TaxPayers' Alliance response to the Tory Tax Plans: Too timid, too complex and poorly targeted

While the TaxPayers’ Alliance (TPA) welcomes any plan to reduce the burden on British businesses or ordinary taxpayers, the plans announced by the Conservatives today are disappointing. The TPA today publishes a response to the plans that details why they are too timid, too complex and poorly targeted and suggests alternative public spending savings and tax cuts that would be of greater help to the economy. In the coming days we will also be looking at the Labour and Liberal Democrats' plans shortly. To read the response, click here. 

Matthew Elliott, Chief Executive of the TaxPayers’ Alliance, said:

“We are in a serious economic crisis that demands bold and radical tax cuts, not tinkering around the edges that will do little for firms struggling to survive. While ordinary people and British businesses will welcome any tax cut, this plan is far too complex and timid. Big, headline tax cuts are needed, and they are needed now.”

Key Findings

The opinion of the TaxPayers' Alliance is that the Conservative proposals are:

• Too small scale: An estimated £2.6 billion tax cut is a mere 0.5% of the Government's 07/08 tax take. Given the scale of the crisis, and the fact that Corporation Tax, Business Rates and employers' National Insurance Contributions alone place a burden of over £100 billion on business, much larger tax cuts are needed to help businesses and workers through the recession.
• Too complex: Contrary to the stated Conservative Party principle of tax simplification, this proposal increases the complexity of the tax system with numerous conditions and qualifiers. These not only threaten to increase administration costs for business and Government, but also risk distorting companies' behaviour and even potentially skewing the balance of the economy when it comes to recover from the current crisis.
• Poorly targeted: Because the proposals are targeted at recruitment, they do nothing to help firms which are having to shed jobs. Tax cuts should be aimed at helping companies to avoid having to lay people off in the first place. Any firm making redundancies within three months of recruitment will be barred from the scheme, so businesses most affected by the financial crisis will get no benefit at all.

TaxPayers' Alliance alternative proposals:

Robust cuts in wasteful public spending are clearly needed:

• Scrapping the ineffective Regional Development Agencies would save £2.3 billion a year. TPA research has found the RDAs to be extremely ineffective in helping regional economies.
• Freezing Civil Service recruitment. Over ten years this could save £3.3 billion in annual spending.
• Scrapping ID cards would save as much as £20 billion. This could provide for temporary tax cuts or be used to cover the initial years of a permanent cut.

Radical tax cuts are needed to help business and put money back into the pockets of consumers. Each of these three proposals would cost approximately £10 billion:

• Cutting the basic rate of income tax by 3p.
• Cutting the rate of employers’ national insurance contributions by 2 percentage points.
• Cutting VAT by two percentage points. Cuts by more than 2.5 percentage points would require a change in European Union law but a 2 per cent cut could be implemented immediately.

Comments

[Stephen Sellers]

I wholeheartedly agree with the TPA. The Tories are out to lunch when it comes to commenting on the economy at the moment. They need to get real and need a policy of large tax cuts to stave off even worse unemployment to come in the new year. Bring back the battler and bruiser Ken Clarke to replace the hopeless Shadow Chancellor Osborne. He has the gravitas, experience and intellectual confidence to take on the disasterous Brown/Darling duo running the UK ship aground.

[Brian Smith]

The tax system is massively complex. Government spending is fixed for at least 5 years going forward. The idea that you can just chuck a grenade into the system and reduce taxes "at a stroke" is dangerous.

If taxes are reduced without compensating action on costs two things will follow; later tax rises to take back what was given away and/or inflation.

The ony sensible way to do it would be for the government to say where it was going to spend less in future years (so as not to depress an already shaky economy) and then feed those savings back into the tax system.

If they do less than they can tax less. Anything else will fail.

[Clair Allan]

Dear Mr Elliott
I understand from the Costa Blanca News today in Spain that you are propoing that the WFA for pensioners abroad should be stopped. I do wish you would come and spend a few days here in Spain in the winter. Last night the temperature was 3C and for the last 3 weeks the day temperature has been as low as 5C. Not very warm I think you´ll agree. Instead of targeting pensioners who have paid their dues to the UK (I myself worked for 35 years, contributing tax and NI) why don´t you expend your energies on the Karen Matthews of this world. These women make a career of having children (7 in her case) and we pay the likes of her 400 sterling pounds a WEEK for the privilege. My partner (who is nearly 63) does not get the WFA but pays nearly 250 sterling pounds a month in tax to the UK government, as he has an Army and Police pension. Please, leave us alone - we´ve earned the WFA.

Clair Allan
Hondon de los Frailes
Alicante, Spain