The TaxPayers’ Alliance does not take a position on whether or not the United Kingdom should leave the European Union. However, it is important that in any possible situation arising from that decision taxpayers’ interests are represented.
This note is therefore intended to suggest tax policy changes which, in the event of leaving without a withdrawal agreement, the government could pursue to promote a competitive, low-tax and pro-enterprise economy.
Few people view leaving the EU without an agreement as the most desirable outcome, though much like the rest of the country, business people hold a range of views on what should happen. How to respond to Brexit is the principle question for the United Kingdom and a ‘no deal’ Brexit presents particular challenges and opportunities.
It is incumbent on the government to respond, by taking advantage of those opportunities and mitigating against the risks. These are predominantly questions of trade barriers, regulation and how to conduct international diplomacy. Leaving without an agreement adds another dimension to the question, which this note seeks to address.
There will be considerable pressure on government to respond with changes to fiscal policy. Politicians may be tempted to increase spending or cut consumption taxes. While easing the cost of living would be a noble aim, increasing spending even higher would be a mistake except to support industries and individuals within a strictly limited timeframe: there are more effective ways of promoting prosperity and growth with tax cuts, as this note shows.
By focusing on taxes that are getting in the way of investment, earning, moving to take up new jobs or travelling to win export business and attracting tourists to the UK, the policies suggested here would provide meaningful help to the sort of business and entrepreneur clients I used to represent when I was an adviser.
A ‘no deal’ Brexit represents a unique scenario for the British government, with incentives to think boldly and creatively about our fiscal response. These proposals by the TaxPayers’ Alliance do just that.
Stephen Herring FCA, TaxPayers’ Alliance Advisory Council
Stephen has been a tax partner for leading business advisory firms Grant Thornton, EY and BDO. In 2013 he joined the Institute of Directors where until last year he was head of taxation in the policy unit.
If the United Kingdom leaves the European Union without a withdrawal agreement it is likely that uncertainty about future trading arrangements with both EU member states and other economies previously handled under EU membership could lead to businesses delaying investment decisions. This in turn could be pre-empted by consumers delaying consumption decisions.
The government has already loosened fiscal policy by accelerating spending growth in the recent spending round and it would be likely to come under pressure to loosen further. Rather than spending more taxpayers’ money, fiscal policy should be targeted at enhancing growth, productivity and business confidence.
A popular package of reforms targeted at five key taxes, each with a short-term and a long-term measure, could provide any required confidence boost among both businesses and consumers while also sharpening incentives across the economy to enhance investment, productivity and earnings.
The five key taxes are corporation tax, business rates, income tax, stamp duty land tax and air passenger duty.