Tories need to map out a tax cutting plan to ease the living cost squeeze

 
Dominic Raab
AS THE chancellor’s Autumn Statement beckons, after a run of good economic news, it is time to address Britain’s less flattering fundamentals. Government has too much debt, the country too little to show for the recovery. Public spending at 48.4 per cent of GDP is debilitating, leaving the tax burden at its highest for 24 years. As a result, Britain slumped back two places on the World Economic Forum’s international competitiveness rankings this year.

The answer isn’t to match Ed Miliband’s populist socialism of price controls, regulation and higher taxes. From Thursday, the Conservatives should chart a road-map for Britain’s long-term prosperity, based on rewarding enterprise and hard work.

The Institute for Fiscal Studies predicts any government will hike taxes after 2015, because of the deficit. That would hurt competitiveness and pile pressure on living costs. The Tories should grasp the nettle now, and make a manifesto promise: to reduce the tax burden by 2020, not increase personal taxes, and apply a one-in-one out rule to any other new taxes.

To do that, we must further rein in spending. We can make £17.6bn worth of savings (2 per cent of spending), in the short term, to fund tax cuts by halving the number of government departments, enforcing public sector pay limits, reducing the welfare cap to £20,000, and finding £3bn initial savings from universal (compared to safety net) welfare. Over the longer term, we should end departmental ring-fencing, and consider moving to a contributions-based model of benefits and healthcare.

Tax cuts to boost the economy must then take priority. That includes cutting employers’ national insurance and business rates to drive job creation and give the High Street a fighting chance against online competition.

Next, we need to wrest the debate about low pay from the Left. Miliband’s jobs-killing proposal to legislate for a living wage would hurt the unemployed. Instead, we should raise the threshold for employee national insurance, helping the lowest paid. Likewise, slashing consumer charges subsidising energy firms would save a further £56 on the average energy bill, alleviating fuel poverty.

None of this means robbing middle class Peter to pay working class Paul. Anyone earning £20,000 per year has felt a rising burden – with those in London and the South hit hardest. By tackling spending, we can ease the squeeze on the middle classes – when Labour and the Lib Dems plan stealth taxes after 2015. We should cut the basic and higher rates of income tax by a penny each, the first step towards abolishing national insurance and reducing income tax to two rates at 15 per cent and 35 per cent. Scrapping stamp duty for homes under £500,000 would also give average home-buyers £7,500 cash towards a deposit.

Labour offers populist gimmicks. The Conservatives must spell out an alternative vision of Britain cutting its financial coat according to its cloth, reducing the tax burden on enterprise, and giving everyone – from the lowest paid to the middle classes – more of their hard-earned money back.

Dominic Raab is the Conservative MP for Esher and Walton. His report Ease the Squeeze – Tax Cutting Priorities in Austerity is published by the Centre for Policy Studies today.

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