Monday 5 September 2016 4:30 am

The chancellor's fiscal reset is a golden opportunity to slash living costs through tax cuts and planning reform

John O’Connell is chief executive of the TaxPayers’ Alliance

Philip Hammond recently said that he may use the Autumn Statement to “reset” fiscal policy. That is a welcome sentiment because it suggests the chancellor sees before him a golden opportunity to transform the tax system.

With Parliament returning, we are likely to see the government start to formulate and publicise more detailed economic policy to beef up that rhetoric.

In the medium term, the chancellor should seek to merge Income Tax with National Insurance, eventually implementing a single rate of tax on income. This would be more transparent for employees and employers, and simpler to administer too. He should also seek to scrap Corporation Tax, along with Capital Gains Tax and other taxes on capital income. They should be replaced with a single tax on distributed income.

In the short term, there must be a focus on reducing living costs. But if we look back at the measures introduced by politicians to ease the pressure on family budgets, the record is patchy at best: Help to Buy raised house prices and benefited those that could already put some savings aside, while doing nothing for those who couldn’t afford to; the triple-lock on pensions ensures inflation-busting increases for a relatively affluent demographic. These are just two examples but they show that clumsy interventions often do more harm than good.

Read more: The chancellor should ignore siren calls for more fiscal stimulus

Indeed, the best ways to reduce living costs are to cut taxes and liberalise planning laws.

We all know that food, travel costs and household bills pile up – but we must never forget that the biggest cost of living is tax. If you are in the bottom 10 per cent of households by income, you will pay the equivalent of 47 per cent of your gross income (income plus cash benefits) to the taxman. The average household will hand over close to £830,000 to HMRC over a lifetime – that is 20 years’ work just to pay taxes.

True, the personal allowance was significantly increased in the last parliament – but National Insurance thresholds are completely out of kilter with Income Tax, meaning those on lower incomes are still being clobbered. So the chancellor could look at increasing these thresholds to match the personal allowance. He should also ditch silly distractions like the sugar tax. It is badly designed and there is a wealth of evidence that shows it will not work – and it will add to the living costs of those on the lowest incomes.

Sugar Fall
The sugar tax will hit the poor hardest (Source: Getty)

The second biggest cost of living is housing, which is a significant burden across the UK, not just in London. The symptoms are familiar: older people aren’t moving because of sky-high Stamp Duty rates; young people can’t afford crippling deposits. The disease is also familiar: a woeful lack of supply in housing due to absurdly stringent planning restrictions.

Politicians know what the cure is: removing planning restrictions and allowing housebuilders to, well, build houses. More specifically, an agenda for those on lower incomes would see sections of the Green Belt reclassified; a substantial relaxation of height restrictions; and measures to accelerate the planning process. That would bring down prices and rents, unclogging the market for good measure.

One could argue that it is a tough environment in which to take on these challenges. Brexit has made things a little more uncertain and we still have a significant budget deficit – and it is likely that some additional infrastructure spending will be announced in the not too distant future, meaning a potential slippage in fiscal targets.

This, however, should be seen as an opportunity.

The chancellor can show that he will continue to bring down the deficit despite increasing infrastructure spending and cutting taxes by looking at areas of current expenditure that should be reduced. To take a solitary example from the TaxPayers’ Alliance’s Spending Plan, scrapping national pay bargaining can save over £5bn; it would mean public sector workers are paid according to the costs they face locally rather than at a centrally set rate.

Phase Two Route Of The Proposed HS2 Rail Link Announced
HS2 could cost up to £90bn (Source: Getty)

And a shot in the arm for capital spending can be paid for several times over by scrapping the outrageously expensive and hideously flawed HS2 project, whose costs could reach £90bn.

Cutting taxes, spending money on growth-enhancing capital projects and reforming planning to build more housing would be the perfect demonstration to the world that we intend to take full advantage of our vote to leave the EU. It would show that the UK will not turn inwards and become more protectionist; but outwards and more liberal.

Alongside a longer-term plan of lower, simpler taxes, it would be the perfect reset.

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