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:
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- 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.
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- 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:
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- 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.
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- 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:
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- Cutting the basic rate of income tax by 3p.
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- 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.