Tax and Fiscal Policy

IEA responds to Conservative Party’s manifesto

Commenting on the Conservative manifesto, Director General at the Institute of Economic Affairs Mark Littlewood said:

“On the face of it, the “tax triple lock” pledged by the Conservatives should find favour with low-tax, free market supporters. But today’s manifesto raises a series of questions about the party’s commitment to fiscal responsibility, and whether the Conservatives can still meaningfully brand themselves the party of taxpayers. The Conservatives have yet to be clear about how they intend to meet their substantial spending commitments without either raising taxes overall, increasing public debt or both.

“The “triple tax lock” is analogous to someone saying to their spouse, “I promise not to cheat on you in the next five years with anyone whose first name begins with the letters A, B or C.” In other words, it is not a wholly reassuring promise. Indeed, the spouse concerned is likely to have heightened suspicion of potential suitors whose names begin with the other twenty-three letters of the alphabet. Taxpayers may find themselves wary of the Conservatives’ plans for other taxes, if they’re not listed directly as untouchable.

“Ringfencing taxes in this way is a recipe for further complicating the tax code, as government officials desperately look to find cunning ways to increase state revenue without breaching the specific terms of this catchy, but ill-judged, manifesto commitment.

“Furthermore, the Conservatives’ mantra of ‘get Brexit done’ has yet to be coupled with policies that would encourage an economic boom post-Brexit. 

“Their pledges to bring in a digital services tax, freeze the reduction to corporation tax and commit billions of pounds to new spending projects will all make it more difficult to reap the benefits of a Brexited Britain. 

“Getting Brexit done shouldn’t be a meaningless slogan repeated on doorsteps, but rather an umbrella for a host of serious, free market policy proposals to make the UK a dynamic, competitive global player after our exit from the European Union. Unfortunately, this manifesto has put its emphasis on the status quo, rather than on bold ideas to meaningfully boost growth.”

Commenting on the Conservatives’ pledge to bring in a digital services tax, IEA Economics Fellow Julian Jessop said:

“The Digital Services Tax (DST) might be a popular way to address hostility towards the tech giants, but it is a deeply flawed tax, based on dodgy economics and flimsy evidence – not to mention very costly to implement.

“Nor is it certain that a de facto international tariff like the DST would comply with World Trade Organisation rules, given that it would mainly target US companies.

“The DST is a bad tax in theory and in practice, and would stifle Britain’s appeal to the wider tech community.”

Commenting on ending hospital car parking charges for millions of users, IEA Economics Fellow Julian Jessop said: 

“While the Conservatives’ plan to exempt certain people from hospital car parking charges is a recipe for more bureaucracy, many English NHS hospitals have already adopted a similar policy.

“Limited spaces must be allocated somehow, and granting exemptions is at least a more sensible approach than ending the charges completely. A ‘free for all’ policy would mean less availability of hospital parking for those who need it most.”

Commenting on the pledge to raise the national minimum wage from £8.21 to £10.50 per hour, IEA Editorial and Research Fellow Prof Len Shackleton said:

“Politicians need to stop playing political football with the national minimum wage – and this Conservative manifesto is no exception. 

“We need to keep careful and critical watch on the effects of the political parties’ belief that pay can be permanently pushed up by government fiat without damaging consequences. This could all end in tears, especially for young and low-skilled workers, sooner rather than later.”

Commenting on the pledge to spend an additional £1bn for “wraparound” childcare after school, IEA Associate Director Kate Andrews said:

“It’s time we broke the vicious circle of further subsiding childcare, which has resulted in sky-high costs once parents go over their allotted ‘free hours’.

“The UK has exceptionally high childcare costs within the OECD precisely because of government intervention. The Conservatives, along with the other leading parties, would do better to address the red tape in the industry, especially around staff-to-child ratios, making childcare significantly more expensive.

“We are risking the gradual nationalisation of childcare – private providers are being driven out of the market, as the burdens on them increase.”

Commenting on the pledge to pause the reduction to corporation tax, IEA Economics Fellow Julian Jessop said:

“The decision to put the planned reduction in corporation tax on hold is hopefully only a temporary pause, as part of a fundamental rethink of all business taxes. 

“Failure to meaningfully reform corporation tax ignores research showing that up to half the burden is borne by workers; furthermore, corporation tax remains an inefficient way to raise government revenue and has a negative impact on investment and entrepreneurship.

“Lowering the burden of taxation on businesses ultimately benefits everybody, including employees and customers, as well as all shareholders, big or small.”

Commenting on the pledge to increase the national insurance threshold, IEA Editorial and Research Fellow Prof Len Shackleton said:

“Raising the National Insurance threshold will help those on lower incomes manage their finances.

“However, National Insurance no longer covers the benefits it claims to finance and the public is continuously misled about what their tax contribution is financing.

“Merging it with income tax would be a better,  more transparent, cost-effective move. It could also be extended to the self-employed and those working past retirement age in order to broaden and equalise the tax base.”
Notes to editors:

For media enquiries please contact Emily Carver, Media Manager: 07715 942 731

For further IEA reading on taxation, spending and economic growth, click here.

For further IEA reading on health and social care, click here.

For further IEA reading on the minimum wage, click here.

For further IEA reading on childcare, click here.

For further IEA reading on corporation tax, click here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties

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