by David Davis

In 11 days’ time the chancellor of the exchequer will deliver his third Budget. As this is the last Budget that will have a material effect on growth, jobs and so the deficit for the second half of the parliament, the stakes could hardly be higher. All three main parties are calling for an economic growth strategy – but there the consensus ends. If Labour and many Liberal Democrats had their way, we would get a Budget of populist gestures that would succeed in grabbing headlines but fail to restore growth.

The Budget must give a dose of effective economic shock therapy, not a populist placebo. It must include radical, pro-growth reforms to tax, regulation, energy, and infrastructure policy. So how do we do this? First, we should remember that it is small businesses that will create the majority of net new jobs in the next decade. Yet in January more small businesses said they were planning to lay off workers than hire new ones. No net new jobs means no extra employment tax revenue, no extra VAT and no reduction in state welfare payments.

The government must take radical steps to help entrepreneurs start new businesses and for small companies to grow to medium-sized companies. That is the real engine of wealth generation and job creation. The Budget should include major changes to tax policies, which focus not just on raising revenue but on boosting growth. So it must be a Budget of tax cuts and simplification, as well as spending cuts.

The government is fond of ruling out “unfunded tax cuts”. This phrase can, to put it mildly, be deceptive. Some tax cuts do need to be funded: Labour’s proposal to cut value added tax to 17.5 per cent would do little for long-term growth and cost the Treasury £12.5bn a year. But there are tax cuts that boost growth, and by increasing revenues and reducing welfare costs will more than pay for themselves. Almost by definition, these are not the populist cuts.

Abolishing the 50p rate of income tax is one such cut. The Howe/Lawson cuts in the top rate virtually doubled the tax take from higher earners, an experience that has been replicated in almost every country that tried it. We must decide whether the aim of tax policy is to punish the rich or to make them shoulder a bigger share of the tax burden. These are not the same thing. Gordon Brown’s 50 per cent income tax was and is a political gesture that drives revenue, jobs and talent out of the country, and leaves the less well-off to carry more of the burden. It should be scrapped. Similarly, some would like high capital gains tax to punish the rich but since the evidence shows the optimum CGT rate for raising revenue is in the high teens, that is where it should be.

It is said the Lib Dems want a “mansion tax” instead. Since cutting the top rate will generate revenue, this is a political not an economic demand. It is a tax on bricks and mortar not on wealth, and as such makes about as much sense as a window tax. It would probably hit elderly widows harder than billionaire bankers. It was precisely to avoid penalising people who are cash-poor but who for reasons of history, family or sentiment still live in large houses that the whole council tax system was designed.

If we really need the £1bn such a tax could generate, we should close the offshore company house-purchase loophole, which would generate almost as much, with more economic logic.
We should also scrap national insurance on all new jobs created by companies with fewer than 50 employees. Like abolishing the 50p rate, this looks expensive, but will cost next to nothing in lost extra NI and will save huge sums. With unemployment at a 17-year high, tax cuts for employing businesses are vital.

Radical tax policies should be accompanied by deregulation. In 2011, regulations cost British business more than £110bn. There should be far-reaching exemptions for small businesses from laws that make it prohibitively hazardous to create jobs, including working-time restrictions, lengthy parental leave and excessive equality laws – at least for the first few years of employment. The government must also press for this in Europe, where at least half of all business regulations originate.

George Osborne must also recognise that our energy policy drives up prices, damages business and costs jobs. So he should scrap our pledge to cut carbon emissions by 80 per cent by 2050. This and other “green” policies have caused huge rises in energy costs for business. The effect on energy-intensive industries is particularly acute. Second, we should cut costly subsidies for inefficient and unsightly wind farms. In private, ministers brag about being ahead of their windpower targets. That means the subsidies, costing more than £500m a year, are too generous.

On infrastructure, we need a sharp focus on projects with an immediate return. The government should scrap the £33bn HS2 project and use £5bn of the money saved to take superfast broadband to every front door, including in rural areas where it will have the most positive impact. If we do have to spend so much money on the railways, the government should upgrade the existing network and unblock its well-known bottlenecks.

The chancellor is right to press on with public sector spending cuts. I sympathise with those who say he is not pressing hard enough. He should certainly not flinch over welfare reforms. These, and the Lib Dems’ one sensible policy – cutting tax for the low paid – will provide a real incentive to work. Labour’s economic plan would not put us at risk of losing our triple A rating; under them we would already have lost it.

The chancellor’s problem is that Lib Dems are blocking the policies we need to develop, which will ultimately mean more unemployment and minimal deficit reduction. If Britain enters 2015 in that position, there will be little left of the Lib Dems after the next election. Their many sacrifices in the coalition will result in the ultimate sacrifice at the ballot box. Somebody needs to explain to Lib Dem MPs that their interest lies in collective success, not collective dissent.

Supply-side reforms, such as tax cuts and deregulation, will deliver growth but the benefits will not be felt for at least two years. The Budget is the final opportunity for measures that will produce perceivable, positive results before the next election. The government must bite the bullet and go for growth, now.

First printed in the Financial Times, 9 March 2012

by Mark Pritchard MP

There’s a lot of tough talk on immigration, but not enough is being done to bring down immigrant numbers from the hundreds of thousands experienced under the last Labour government, to the tens of thousands, promised by the Conservatives at the last general election.

Last month, the Office of National Statistics, published the latest immigration figures, which highlight only marginal progress being made in tackling Britain’s extant immigration crisis.
Some of these small steps have reduced student visa fraud, but the same cannot be said for tackling the rampant abuse of family, work, and tourist visas. The same applies to gripping short-stay visa fraud. These are visas issued to non-EU citizens who accompany their EU relatives to Britain. All continue to be misused and misapplied on an industrial scale.

Like all illegal immigrants they take advantage of British tolerance and exploit every legal and technical loophole inherited under the liberal visa regime left over from the last Labour administration. In turn, illegal overstayers continue to take up permanent and illegal residency in Britain.

From the cost of interpreters in schools and hospitals, to increased demand for public and private sector housing, to cheap labour, the scale of immigration into Britain is impacting on the ‘bread and butter’ life-experiences of thousands of British families – from coast to coast. Ministers are right to talk about the advantages of controlled immigration, and there are many, but little is said of the disadvantages of uncontrolled immigration.

However, immigration is not the only cause of crowded public services. The hidden multiplier effect felt in countless urban and rural communities is the often dramatic change brought to local communities by supposedly, ‘temporary EU migration’. In reality, these temporary migrants become permanent immigrants. Something Whitehall prefers not to talk about.

Both large and small communities bear witness to the varied and cumulative effects of the ‘legal’ free movement and ‘settlement’ of peoples from other EU countries into Britain; a phenomenon sociologists claim is having a far greater social and economic impact on communities than any ‘illegal’ non-EU immigration. That is why it is inaccurate for illegal immigrants to be made the scapegoats for any community tensions caused by EU immigrants.

Moreover, with increasing unemployment in the eurozone and the wider European Union, further sharp increases in EU immigration could follow. For those EU immigrants unable to find work they will probably join the tens of thousands that already work in Britain’s expanding cash in hand, and unregulated black economy, where extortion is rife and where workers human rights are non-existent. Others will probably join countless other European immigrants that avail themselves of Britain’s already over-stretched welfare system, as is their entitlement under EU law.

In work or out of work, these economic travellers will put additional pressures on Britain’s struggling public services. Couple this with the prediction that, at some point, the euro will either contract or collapse altogether, and the potential for further economic and social turmoil on the continent increases. With the very real prospect of thousands more EU immigrants queuing up at Britain’s open borders. Further, if the eurozone and wider European Union enter into a severe recession or even depression then EU immigration could well turn into a ‘surge’.

Such a scenario might be ‘events in extremis’, and may never happen, but the duty of policy makers and responsible governments is to plan for both hard and ‘soft’ threats to our borders. That is why it is the coalition government must ensure that it puts in place all the necessary ‘legal and physical’ measures to protect our borders, should these events occur.

The euro may survive, and over time, and with the right state and market remedies, the economies of Europe will undoubtedly recover. In the meantime, the government must act to put the national interest before the European interest, and protect Britain’s borders.

First published at the Huffington Post.

by Edward Leigh MP

A new campaign has been launched today to support the current law of marriage. The Coalition For Marriage has initiated a petition to try to persuade the Government to think again about its plans to introduce same-sex marriage.

Along with Commons colleagues such as Jim Dobbin and Joe Benton (Labour), David Burrowes and Fiona Bruce (Con), I am pleased to give my support to this petition.

Marriage has stood the test of time as the bedrock of a good society, and there is absolutely no need to redefine it. I am a staunch supporter of civil liberties for all people and constituents of every background can rely on me to help them in cases of genuine injustice. But the existence of civil partnerships today demolishes completely any claim that marriage must be redefined in the name of equality. Same-sex couples who enter into civil partnership have all the legal rights of marriage. Why should they also have the right to redefine the institution of marriage for everyone else? It is a separate legal framework which predates civil partnerships by centuries and we would do well to leave it alone.

This view is shared by people across the political, religious and philosophical spectrum. Michael White, Assistant Editor of the Guardian, has said that “Aside from all the theological, moral and cultural freight, there’s an important practical distinction which goes to the root of any society – namely that heterosexual marriage is there to produce and raise children in a more or less stable environment.” . I have spoken with homosexual people who do not support the call to redefine marriage, including people who are themselves in civil partnerships. Gay groups and their supporters within Government who want to redefine marriage cannot claim to be speaking on behalf of all gay people, let alone on behalf of the British population in general.

The change being sought would mean the law would no longer recognise marriage as it has been understood for centuries. The legal definition of all existing marriages would be altered. Many married people would think that was very unfair to them. If the change goes ahead, Britain’s oldest married couple, Robert and Susan Erskine, who married 75 years ago, will find their marriage converted into a unisex institution. The new law – retrospectively and without our permission – would deem my wife and I to have registered in 1984, not as husband and wife, but as “parties to a marriage” (so says the draft same-sex marriage Bill published by the leading gay rights group last week.)

The Government has bitten off more than it can chew by arrogating to itself the authority to re-write the marriage certificates of every married couple. Some of those couples will support this redefinition. They are entitled to that view. But most will not. If they, and other supporters of marriage, want to stop these plans, they must speak out now, before it is too late.

A good way to start is to add their names to the Coalition For Marriage petition at c4m.org.uk and to urge their family and friends to do the same.

by Edward Leigh MP

The recent ruling by the High Court asserting that it is unlawful for local councils to begin their sittings with prayers has added to the worries expressed by many Christians and other believes about the growing secularisation of our society. I welcome Communities and Local Government minister Eric Pickles’s statement that the new Localism Act will overturn this ruling and ensure local councils have the right to begin with prayers should they so decide.

As it happens, the council prayers case was brought to the High Court by the National Secular Society, an organisation which is given a level of media attention completely out of proportion to its size or relevance. In fact, it was pointed out recently that the NSS has about as many members of the British Sausage Appreciation Society.

Unlike the National Secular Society, which wages a continual campaign against the public presence of religion, the British Sausage Appreciation Society does not see any need to bring court cases against the nefarious influence of sausage’s rivals – the nefarious influence exerted by eggs, buttered toast, or fried kippers. Indeed, one suspects the aficionados of the British sausage have discovered something the secularists have missed out on: all these can survive together and even get along well with each other without one affecting any other to its detriment. The secularists would have us break our fast on a tasteless God-free gruel, but I will always prefer the Full English.

A number of recent events have given us further opportunity to reflect on the role religion in general and Christianity in particular play in our public life. At a Lambeth Palace gathering of leaders from nine different religions, the Queen highlighted the “critical guidance” religion offers our society.

“Faith plays a key role in the identity of many millions of people,” our sovereign noted, “providing not only a system of belief but also a sense of belonging.”

But the Queen also spoke out in defence of the role the Church of England plays in Britain today. I am not an Anglican myself but I wholeheartedly support the fact that we have an established church here in England. Attacks on the state religion are often launched under the false premise that enshrining the Church of England is somehow bigoted against Catholics, non-conformists, and members of other faiths.

In reality, these attacks against the Anglican church are attempts to further secularise our society. Non-Anglicans such as me must be very wary of attempts to manipulate us in favour of the secularist agenda when we prefer to see an English society infused with faith, even if guided by the imperfect institution that is the Church of England.

I welcome the Queen’s defence of the Church of England’s role in public life and I would echo her assertion that the established church “has helped to build a better society – more and more active co-operation for the common good with those of other faiths.”

This emphasis on the common good was also accentuated in Baroness Warsi’s address to Pope Benedict XVI this week while leading a Cabinet delegation in a visit to the Vatican. Baroness Warsi took the initiative by hitting out against the “anti-religionists” who are “attempting to remove all trace of religion from culture, history, and public discourse.”

“My theory is that we are so afraid… of going backwards in history to the bad days when religion was imposed on people by despotic regimes,” the chair of the Conservative party continued, “that we have got to the stage where aggressive secularism is being imposed by stealth.”

Warsi’s words and Pickles’s action show that, while not perfect, the Government is willing to engage with the world of faith in a way that has been all too lacking recently. Rather than shutting out those who disagree with us, we need to continue the great conversation between all men and women of good will. As Pope Benedict put it in his Westminster Hall speech during his UK visit: “the world of secular rationality and the world of religious belief … need one another and should not be afraid to enter into a profound and ongoing dialogue, for the good of our civilisation.”

by Edward Leigh MP

The UK has a labyrinthine tax system. Much of the responsibility for this lies with the last Labour government. In 13 years, Labour burdened British citizens and British businesses with more than 5,000 pages of new tax rules and regulations. The result: our tax code has more than doubled in size since 1997, recently surpassing India’s to become the largest in the world.

An entire industry has been created to deal with discovering loopholes in this country’s complicated network of taxation. The TUC claims that tax avoidance costs the Treasury £13 billion per year in lost tax from individuals, and £12 billion per year in unpaid tax from businesses. This dwarfs the estimated £1 billion a year lost as a result of benefit fraud.

With the Coalition Government being forced to make tough choices about public spending in order to reduce the deficit, considerable attention has been paid to how the government spends taxpayers’ money. However, we also need radical reform and simplification of the ways in which the government raises taxes in the first place.

Flat Tax: The Ultimate Simplification

If we really want to achieve simplicity in taxation, we should implement a flat rate of taxation for both personal and corporate income, while concurrently eliminating the complicated system of loopholes, deductions, and exemptions.

This flat tax system would:

•              Reduce the level of tax avoidance and evasion;

•              Eliminate disincentives for entrepreneurs and small businesses;

•              Encourage multinational businesses to locate in Britain; and

•              Significantly trim administration costs

This is how it would work. A flat rate taxation policy involves setting a single rate of income and corporation tax, which is usually lower than most existing income tax rates. Logically this should reduce the government’s tax take, but in practice it increases it. This is because the flat tax would lead to a substantial reduction in tax avoidance. Tax exemptions, deductions and allowances would be abolished, and with the lower rates businesses and high net worth individuals would find it was cheaper to pay the tax than their financial advisers. This means that more money becomes taxable income.

Furthermore, a low rate flat tax system would stimulate growth and productivity. Since businesses would no longer find themselves paying higher tax rates simply for becoming more profitable, there would be a real incentive for businesses to expand. This would generate more wealth, create extra jobs, and boost economic growth. Already overburdened with excessive employment regulation and red tape, the complexity of our tax system acts as a further discouragement to small businesses and potential entrepreneurs who can find it intimidating, expensive and oppressive to manage.

Critics of the flat tax rate say it is unfair to ask the lowest paid in society to pay the same tax rate as the wealthiest. When Gordon Brown, the man responsible for saddling Britain with the world’s longest tax code, was asked about the flat tax he dismissed it out of hand for exactly this reason. But, as with so many fiscal issues, Brown had completely missed the point. A new flat tax system would include an exemption (similar to the personal allowance that exists now) which would ensure that those on low incomes paid either very little tax or none at all.

Lastly, a flat tax would save money because it would be cheaper to administer. With exemptions, deductions, and allowances abolished, a flat tax system would require fewer state officials to implement and enforce it than our current tax regime. The authorities would no longer need extensive and detailed financial information about individuals and businesses to calculate their tax liabilities – just their annual income. This would end the requirement for lengthy and complex tax returns. Back in 2008 the House of Commons Public Accounts Committee estimated that every year HMRC spends £55 million answering more than 12 million enquires from taxpayers dumbfounded by their tax forms. This needs to be addressed through tax reform.

Critics say the benefits of a flat tax system are more theoretical than real, but The Economist claimed in 2005 that the flat tax “seems to be working as well in practice as it does on the blackboard”.

Nine countries in eastern Europe have introduced flat rates of personal income tax alongside similar rates of corporate tax. Slovakia is one of these countries. The simplicity of Slovakia’s tax system has, The Economist says, “helped to spur foreign investment and economic growth, actually leading to a slight increase in tax revenues.”

But the flat tax is not just for small, emerging markets. The hyper-capitalist state of Hong Kong has employed the flat tax for decades. There are growing calls for a flat tax system in the US too. Although the USA’s Federal income tax is currently a ‘progressive’ one, seven states, ranging from traditionally Democratic Massachusetts to staunchly Republican Utah, have adopted a flat state income tax.

Russia, the biggest country on the face of the planet, adopted the flat tax in 2001. The effect was instant and remarkable. Russian income tax revenues rose by a quarter in the first year after the flat tax rate was introduced, and by another quarter in the second year. Economic experts attributed this surge in revenues to the flat tax, which made it easier for the Russian government to administer tax, eliminated loopholes, and made it easier for citizens to comply with  their tax obligations.

Flat Tax: The Figures

If we in Britain implemented a flat tax rate of 22% with a £15,000 allowance, it would result in a one-year reduction of tax revenue of £63 billion. However, the Taxpayers Alliance identified £81 billion in potential savings from closing loopholes and the elimination of deductions and allowances  – an  estimated £18bn increase in Treasury revenues.

The government’s planned clampdown on tax avoidance hopes to raise £4 billion over the course of four years , while the Treasury estimates the spending cuts as a whole will amass to £6.2 billion. The government is right to tackle tax avoidance, but it is a task that would be made far easier, and bring in more revenue, if Britain had a simpler, less avoidable, and more easily administered flat tax system.

Flat Tax: Fairness

The Institute for Fiscal Studies estimates the average household will lose £750 this year as a result of higher taxes. What is more, our current, so-called “progressive” income-based tax system is actually structurally biased against those on lower incomes, who do not have access, as some wealthy individuals do, to a team of accountants, financial advisers, asset managers and private client lawyers who can instruct them in the complex methods of tax avoidance and offshore tax evasion.

A flat tax would remove the opportunities and need for the wealthy to use complex tax avoidance schemes. Properly implemented, a lower, flat rate of tax would cut the proportion of their income that the wealthiest in society paid in tax, but encourage them to pay tax on more of their income, thereby increasing the total amount of tax the wealthy pay. This is not mere conjecture – it is tried and tested. Almost every time the top rate of income tax has been significantly reduced, the wealthy have increased the proportion of tax revenue they contribute.

For instance, under the Thatcher government, the top rate of income tax was reduced from an outrageously punitive 83% in 1979, to the current level of 40% in 1990. The result; higher rate earners handed over a much lower percentage of their income to the taxman, but paid tax on far more of their income. Consequently, high-earning individuals who had paid 35% share of total tax revenues in 1979, at the end of Callaghan’s premiership, were paying 42% of tax by the time John Major became Prime Minister in 1990.

It is not just in Britain that lower taxes have boosted tax revenues and increased the proportion of the tax bill paid by the wealthy. Similar results are found for three major periods of tax cuts in the United States (1921-26, 1964, and 1981-84). The latter period of tax cuts, during Ronald Reagan’s administration, led to increased tax revenue. A report of the Joint Economic Committee of the United States Congress found that, during Reagan’s two terms, the wealthiest 10% of taxpayers paid a larger share of the Federal government’s tax revenue, while the lowest 50% of earners paid a smaller share of the national tax burden.

So clearly reducing taxation as a whole would shift the tax balance away from low-income earners towards the more well-off.

But if we went further and introduced a flat tax, around 10 million of the lowest paid current taxpayers would see their entire income tax bill disappear. This would help some of the lowest earners in society and provide strong incentives for those on welfare to try and find work. Labour created a flawed welfare system which left thousands of individuals and families with little incentive to get off benefits and go out to work. “The best long-term help and security for the poor,” the Adam Smith Institute suggests, “is for them to get well-paid jobs in a growing economy. Keeping millions on benefits only really helps those politicians who want to keep their voters dependent.”A flat tax system structured so that the lowest earners paid no tax at all would make work pay. That would be a truly progressive tax system.

Conclusion

A country’s tax system has a huge impact on its citizens, businesses and economic prospects. Britain needs an efficient, modern tax system and competitive tax rates that maximise our potential as our economy recovers from the worst recession in 60 years. First, a new tax system should be far tougher to avoid than our current regime. Second, it should be able to be easily and cheaply administered by HMRC. Third, it should be clearly understood by ordinary taxpayers. Fourth, it should not only impose minimal administrative burdens on British businesses, it should both encourage those businesses to expand and multinational companies to locate in Britain.

In our hyper-globalised world, it is only two easy for mega-corporations to up sticks and shift their operations abroad. A flat tax rate, however, would make Britain more internationally competitive, attracting wealthy foreigners, both as private individuals and as company executives. The flat tax is a potential game-changer in the international arena.

The Government is rightly focused on tackling the enormous deficit left to this government by the previous Labour administration. However, in doing so it should not ignore the opportunities presented by reform of the tax system. When addressing Britain’s economic problems, we in the Conservative Party should view tax reform not as a side issue but as part of the solution. The government should urgently consider introducing a flat rate of taxation to stimulate foreign direct investment, increase domestic productivity, raise the Treasury’s tax revenues, and allow businesses to expand, create jobs and provide the economic growth that is central to Britain’s economic recovery.

by Robert Halfon MP

This week, I voted for Amendment 1221 during the Health and Social Care Bill, because I thought it important that women who were considering an abortion, had access to independent counselling services – only if they wished. If the Amendment had succeeded, women would have been offered an entirely optional alternative to abortion providers or their subsidiaries.