The last Budget before Brexit is a spectacular opportunity to send a message to the world that the British economy will not just survive but thrive outside the EU. In order to do that, some very clear messages need to be sent out. This is the vision thing which neither the Prime Minister or the Chancellor seem able to do.
We need a vision of a low-tax, low-regulation economy, which will overpower Germany and France as the largest economy in Europe. The number one lesson of economic history is that freedom works: there is no more robust an economic relationship than that between economic freedom and prosperity. And if you’re going to make a statement, it needs to be a big one – because economic behaviour doesn’t change with small tweaks to the system.
So how does the Chancellor make a big statement with very little money? When I worked at the Institute of Directors, we lobbied the previous Chancellor to pre-announce cuts in Corporation Tax. This made business happy about tomorrow, even though they weren’t that much better off today.
The rate of Corporation Tax stood at 28 per cent in 2010 and has been progressively reduced to 19 per cent today, with a commitment by the Government to reduce it to 18 per cent from April 2020. This what we need now: a promise from the Chancellor to deliver progressive reductions in Corporation Tax until the rate reaches just 10 per cent in 2025. Outside of tax havens, that would be the lowest rate of corporation tax in the world. This is a tax cut as much about the message as the money. Moreover, it is doable over that timeframe because each percentage point costs around £2 billion in lost tax revenue – before taking into account any dynamic supply-side effects which might increase (not decrease) revenue.
HM Treasury in part justified the previous Corporation Tax cuts in the wake of the financial crisis, as being necessary because of the economic shock the economy had experienced. Well, the Treasury seems to think both in the short and long term that Brexit is a negative shock to the economy; and so on the basis of its own argument, it needs to reduce Corporation Tax again, and in the same pre-announced manner.
I’m happy to use the Treasury’s argument against them, even though I fundamentally disagree with their long-term assessment of the economic consequences of Brexit. The problem here is that it’s very difficult to critique the Treasury’s assessment because it seems to have recognised the flaws in its previous methodology – published before the referendum – and abandoned it, but refuses to provide any detail of its subsequent approach and the assumptions behind it.
If HM Treasury is so confident in its analysis, why be afraid to publish it? The suspicion must be that they’re not confident and are only coming up with big negative numbers because of the questionable assumptions they employ about the post-Brexit world.
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