As the Chancellor prepares for Wednesday’s Budget, his immediate priority is to continue to support the economy through the final stages of the pandemic.
However, a pre-Budget briefing note from the Centre for Policy Studies, Britain’s leading centre-right think tank, argues that he should also take the opportunity to set out a vision of how the private sector can lead a robust recovery.
There is a strong consensus among economists that the immediate priority needs to be growth rather than deficit reduction. Yet setting out a trajectory of future tax rises – and in particular tax rises on business – risks damping investment and consumer confidence.
The briefing note, ‘Budget 2021: A Recipe for Recovery?’, sets out the case against the rumoured increases in specific business taxes, such as corporation tax, Capital Gains Tax or a windfall Covid profit tax.
Its author Tom Clougherty, Head of Tax at the Centre for Policy Studies, argues that the Chancellor should extend the furlough scheme, welfare support, the business rates holiday and the stamp duty holiday through the next few months - and make the latter permanent.
He also proposes prioritising employment via bounties for new employees (in the form of Employer’s National Insurance rebates) and pausing the extension of the level and scope of the National Living Wage.
To further help business, he argues for various measures to encourage investment and productivity: reform to business rates and the introduction of a form of ‘full expensing’.
He also calls for judicious reforms to the Capital Gains Tax system to better police the boundary between earnings and profits – and urges the Chancellor to set out a long-term ambition to give Britain the most competitive tax system in the G20.
Tom Clougherty, CPS Head of Tax, said:
"There will be a time for fiscal conservatism, and for a balanced approach to deficit reduction, but for now the overriding objective must be to go for growth. That means rejecting rumoured tax increases on business and investment, which would only undermine the recovery, and instead charting a clear course towards an increasingly competitive tax system."