Philip Hammond tried to strike an upbeat note today, declaring “austerity is coming to an end”. Cossetted inside Westminster for the afternoon, he hid away from the storm clouds gathering over our economy.
Brexit is making the situation worse.
In truth, austerity cannot be brought to an end without difficult decisions involving an increase in taxation. Excluding the Government’s promises on the NHS, maintaining real spending on public services will require an additional £19bn in extra tax and borrowing. And Brexit itself is making the situation worse.
The Office for Budget Responsibility estimates that uncertainty caused by Brexit has already weakened the public finances to the tune of £15bn annually. The ‘no-deal’ Brexit with which Ministers are flirting would be far worse still.
By contrast, if we succeed in stopping Brexit, the public finances could be lifted by £15bn annually through increased wages, growth and business investment. Meanwhile, money set aside for “Brexit contingencies” – £3 billion so far – could be redirected into public services.
Whatever the Brexit outcome, Britain’s tax system is in urgent need of reform.
Whatever the Brexit outcome, Britain’s tax system is in urgent need of reform. It penalises business investment, hurts our struggling high streets, is easily avoided by the largest companies and has failed to keep up with massive increases in personal wealth. And public services need a substantial injection of cash.
In a Liberal Democrat “People’s Budget” for the 21st Century, we would:
- Secure the future of our NHS, focusing on social care and mental health with an extra £6bn per year, funded through a penny in the pound on income tax.
- Improve living standards for 9.6m parents and children, by reversing George Osborne’s cuts to the “work allowance” under Universal Credit, costing £3bn.
- Invest an extra £2.8bn in to the schools budget, by reversing the Government’s proposed cuts to school funding.
- Scrap business rates – replacing them with a tax on land values known as the Commercial Landowner Levy. The reformed system would increase incentives to invest in new equipment and renovations, and cut taxes for businesses in nine out of ten English local authorities.
- Reverse Conservative cuts to Corporations Tax – still leaving the UK with the lowest rate of corporation tax in the G7.
- Work with the EU to crack down on tax avoidance by the tech titans, and working to secure agreement on taxing multi-nationals’ profits.
- Reform wealth taxation – bringing capital gains and dividend taxes into line with income taxes, removing the most generous pension tax reliefs from the highest earners, and replacing the inheritance tax system with a fairer lifetime transfer tax.
The Conservatives have taken their eye off the ball while they pursue Brexit at any cost.
Today’s Budget takes place against a backdrop of falling growth (2.9% in 2014, down to just 1.7% last year, with the UK now among the slowest growing economies in the G7). The long, slow process of deficit reduction has so far failed to decrease overall debt, which is now 85% of GDP.
Meanwhile, high personal debt and historically low savings rates place many households at risk. The Conservatives have simply taken their eye off the ball in running a successful economy, while they pursue Brexit at any cost.
In those circumstances, Britain needs our Liberal Democrat alternative, which would steady our economy and put money back in the pockets of ordinary people.
And at the heart of that plan is the chance to “Exit from Brexit” through a People’s Vote. Freeing the country and future generations from the needless self-harm of leaving the European Union would enable Britain to unite around a recovery plan and to grow again.