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CPS Autumn Statement Wishlist

    For this Autumn Statement, the CPS’ ‘wishlist’ focuses on six areas that could help boost supply side growth: tax reform, infrastructure, free ports, housing, energy and corporation tax exemptions.

    Tax Reduction and Simplification

    The UK’s tax code is around 21,000 pages long and has around 1,100 tax reliefs. This complexity is causing problems for businesses across the country and has led to distortions in the tax system. The Government should focus on:

    • Reforming Inheritance Tax: The UK currently faces one of the highest effective inheritance tax rates of any country in the developed world. Cutting inheritance tax from 40% to 20%, (paid for by ending the agricultural property relief and business property relief) would be a simpler and less distorting reform than the government's current proposals.
    • Dealing with Marginal Tax Rates:  High marginal tax rates are leading to poor work incentives and anomalies throughout the tax system and should be reduced where possible. For example:
    1. for the low paid (particularly for those receiving tax credits), the effective marginal rate of tax can be 70% (or higher in some cases).
    2. a single earner with three children earning between £50,000 and £60,000 faces an effective marginal rate of 66.5%.
    3. an individual earning between £100,000 to £121,200 has an effective marginal rate of 60%.
    • Merging NICs & Income Tax: The Office for Tax Simplification has recently published a report calling for a closer alignment of income tax and national insurance. The Chancellor should set out a clear pathway to achieve the eventual merging of these two taxes.  CPS Research Fellowes Michael Johnson and David Martin have both written publications in this area.
    • Cutting top rate of tax from 45p to 40p: If the Chancellor can make a robust case that the Exchequer will benefit from such as change, he should implement it at this stage of the electoral cycle – given that the measure will be politically tough to implement.  

    Infrastructure

    The Government has briefed newspapers that extra funds will be announced for infrastructure at the Autumn Statement. There are plans to spend an additional £1.3bn on road improvements and Hammond will also pledge a further £1bn to roll out ‘full-fibre’ broadband.  

    While Britain’s infrastructure is certainly in need of upgrading, the CPS’ latest economic bulletin Infrastructure can be a bad investment highlights the need for the Government to focus on improving the quality of infrastructure development, rather than simply allocating more public funds. Following the abandonment of the Private Finance Initiative, a new mechanism of attracting private finance in infrastructure is needed.

    The Government should also reconsider one current proposal which could unintentionally delay or cancel private investment in UK infrastructure and real estate development: the new BEPs proposals. Originally designed to target tax-avoiding multinational enterprises, such as by certain tech giants and coffee brands, these could inadvertently impose significant burdens on those industry sectors which have high borrowing ratios (such as real estate and infrastructure investment). 

    • Recommendation: The Government should trial the use of new “project bonds”, where warrants would be awarded to the Treasury that ensure private investors do not receive excess profits. This would avoid the problems that were observed with the discredited PFI.
    • Recommendation: The Government should announce a review of the current BEPs proposals.

    Free Ports

    European Union law has long held back the potential of British ports. In CPS report The Free Ports Opportunity, Rishi Sunak MP highlights how “Free Ports” could increase manufacturing output, reinvigorate the north of England, and promote trade.

    Free Ports are areas that, although inside the geographic boundary of a country, are considered outside the country for customs purposes. This means that goods can enter and re-exit the port without incurring the usual import procedures or tariffs – incentivising domestic manufacturing.

    • Recommendation: Foreign trade zones operate all around the world – except in the EU. The Government should seek to introduce “Free Ports” post-Brexit to boost manufacturing industries and coastal areas.

    Housing

    Housing completions hit a seven year high in 2015, with nearly 143,000 homes being constructed. However, this still dwarfs the 320,000 homes needed annually to alleviate housing strains.

    • Recommendation: The Chancellor should boost house building by identifying so-called ‘Pink Zones’, where existing regulatory burdens – particularly those related to planning – would be reduced (see Pink Planning by Keith Boyfield and Daniel Greenburg).

    Energy

    The UK’s Carbon Price is currently over £18 per tonne of CO2 emitted compared with an average of £6 in the EU. This needs to be cut before it forces the premature closure of more baseload power plants and thus threatens energy security and affordability. CPS Research Fellow Tony Lodge has advocated this in his publication the Great Green Hangover”.

    • Recommendation: The Government should seek to cut or scrap the Carbon Price Floor altogether.

    Corporation Tax Exemption

    CPS Chairman Lord Saatchi has previously called for an end to corporation tax and capital gains tax for small firms. We are encouraged by recent findings of the Office for Tax Simplification, which suggests that some small businesses could pay income tax on profits directly rather than corporation tax.

    • Recommendation: The Chancellor should set out a clear pathway to alleviate the burdens of corporation tax on small firms.

     

    Daniel joined the Centre for Policy Studies as Head of Economic Research in November 2015. He was promoted to Deputy Director in March 2017. Prior to joining the CPS, he worked in research roles for a number of parliamentarians.

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