Speaking at Morrison's in Kent today chancellor George Osborne made a great case for reducing taxation:
Our plan is to make sure when people are in work, they get to keep more of what they earn. In other words to make sure you get to keep more of what you earn. I’m a low tax Conservative. I believe what you earn is your money, not the Government’s money. So I want to take away less of it in tax, and leave you to spend it how you wish. Give me the choice between people choosing how to spend their own money, or a politician choosing how to spend it, and I know who I would pick. That’s good for the economy. That’s good for society – the more people get to keep from what they earn, the more likely they are to work, the more independent and responsible they will be.
It is a shame that he hasn't been more ruthless in slashing taxes. This speech reads like a chancellor who has been willing to be radical. The chancellor highlighted three tax cuts which are anything but. Corporation tax has been reduced to 23 per cent (and he plans to cut it further to 20 per cent), the personal allowance has increased from £8,105 to £9,440 and the top rate of tax will fall from 50p from every pound to 45p. These moves are welcome, but not the drastic action that the UK needs.
The personal allowance should be increased further to keep more money in the pockets of squeezed consumers. Figures from the ONS last November showed that since April 2000, average full-time pay had risen by 40 per cent, from £18,848 to £26,500. The personal allowance once stood at the same level as the median household income. It is now punishingly low by these historic standards.
Corporation tax could be reduced to promote greater private sector activity as the UK rebalances. A report by Anthony Evans, Associate Professor of Economics at ESCP Europe Business School, found that corporation tax drives down wages, lowers returns for shareholders and raises prices for consumers (TaxPayers' Alliance). Allister Heath has pointed out that even at 20 per cent corporation tax would be high in comparison to neighbouring Ireland's 12.5 per cent and has recommended that it be slashed to 11 per cent.
While this sounds drastic, this would immediately up the returns on capital from all UK investments; at a stroke, it would become significantly more profitable for firms to invest and operate in Britain.