A blueprint from one of Britain’s right-leaning think tanks is calling on the incoming Prime Minister, Andy Burnham, to adopt far-reaching tax changes, such as scrapping the top rate of income tax, national insurance, stamp duty and inheritance tax, as a way to boost the UK’s languishing economy.
The new government, headed by Burnham next week, should make one of its early economic priorities the reduction of Britain’s tax burden, according to a report Policy Exchange released Tuesday. The report coincides with the UK’s total tax burden being forecast to be at its highest since the end of the Second World War.
Perhaps the suggestion to remove national insurance from the pay of both employers and employees will be the one that gets the most attention of the proposals. National insurance is one of the biggest and most harmful aspects of the existing tax system, the think tank said, and scrapping it would lower the cost of working and increase investment and employment.
The plan would also undo the impact of the major rise in employer national insurance contributions last year, which has been blamed by many firms for job losses, slowing recruitment and mounting operating costs.
Policy Exchange also advocated for the elimination of stamp duty and inheritance tax. It said that abolishing the inheritance tax would allow family firms to better plan for succession and invest for the future, instead of gearing up for tax savings during restructuring.
There is a huge financial burden associated with the recommendations. The tax cuts should be paid for by reducing the size of the government to 33 percent of gross domestic product, the think tank said. The proposals would involve one of the biggest cuts in government spending that Britain has seen in modern history, with current government plans forot spending to reach 42.7 per cent of GDP by the 2030-31 fiscal year.
Policy Exchange outlined a multi-stage strategy. It first suggests that the distortions in the tax system resulting from the withdrawal of personal allowances at higher income levels should be eliminated, with some workers paying more than 100 percent of their wages in taxes. The second phase would see the removal of the 45p income tax rate and inheritance tax, plus public spending at 41 percent of GDP and a rise in defence spending plans. National insurance would only be scrapped once there were further cuts to state spending.
The report said the market turmoil after the mini-budget by the former prime minister Liz Truss, introduced in 2022, was a concern. It had suggested that the experience could be avoided by introducing gradual spending cuts coupled with tax cuts.
Former Chancellor Sir Sajid Javid supported the proposals, claiming the current tax system has become a hindrance to economic growth. He claimed that the elimination of the most harmful aspects of the system would give the overall economy a boost.
But so far Burnham has shown a more cautious attitude to taxation, with limited and targeted reforms like those in business rates, while keeping to a tight budget. The potential for the incoming government to implement some or all of the recommendations in the report is unknown, but it will certainly help to fuel debate on taxation, public expenditure and economic growth.
