5 tax cuts for the new PM

1. Stamp duty land tax

It is encouraging to see that the new prime minister has considered raising the threshold for paying stamp duty as well as lowering the top rate. However, he should go further and abolish stamp duty completely.

There is a housing crisis in this country, with many people unable to afford to rent or buy their own home, with countless others struggling to keep up with their rent. Stamp duty is one of the main reasons why housing is so unaffordable in the UK. It increases costs for buyers and means that people who would like to downsize are stuck in large houses, while young families are trapped in homes which are too small for them. A 2017 study by the LSE found that the rate of home moving would be 27 per cent higher if stamp duty was abolished.

So, if we want to help end the housing crisis, then it’s time to get rid of stamp duty land tax.

 

2. Corporation tax

During the Conservative leadership campaign, Jeremy Hunt talked about his plans for cutting corporation tax.

Corporation tax discourages firms from investing in their facilities, staff and equipment. A study looking at businesses in OECD countries found that higher levels of corporation tax adversely impact the level of investment by businesses. This is important, as increases in investment leads to higher productivity - the key driver behind increasing economic growth and better living standards

Not only is corporation tax damaging the economy, it is also bad news for employees. Many economists agree that the burden falls on employees. This is felt in their pay packets, meaning that their salary is lower than it would otherwise be.

The government has cut the headline rate of corporation tax and pledged to continue to do so. However, ministers have also reduced the value of what are known as the depreciation deductions for investments. As a result, the effective marginal tax rate has actually increased. Again, this discourages investment and so keeps productivity low.

The new prime minister should commit to eventually abolishing corporation tax. In the meantime, it should cut the rate to 10 per cent and allow businesses to immediately deduct new spending on plants and equipment from their taxable income.

 

3. Taxes on income

On the campaign trail, Boris Johnson pledged to raise higher income tax rate from £50,000 to £80,000. This is an important first step, as taxes on the income of high earners can have a negative impact on productivity. It also reflects the reality that, due to inflation, people earning £50,000 and above may have been dragged into these bands inadvertently. 

However, the government should go further. After all, it is not just higher earners who are affected by taxes on their income. Although the very lowest earners have been taken out of income tax completely, the vast majority of people in work are still paying income tax, with many of the lowest earners also paying national insurance contributions. This can mean huge increases in the cost of living. 

The government should work towards the eventual goal of combining income tax and national insurance contributions into a single flat rate of 30 per cent. It should also be linked to inflation, to avoid the lowest earners being dragged in to paying income tax.

 

4. Sugar tax

The new prime minister has suggested that he wants to review the soft drinks industry levy, more commonly referred to as the sugar tax. This is good news.

Sugar taxes don’t work. People simply replace sugary drinks with something just as unhealthy. Whether that is chocolate and sweets as in Mexico, or even alcohol like in the US, people respond to a tax on unhealthy food or drinks in the same way.

The sugar tax is also regressive, as it hits poorer people the hardest. Low earners are more likely to consume sugary drinks than richer ones, and so it is these poorer households which are most adversely affected.

Instead of increasing the cost of living, the new government should scrap the sugar tax, and resist the temptation to introduce new taxes and regulations on food and drink, including milkshakes. 

 

5. Air passenger duty

The government should take a look at air passenger duty (APD). Senior ministers in the new government have long supported reductions in this hated holiday tax. 

UK APD is the highest aviation tax levied on passengers departing from airports within the EU, Norway and Switzerland. It is also among the highest taxes levied on passengers from countries in the OECD. 

At its core, it makes going on holiday more expensive. APD has soared from just £10 in 1994 to £78 on one-way economy ticket for long-haul journeys. As such, it increases the cost of living for households who may actually only take a single overseas holiday each year. It also puts the UK at a disadvantage compared to other countries in terms of trade, tourism, and investment.

Reforming APD could bring a boost to regional airports and increase the viability of new routes. This would increase tourism and investment in every region of the UK. 

The new administration should abolish air passenger duty. In the meantime, the rate should be reduced by 50 per cent immediately.