Wednesday 6 November has been set for the first Budget of Chancellor of the Exchequer Sajid Javid, but whether that date survives the turmoil of the parliamentary calendar will depend on events taking place in the Houses of Parliament and elsewhere over the next week.
Key among these is the European Council meeting in Brussels on 17 and 18 October. Brexit is on the agenda but the prospect of Prime Minister Boris Johnson returning to the UK with a Brexit deal is shrinking. Parliament will therefore be sitting for a special session – which some are calling ‘Showdown Saturday’ – on 19th October. In the following days it will become clear whether the UK will be leaving the EU with an agreement, whether an extension will be applied for, or whether other events will intervene. All of this will take place before 6 November. Harold Wilson’s over-quoted remark that 'a week is a long time in politics' is, in these uncertain times, beginning to look like an understatement.
With Monday’s Queen’s speech containing no explicit references to taxation but promising a new economic plan which will be underpinned by a responsible fiscal strategy, there are few clues as to what new tax initiatives might be adopted by the government. However, in his Budget the Chancellor would do well to heed recent lessons.
There’s no scope for big tax giveaways
In its Green Budget 2019 the Institute for Fiscal Studies (IFS) states that the Chancellor has no scope for tax cuts because the government has already raised public spending to the level proposed by the Labour Party in the 2017 election. The IFS is adamant that, in the long term, the only sustainable response to a small economy is to spend less on public services or to tax more.
Tax cuts don’t boost growth in a low-investment economy
American economist Arthur Laffer, who is one of President Trump’s advisers, has for many years argued that tax cuts will pay for themselves by stimulating economic growth, so creating more income and profits to be taxed. Author David Blanchflower in his recent book Not Working: Where Have All The Good Jobs Gone? demonstrates that the recent US $1.6tn tax cut has neither paid for itself, as Laffer predicted, nor improved the US growth rate. There is no reason to believe that significant tax cuts in the UK, where the economy is also suffering from low investment, would achieve anything different.
Resist the temptation to make too many tax changes, too quickly
Parliament is exhausted and the UK’s economic future is uncertain. By all means use the levers of taxation to help the economy along the strategic path chosen by Government but resist the temptation to make very large numbers of small changes. Get the principles right and introduce a limited number of carefully thought-through and precisely executed tax changes.
Keep it simple
‘I think people in this country’ declared Cabinet Minister Michael Gove ‘have had enough of experts.’ That’s debatable. But without a doubt people have also had enough of excessively complex tax legislation which is not understood by the MPs who vote for it and which causes untold and unintended problems when it comes into force. The NHS pensions crisis is the latest, but probably not the last, example of that.