alternatives.
But, we cannot tax our way to recovery. We must grow a more robust economy instead. So, what should a pro-growth agenda look like?
First, cull April’s National Insurance Contributions rise. Jacob Rees-Mogg, the leader of the House of Commons, allegedly argued in Cabinet for the Prime Minister to scrap the increase to help ease the cost of living.
There’s another reason to scrap the levy, estimated to raise £12bn a year to help fund health and social care. Hypothecated taxes seldom work.
A recent investigation by The Daily Telegraph revealed that the Soft Drinks Industry Levy is no longer being used to tackle childhood obesity as initially intended. Instead, the money is now in the Treasury’s general coffers.
The same is true of the Bank Levy, which the government introduced to encourage financial discipline and prevent a repeat of the risky behaviour that led to the financial crisis.
Given the previous form, we might be sceptical about whether the government will use the money from the Health and Social Care levy to fund health and social care.
Second, reverse the planned corporation tax rises for 2023, which will reduce the UK’s tax competitiveness.
Research by the Centre of Policy Studies and the US-based Tax Foundation shows that in 2023 the UK will move from being ranked 18th for corporate taxes to 31st out of 37 countries.
The analysis includes the increase in the headline rate of corporation tax and the removal of the super deduction, which allows companies to claim a 130 per cent capital allowance on plant and machinery investments.
Third, the government must plan to live with Covid and give businesses the certainty they need to reopen, invest and employ people.
Businesses need confidence more than they need dramatic changes in policy. A “will they, won’t they” approach to restrictions has slashed business confidence.
Many hospitality businesses and small retailers suffered over the Christmas period. Without a clear indication from the government on what action it might take, consumers cancelled plans. Many small businesses had no choice but to close.
Now that there is hope that the UK could move Covid from a pandemic to an endemic it is time for the Conservative Party to regain its free market instincts and adopt a pro-growth agenda.