MP for Windsor
Working Hard For You
A Budget to boost British businesses and create jobs

One day I hope to see Germans driving British cars, the Japanese using British computers and the French eating British food. Well, that last one might be a bit of stretch! But even if my hopes are a little unrealistic, I think the Budget on 19 March is a chance to get one step closer to this ideal.

Britain used to be known for its great home-grown, UK-owned companies; businesses that inspired me, and thousands of others, to start our own companies. We produced success stories like Cadbury, British Airways and Rolls Royce. These were national treasures we could all be proud of.

Many of these ‘national treasures’ are now largely owned by foreign companies and other governments. Whilst that’s not necessarily a bad thing – times change – we could do with a pool of new British-owned companies to take their place.

Let’s be clear: backing British businesses is not about backing individual companies, it’s about backing competition between them and creating productive jobs. The more businesses we have in fierce competition with each other, the more jobs are created, the higher living standards become and the cheaper and better products become for consumers.

Simplify the tax system right now

If our economy is going to keep on growing in a sustainable way, we need our tax system to be fit for purpose. The British tax system is far too complex. This complexity is precisely why we have so many tax loopholes that can be used by large corporate companies. When we hear that a mega-corporation is paying zero tax it’s generally because they’ve discovered one of these legal loopholes.

When you have such a complex system there are always unintended consequences and strange incentives that big corporations can use to their advantage. Their lawyers, tax accountants and advisors relish the challenge and welcome the fees.

So I very much hope that the Chancellor will continue to work towards simplifying our tax system as part of the long-term economic plan.

National Insurance – A tax on jobs and earnings

We need a simpler, flatter tax system and our first step should be to merge Income Tax and National Insurance. National Insurance is not an insurance scheme. It’s a tax. The rate you pay is determined by what you earn and not some risk premium, and the introduction of the single flat-rate pension and Universal Credit will cut the last links between National Insurance and contributory benefits. It will become what it already effectively is: a second Income Tax charged at a different rate with a different tax threshold.

Let’s remove complexity and create honesty by simply merge these taxes into one payment on people’s payslips. Then you could clearly see what you were paying to the Government. The figure would no longer be ‘hidden’.

Corporation Tax – A tax on business growth

While all businesses must pay their fair share of tax, Corporation Tax can stifle growth and act as a disincentive for companies to set-up shop in Britain. When times are tough, cutting corporation tax is a proven way to boost inward investment, create new jobs and increase wages.

Although the country cannot to afford to cut Corporation Tax radically overnight, the downward trajectory is good and we need to go further by extending the timeline and indicating the goal. An explicit aim to cut Corporation Tax to, say, 15% by 2020 would send the clearest signal to every investor at home and abroad that now is the time to invest your cash in Britain and, better still, locate your HQ here. The OECD found that cutting CT by 1% increased Foreign Direct Investment by 5% – and no one can deny we need that 5%.

Capital Gains Tax – A tax on success

To boost direct equity investment in UK businesses by entrepreneurs, particularly smaller businesses, we must reduce Capital Gains Tax (CGT). CGT is payable when an entrepreneur sells their business, something entrepreneurs need to do when they start a new company. If this tax is too high, entrepreneurs will just stick with their first business – they get “locked in” – and the economy loses out in the long-run.

CGT is, in effect, a tax on their success. It means that in Britain there is a huge disincentive for successful would-be serial entrepreneurs to continue creating new businesses. And that has a knock-on effect for the economy, jobs and taxes collected. Research has found that a 1% cut in the rate can trigger a 10% increase in taxes collected. In the US, every time CGT decreased since 1954, tax revenues have increased.

Even if you don’t agree that a CGT holiday is a good idea, CGT is still too high to incentivise activity and to raise the optimal amount of tax. The ‘most productive’ CGT rate is calculated relative to the Income Tax rate. It is generally agreed that 28% CGT was too high even when the top rate of Income Tax was 50%. Now that Income Tax is 45% (and hopefully 40% soon), CGT really should be reduced to, perhaps, 20% right away.

Business is the key to our future

Before last year’s Budget I called for a number of changes to boost growth. Some of these have been implemented including raising the individual tax allowance and cutting Corporation Tax.

But it’s worth reiterating: the Government has no money. Governments don’t produce profits. High-net-worth individuals, businesses, pension funds and international wealth funds have the cash. We don’t. That’s why we must woo them, welcome them, give them a great reason for coming here and encourage them to invest this money in British businesses right now. Changes in taxes do just this and I would urge the Chancellor to be bold. Let’s get the money flowing in our direction again as part of our long-term economic plan.


We need a Budget for honesty

In 1946, George Orwell published his famous essay “Politics and the English Language”. In it, he argued that politicians fall back on tired phrases and waffle to mask their real meaning; that “when there is a gap between one’s real and one’s declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink”.

This has not changed. In fact, it has become considerably worse. Orwell would be astounded at the way today’s political elite use language to gloss over reality; casually throwing meaningless phrases around like confetti. Ready-made phrases are the norm, and nowhere does language ‘perform the important service of partially concealing your meaning even from yourself’ more than in debates over public spending.

Around Budget time we hear a lot about “fiscal overhang”, “deficits”, “consolidation” and, everyone’s big favourite, “quantitative easing” – even many politicians don’t fully grasp how this one works. These words tend to freeze people out of the public debate about how their tax money is spent. If you can’t understand something, you can’t decide whether it’s a good thing or not.

These euphemisms can also allow governments to get away with spending unsustainably, usually on big voter hand-outs, without justifying the consequences of their actions. That’s because it’s much easy to say you’re going to “run a higher deficit” than “spend another £10bn a year more than the government receives, on top of the £100bn it’s already overspending”. And it’s a lot easier to say “we’re investing another £1bn in our future”, rather than “we’re taking another £1bn from taxpayers’ money to spend on something that may or may not make living standards better in the future”.

Last chance to make a clear statement

Next week’s Budget is the last chance to make big changes before the general election. And it’s the last chance we have to make ourselves crystal clear and set the terms of the economic debate for the next few decades. The Conservative-led coalition has shown that it is capable of dealing with our country’s short and medium-term fiscal problems by getting the deficit under control. As a result, Britain is now one of the fastest-growing countries in the OECD.

While I am hopeful that our long-term economic plan and referendum commitment can reunite the Conservative family behind us, the dangers of a Labour government cannot be understated, given the electoral calculus and Labour’s failure to learn that overspending is what brought this country to its knees. So I’d like us to use this opportunity to do something radical that will change the political landscape. I want us to change the words we use to describe our taxes.

National Insurance is Earnings Tax and Jobs Tax

National Insurance is not an insurance scheme. It’s a tax. First, the rate you pay is determined by what you earn and not some risk premium. Secondly, the vast majority of National Insurance is used to pay non-contributory welfare benefits. Thirdly, the introduction of the single flat-rate pension and Universal Credit will cut the last frayed links between National Insurance and contributions. It will become what it already is: a second Income Tax. National Insurance is split into two parts: Employers’ and Employees’ National Insurance. Employers’ National Insurance is a tax on jobs and workers, plain and simple.

Because Employers’ National Insurance doesn’t often appear on people’s wage slips, many are simply unaware that their boss has to pay another 13.8 per cent to the government on top of their salary every year. This means hiring a new member of staff at £24,500 costs another £2,000 in taxes to the government – every year. If employers didn’t have to pay this dangerous tax on jobs, they could hire more people – and possibly at a higher wage too.

This year the Chancellor has an opportunity to restore some honesty to the debate – and our tax system. He has the opportunity to break from the tired phrases and jargon and start calling these insidious taxes by their proper names.

A Conservative colleague, Ben Gummer MP, has proposed renaming employees’ National Insurance: the Earnings Tax. I’d go one step further and call the employers’ element: the Jobs Tax. That would certainly be refreshing and more transparent.

Let’s make it clear what we’re talking about

A simple change of language from National Insurance to Earnings Tax and Jobs Tax would not only be the honest way forward but it would also ensure that everyone clearly understands when any changes to these taxes are made in the future.

If next year, a party tries to increase these taxes, it would be clear what they were aiming to do: take more of people’s money and destroy more of people’s jobs. With this kind of clarity, it would be a lot harder for any future government to fudge its words. Anytime a Labour government tried to hike the Jobs Tax, the public would start to ask serious questions.

Before last year’s Budget I called for a number of changes to boost growth. Since then, the Chancellor has slashed National Insurance for small businesses and scrapped it for young people. These are fantastic steps but, this time around, the Chancellor has an opportunity to make a firm footprint on the history of our tax system. Renaming National Insurance, if not now then at least before the next election, would change the debate for the better for decades to come.


Complicated Tax System

Our horrendously complicated tax system undermines the quest for growth and sends mixed messages to taxpayers about the kind of behaviour the Government wants to encourage. To tackle the deficit and debt mountain and put Britain on a firm economic footing, we have to build a sane tax framework.

Years of political expedience — rewarding this or that influential group with a tax break or preferential treatment — have created a labyrinthine system that penalises job and wealth creation. Risk-takers who would start a business are deterred by high rates of tax on success; successful businesses are discouraged from employing new staff by a nonsensical tax on jobs; and benefits claimants are dissuaded from earning by the huge marginal rates of tax levied on lower incomes. Thankfully this year’s Budget was a step in the right direction.


If the tax system was better designed to promote our economic and social goals, it would be a social duty, even a moral obligation, to encourage people to pay the least amount of tax that they are legally allowed to. Governments are notoriously bad at spending people’s money wisely. They should collect the minimum amount necessary to secure a civilised society in which core public services, such as defence, policing, healthcare and a sound legal system, are available to all. These taxes should be collected in a rational way that encourages job creation and growth, while discouraging pollution and waste.

People tend to make better decisions for themselves and their families with their own money. Likewise wealth creators will naturally invest where profits can be made and jobs created. It is better if people can make these choices without worrying too much about hidden tax implications.

Some features of the current system work well. If we want people to save more for retirement, tax reductions for long-term saving are welcome. If polluters should pay, a landfill tax has merits. But we must define the goals of specific taxes beyond simply to raise more money for the Exchequer.

Today’s complicated patchwork of duties, taxes and tax reliefs tells its own story. Holidaymakers are enticed with duty free goods; homebuyers tempted with stamp duty free periods; and drivers are urged to swerve around the higher costs of car tax, petrol duties and tax discs by buying smaller cars. All of these are forms of tax avoidance, but are we to conclude that people are morally wrong to respond to the incentives they provide?

So conducting an arbitrary moral war against the majority who are merely responding to legal tax incentives is unwise. The current tax system is doing exactly what it has been “designed” to do. The problem lies in the design — or rather the lack of design.

Judging by recent headlines, an unwelcome sentiment has crept into the debate on tax. l legitimate avoidance of tax is somehow coming to be considered as corrupt as tax evasion. Everyone accepts that illegally withholding tax is morally unacceptable. But it is not the same as tax planning and avoidance. It is not wrong for pensioners to avoid tax or philanthropists to use tax reliefs. We must be careful not to say that these people are reprehensible unless they actually break the law. Blame for some of the more notorious examples of tax avoidance should fall firmly on the shoulders of legislators.

If our leaders manage to create a tax regime that actually promotes our social and economic objectives, the temptation to smear philanthropists — or indeed any group of citizens — would evaporate. Opprobrium could be rightly focused on law-breakers alone.

Law-abiding taxpayers should point the finger straight back at MPs who say that perfectly legal behaviour is wrong. The desire to create wealth and the instinct to maximise family income by minimising tax is exactly what is needed to kickstart the economy.

While evasion is plainly wrong, tax planning and avoidance should be a moral duty in an ideal world of simplified taxation.