Friday, August 17, 2007

Conservatives want to cut tax, Labour wants to change the subject

The Conservative Economic Competitiveness Policy Group is not just proposing reductions in red tape that are effective tax cuts; it is proposing some actual tax cuts as well. Their analysis reveals how Britain has slipped down the business taxation league and how other countries, Ireland for example, have cut corporation tax and more than made up the revenue in the resulting increase in growth. So it is suggested that UK corporation tax should fall to 25p in the pound from its current 30p level, and to 20p in the pound for small businesses. It is also suggested that capital gains tax should go on any asset held for longer than 10 years and that, crucially, inheritance tax should simply be abolished. This last is especially welcome. A tax should raise realistic amounts of revenue and it should also be collectible. Inheritance tax meets these tests, but it fails a third in that it is simply not fair. What is the logic that allows the government to tax assets on which tax has already been paid just because the previous owner isn’t around to complain, or vote for that matter? The current threshold is £300000, supposedly rising to £350000 by 2010. That means the estate of anyone with a relatively modest house anywhere in the south, and in many places elsewhere in the UK would be hit with the 40% charge. These people are not rich, they are usually just hardworking, and their families should not be penalised for it and maybe forced to sell family homes just to meet death duties.

Taken together, these are sensible proposals and they are more than likely to pay for themselves in their beneficial effect on the economy. Of course they are a way from being policy, but the mood music from George Osborne among others has been favourable, as has been the press coverage. Labour has tried to characterise it as a ‘lurch to the right’. That they can’t even debate tax cuts on their own terms without trying to make it a political process story shows how little they really have to say.

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