Wednesday, October 18, 2006

Forsyth's Tax Reform Commission

Combine this BBC story and this Daily Mail story and we can get a decent idea of what most of the headline measures in the Tax Reform Commission's study will add up to:

£19-21bn of tax cuts

This is around a 3% cut in the total quantity of tax which is large enough to be significant but not large enough to require drastic cuts in anything. I'm actually impressed at how much they've managed to get for their, roughly, twenty billion.

Basic rate of income tax cut from 22 to 20%

This is as close to a default, general purpose, tax cut as it gets. More money in the pockets of individuals and families. One of the more sensible tax cuts in this package politically because a lot of people can directly link it to their own income and interests.

Increase the earnings threshold from £5,035 to £7,185

This is a good one for making it clear that tax cuts are not all about returning money to the middle and upper classes. This will significantly help a lot of very poor working families.

Abolishing inheritance tax and replacing it with a "capital gains tax on death"

The idea is that this will remove family homes from having to pay inheritance tax. I'll be interested in reading the details of how this measure works; the term capital gains tax on death suggests the possibility that this change is more profound than the BBC report describes.

A big question, from a right wing political perspective, is whether this might be missing the opportunity, with a broad swathe of opinion lining up against inheritance tax, to scrap it completely.

Cutting corporation tax from 30 to 25%

This tax cut is economically easily the most important measure here. It is a significant change and will help to ensure that our competitive position does not further decline. If an economic rightwinger wants a reason to vote Conservative this could well be enough of itself. I hope it is adopted by the leadership.

Politically it is more suspect; the relationship between business taxation and the interests of the 'man on the street' is not as obvious as we would like. However, I think there is a growing public perception that we are getting left behind by business tax changes abroad and this may negate some of the political logic against cutting business taxation.

Green Taxation

How all this relates into the Blue-Green agenda has to be a crucial question. Will these measures be pure tax cuts or will they be compensated for, as the Liberal Democrat plans are, by plans for green taxation? Once green tax proposals are included will they pay for additional tax cuts or will they mean that much of this report's conclusions will be used to construct a revenue neutral shift rather than a tax cut?

I have no problem with shifting tax towards green tax in place of other forms of taxation but I wouldn't want it to take the place of genuine tax cutting.


This report is a plan for significant and welcome tax cuts. Its defining feature is that it has chosen to reduce or adjust the thresholds on a number of different taxes rather than focussing on big changes in any one tax. There are two big questions that will have to be answered before we know what it means for Conservative policy:

1) How much of a priority will tax cuts be? If we have to choose between these measures and other priorities will we be willing to sacrifice spending pledges for tax cut pledges?

2) Will green taxes be used to pay for these measures, or spending, or further cuts in general taxation? I.e. will our position be aiming at a shift like the one the Lib Dems are proposing or a tax cut as this report is setting out when considered alone?

No comments: