The budget’s missed opportunities
BY MADSEN PIRIE
It was not a bad budget on the whole. True, there was greatly increased spending, but some of that was needed. There were nice little sparklers scattered through it, especially those that enable more homes to be built, and make life easier for small and start-up businesses.
There were two big missed opportunities, however, ones that would not have significantly added to its spending. The raising of the threshold at which National Insurance becomes payable from £8,632 to £9,500 is most welcome. The Adam Smith Institute urged for years that it should be raised, just as it urged that the income tax threshold should be raised to the level of the minimum wage for a standard working week. We now have the income tax threshold at £12,500, which is the minimum wage level, and about half the average of UK wages.
What Rishi Sunak could have done was to announce that the National Insurance threshold would be raised again next year, and perhaps the following year, so that it reached the level of the income tax threshold, and further announced that it would in future remain tied to that rate. Without it costing any money in this budget, it would have given us the assurance that the two thresholds would now be tied, and making it easier to rationalize the system in future by merging income tax with National Insurance.
The second big miss was that the Chancellor could have allowed full expensing against Corporation Tax in the first year of investment, the so-called Factory Tax. Expense deduction from pre-tax earnings is allowed for operating expenses such as salaries and supplies, but not for investment in equipment and buildings, which has to be phased over several years. Had he done this, it would have incentivized investment and expansion, and increased productivity and growth.
He could cleverly have announced that this policy would be introduced for two years and then reviewed. Businesses would have hurried to put their investment in place in case the policy might be stopped after the two-years and the review. The expansion, productivity increases and economic growth would have come in fairly short order, broadening the base of Corporation Tax, and making good the temporary shortfall in Treasury receipts brought about by the concession.
Two missed opportunities, then, but the Chancellor has shown a flexibility that encourages us to hope that he might seize both of them next year, when the economy is more settled.
Dr Madsen Pirie is President of the Adam Smith Institute.