Tax policy under the coalition

Britain has a new Government - and the first true coalition Government in over half a century. Whilst the ink is barely dry on the deal, and the full Cabinet and policy platform is yet to be announced, the first bits of information are surfacing about the tax policies they are likely to pursue.

On public spending, where many absolutely crucial decisions must be taken to battle the deficit and then reduce the national debt, we have yet to hear anything (other than an encouraging rumour about removing the Tory ringfence on NHS spending). We, of course, will be lobbying and campaigning hard to see the ideas for spending cuts contained in the TPA Manifesto and How to Cut Public Spending (and still win an election) adopted - but we won't really know more until the emergency budget in around 6 weeks.

So what do we know on the tax side so far?

There were three key tax policy issues at stake going into the coalition negotiations, one of them Lib Dem and two Conservative. They are: the £10,000 income tax threshold (Lib Dem policy); scrapping Brown's National Insurance Rise (Conservative policy); raising the inheritance tax threshold (Conservative).

Each of these has been the subject of detailed negotiations, and here is the current state of play as we understand it:

£10,000 income tax threshold

This has survived the coalition deal, and has been taken up by both parties, widely being reported as a "priority". This is excellent news - it was among the most radical tax policies put forward during the campaign, and the Conservatives really missed a trick by not making it their own in the first place. It is both simple and sizeable, allowing the existing workforce to keep more of their own money - to the tune of £700 for the average worker - and providing a meaningful incentive for people to leave benefits and move into employment.

Scrapping Brown's National Insurance Rise

This has been a big rallying call - rightly - for the Conservatives. It's a tax on jobs, which is the last thing the country needs at the moment. Sadly, this proposal has only half-survived the negotiations, with the plan now apparently being to scrap the rise in the employers' national insurance but not the employees' share. So now it's just a tax rise on working, rather than a tax rise on employing someone, which is only a little better than Brown's original decision. The new Government are apparently saying that this is "offset" by their plan to increase the income tax threshold, but that means it is blunting the impact of that threshold change.

Raising the Inheritance Tax threshold

This has been a massive issue for the TPA, for the public, for the media and, latterly, for the Conservative Party. It's never been a fringe issue, and the Conservatives seem to have forgotten very quickly that when George Osborne announced it, the overwhelming popularity of the policy produced a surge in their poll rating, and prevented Brown calling an election which he may well have otherwise won. Indeed, you could say that the Inheritance Tax pledge was crucial to the Tories reaching Downing Street this week. It is dismaying, therefore, that it has been "put on the back burner" by the coalition with apparently no intention to propose it in the next five years. The millions who oppose this Death Tax will be disappointed, and the message of cutting taxes to encourage aspiration is taking a big hit. We will continue campaigning for Inheritance Tax to be abolished outright.

What next?

It's good news that the Liberal Democrats have forced the Conservatives to take up their Income Tax policy, but a great shame that the Tories have watered down the plans on National Insurance and booted Inheritance Tax into the long grass.

Perhaps this is down to a nervousness about the state of the public finances. Undoubtedly close scrutiny over the next few days and weeks could turn up some hidden nasties. However, the run up to the emergency budget will offer plenty of opportunities to identify new, larger spending cuts. The coalition must pursue the Google Government transparency agenda, which will bring the public into the process of identifying waste. Furthermore, they must listen to and absorb the proposals coming from ourselves and others. If they do that, I believe they could deliver all three of the above tax cuts - and taxpayers would thank them for it.

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