After a decade of tax rises, David Cameron is finally talking about tax cuts. But as you might expect of a politician who made “sharing the proceeds of growth” his slogan, his language is all wrong. He talks about putting money back into people’s pockets; it was in people’s pockets before the government removed it! While the list of desirable cuts is long, a good start would be to deal with under-indexed tax thresholds, which have left more people vulnerable to punitive taxes. Higher rates of stamp duty are likely now paid on most London property transactions; the inheritance tax threshold has not kept up with inflation; and middle earners are being dragged into the higher rate tax band. Addressing this fiscal drag would probably use any fiscal adjustment that Cameron has in mind. Thereafter, it would be nice to see the abolition of stamp duty, inheritance tax and capital gains tax. Perhaps next year.
Philip Booth is a professor at Cass Business School, and editorial and programme director at the Institute of Economic Affairs.
All taxes are damaging, but some are worse than others. The damage wreaked differs across taxes and rates. So when the government looks at how it can relieve the burden on taxpayers, it should pay attention to which taxes cripple the economy most relative to the revenue they raise for the Treasury. Stamp duty is one such tax where the surprisingly small revenues do not justify the comparatively heavy economic hit. A recent study suggested that the housing market is much more sensitive to stamp duty rates than previously thought, choking transaction numbers by 20 per cent for every percentage point of the tax on home purchases. Walbrook Economics estimates that ending the “cliff edges,” by making the higher rates only apply to amounts over the thresholds, would be fiscally neutral. With the housing market heating up, pushing the average British home into the punitive 3 per cent band this year, action on stamp duty is overdue.
Rory Meakin is head of tax policy at the TaxPayers’ Alliance.