The Centre for Policy Studies, the leading centre-right think tank, has released a new report which makes the case for the so-called “dynamic” effects of tax cuts.
In the report, the think tank’s Head of Tax, Tom Clougherty argues that the Government still underestimates the positive effects of many proposed tax cuts, in particular by failing to properly consider the impact that cutting taxes might have on other sources of revenue.
The report, Tax Cuts Don’t Have to Be Taxing, highlights three examples of areas in which the Government could ease the burden on taxpayers without significantly impacting on revenues.
Reducing stamp duty would incentivise people to move home more often, and increase the number of properties sold overall, compensating for reductions in revenue. This is without considering the havoc that Stamp Duty Land Tax is wreaking on the housing market, especially in those areas where mobility is most economically and socially vital.
CPS research suggests that a major tax cut to exclude 90% of homes from stamp duty completely, could provide a saving of at least £15,000 to every remaining homebuyer.
The report also highlights Spirits Duty as an area where tax cuts have already been proven to increase revenue. Since the duty was frozen in 2014, revenues have increased by almost 25%, netting the government £735 million in tax revenues while allowing exports to grow by almost 40%.
The think tank points to the estimated effects of the additional 45p rate of income tax. It shows how the introduction of the 50p rate actually lost the Government money, and calls for a rigorous and evidence-led evaluation of where the revenue-maximising rate actually lies.
Tom Clougherty, CPS Head of Tax, said: “Tax cuts don’t always pay for themselves, but failure to recognise the knock-on benefits of some tax cuts is damaging the economy. The Treasury would do well to remember that in the run-up to the March Budget.”
Welcoming this report, Liam Manton, Founder and Managing Director of Didsbury Gin, said: “We welcome this report which provides clear evidence of what we’ve all seen in recent years: that lowering spirits duty creates more jobs, more money for the public purse, and boosts the UK economy. Businesses like ours are driving growth in the North of England and the Midlands, and in 2018, the spirits industry generated nearly £4 billion in tax to the Treasury.”
Nigel Mills, CEO of The Lakes Distillery in Cumbria, said: “Lowering spirits duty means a win-win-win of more jobs, more money for the public coffers and economic growth across the country. The Chancellor can show his backing for a British business success story in the Budget by beginning to reduce the duty burden on our iconic national drinks ahead of the forthcoming duty review.”