New term, new government – what’s on the tax agenda?

Contents

• The new government’s priorities – taxes down, borrowing up; growth up?
• The timetable – conferences and economic milestones
• Corporate taxation – will UK ditch co-operation for competition?
• Sales taxes and other business taxes – pressure grows for action to avert the ‘cost of business crisis’
• Employment taxes – will NI cut be followed by income tax changes?
• Taxing families – a bigger transferable tax allowance?
• Property and capital taxes – Will inheritance tax review go anywhere?
• Environmental taxation – green levies to be suspended, or scrapped?
• Tax in Scotland – waiting for Westminster
• Other devolved and local taxes – new reliefs for investment zones?
• Economic and trade policy – Chancellor likely to take flexible approach to fiscal target
• Employment policy – employment rights could be political battleground
• Social security and pensions – UBI support limited to smaller parties

The new government’s priorities – taxes down, borrowing up; growth up?

New Prime Minister Liz Truss has appointed a mostly new team of ministers, including at the Treasury. Their first task – alongside crafting and implementing a support package to help people with their energy bills – has been to put together an emergency ‘mini-Budget’ which will take place this coming Friday (23 September).

This is expected to cancel the planned increase in the main rate of corporation tax, reverse the increase in national insurance which came in in April 2022 (proposal appears to be to do this in-year) and place a temporary moratorium on the ‘green energy levy’. There is speculation it may also end the freeze in income tax thresholds sooner than planned, that it may announce a cut in the basic rate of income tax and that ‘nanny state’ measures such as the Soft Drinks Industry Levy will be scrapped. Additionally a report in the Daily Mail on 17 September cited ‘Whitehall sources’ as saying that the Chancellor is planning a ‘knock-out surprise measure’ – described as a ‘proper rabbit out of the hat moment’ (apparently in addition to the previously mentioned, widely speculated on changes).

More broadly Truss has made the eye-catching commitment that there will be ‘no new taxes’ during her time as Prime Minister. She has specifically ruled out a further windfall tax on oil and gas companies and this presumably also puts paid to any chances of an online sales tax.

Truss also promised reviews of various areas of the tax system during her leadership campaign, including (deep breath): taxation of families, business rates, inheritance tax, taxation of the self-employed, the loan charge (implied) and the tax system as a whole (focusing on complexity). To an extent these should be taken with a pinch of salt as support for a review is quite an easy response to a question from an agitated party member at a hustings, particularly if it is a topic the respondent is unsure about. How serious / formal any of these reviews will be remains to be seen, but these statements from the new PM will at least give hope and impetus to those campaigning for change in these areas.

New Chancellor Kwasi Kwarteng entered Parliament in 2010, having previously worked as a writer and as a financial analyst. He is a long time friend and ally of Truss. The two have been described as “ideological soulmates” for their views on the free-market right. They were two of the five co-authors of the book ‘Britannia Unchained’, which argued that the UK has a "bloated state, high taxes and excessive regulation". Kwarteng supported Truss through the leadership campaign and acted as a surrogate for Truss in debates, defending her tax proposals. He was already known to have been a sceptic about the planned corporation tax increase.

Kwarteng has attempted to reassure markets that the government will act in a fiscally responsible way. Nevertheless he has acknowledged that the planned tax cuts and other support for households and businesses will mean higher borrowing in the short-term. He told finance sector bosses that he is committed to ‘ensuring the economy grows faster than our debts and keeping debt as a proportion of our economy on a downward path’.

The new tax minister is Economic Secretary to the Treasury Richard Fuller. Fuller was appointed Economic Secretary in July when the job’s responsibilities covered the financial services sector. The new PM has kept him in place but swapped the responsibilities of the Economic Secretary and the Financial Secretary. Prior to becoming a minister Fuller spoke on taxes frequently in the Commons, generally defending government policy. He grudgingly supported the tax increases announced by Rishi Sunak as Chancellor, saying “covid has created a gap in the country’s balance sheet that cannot be ignored or wished away”; he warned, however, that the increases “will hold the economy back” and taxes needed to be brought down again as soon as possible.

The impact of high taxes on the economy is a preoccupation of both Truss and Kwarteng. The mini-Budget will be predicated not only on the need for households and businesses to be supported at a time of need, but that keeping taxes lower will increase growth, meaning the amount of money the government raises from corporation tax in particular will be higher even though the rate is lower.

Kwarteng told financial sector bosses on 7 September that the government is ‘committed to a radical supply side agenda to deliver lasting economic growth. This will mean creating the right conditions for business investment and innovation, reducing burdensome regulation and taxes, which will in turn create jobs, wealth and drive economic growth.’ At Prime Minister’s Questions on the same day Truss responded to Labour leader Keir Starmer: “this country will not be able to tax its way to growth. The way we will grow our economy is by attracting investment, keeping taxes low, and delivering the reforms to build projects quicker—that is the way that we will create jobs and opportunities across our country.”

This refrain is music to the ears of the three big free market think tanks – the Institute of Economic Affairs (IEA), the Adam Smith Institute (ASI) and the Centre for Policy Studies (CPS). Truss and Kwarteng have strong links with these groups and it is a good bet there will be an open door at Downing Street and the Treasury to many of their policy proposals (as well as a revolving door to many of their personnel – Truss Deputy Chief of Staff Ruth Porter is ex-IEA for example). One commentator judged IEA boss Mark Littlewood to be “probably the most influential policy wonk in town for this government”.

What do IEA want? According to an interview published on Thursday (8 September) by Politico, Littlewood is gunning for a “big, tax-cutting budget, and one with serious supply-side reform”. “If all that budget does is to say, ‘we’re not going to do the corporation tax rise, and we’re cancelling the NICs rise, and here are some forecasts about what the budget deficit will look like’ … it’ll actually be a very disappointing and un-radical budget. I’m actually hoping they’ll go fairly gangbusters.” Halving VAT would be good, suggests Littlewood. More broadly the IEA’s 2021 paper ‘20 taxes to scrap: How to grow the UK economy by simplifying the tax system’ gives a flavour of their fiscal agenda.

The timetable – conferences and economic milestones

The political party conference season is when politicians, party activists, policy thinkers, campaigners and other interested parties get together to discuss future policy directions and ideas – especially on the conference fringe where CIOT is among the many organisations holding events, where debate tends to flow more freely and less controlled by party managers.

The Queen’s death has meant the cancellation of this year’s Liberal Democrat conference, which would have taken place from 17-20 September. The other conferences will go ahead as planned but elements of them may be more subdued.

23 September – Emergency Mini-Budget in House of Commons. Commons then rises for conference recess

25 – 28 September - Labour Party Conference (Liverpool) – Shadow Chancellor’s speech on Monday, Leader’s speech expected on Wednesday

1 October – Energy price rises kick in

2 – 5 October - Conservative Party Conference (Birmingham) – Chancellor’s speech on Monday, Leader’s speech expected on Wednesday

8 – 10 October - SNP Conference (Aberdeen) - Leader’s speech expected on Monday

11 October –House of Commons expected to return from conference recess (while this is currently scheduled for 17 Oct a motion before the Commons would amend the date to 11 Oct)

1 November – National insurance cut expected to take effect, according to Daily Telegraph

November – Autumn Budget expected

December – Scottish and Welsh governments expected to present their Budgets. Also UK Finance Bill

Corporate taxation – will UK ditch co-operation for competition?

The planned rise in corporation tax will be ditched – and this will be a major dividing line between the parties, as will the extension of the windfall tax. We could see new investment incentives, and the international corporate tax deal is facing high profile opposition in the UK (as well as the US) as the emphasis switches from co-operation to competition.

The new government has made its corporation tax plans clear. The increase from 19 per cent to 25 per cent – already legislated for and due to come into effect next April – will not happen. This will make a lot of free market thinkers very happy.

The ASI had released analysis forecasting that the corporation tax rise and the end of the super-deduction policy would lower British business investment by 7.6 per cent, output by 2.3 per cent, and average household wages by £2,500. In contrast, if businesses were allowed to continue to deduct 100 per cent of the cost of new investment in equipment, then relative to current law it would raise business investment by approximately 5 per cent and real output by 1.3 per cent. Extending 100 per cent cost recovery to all asset types would raise investment by almost 10 per cent and GDP by three per cent, says the ASI.

The IEA’s Head of Public Policy Matthew Lesh is among those arguing that tax cuts are not inflationary. He says cuts have the potential to reduce headline inflation directly, by reducing the cost of goods (lowering VAT) and wage costs (reversing the employers’ NI increase). But in the longer term, he argues, there could also be indirect effects. Corporate tax cuts could encourage investment, which boosts the ability of the economy to produce. Personal income tax cuts could encourage more people to join the workforce or work longer hours, thus helping to address labour shortages. On the increase to corporation tax rates, he has noted that US think tank The Tax Foundation has suggested they would push the UK from 18th of 37 OECD countries to 31st in terms of the overall competitiveness of our business tax regime.

Opposition parties, however, remain strongly in favour of increasing corporation tax, and see it as a key dividing line with the new government. Labour leader Keir Starmer framed it thus at PMQs on 7 September: “[She is] choosing to hand the water companies who are polluting our beaches a tax cut. She is choosing to hand the banks a tax cut. Add it all together, and companies who are already doing well are getting a £17 billion tax cut while working people pay for the cost of living crisis”. Expect to hear plenty more of this in the weeks ahead, from the Lib Dems and SNP as well as Labour.

Research published today (20 September) by the IPPR is likely to be used by the opposition parties to counter the Government’s arguments.  This research claims that slashing the headline rate from 30% in 2007 to 19% in 2019 did not spur higher private investment or faster economic growth. Cuts to corporation tax came with a net cost to the exchequer of almost £73bn between 2010 and 2018, according to research by the Social Market Foundation. In only one year did an increase in business investment outweigh the cost.

The parties are similarly divided on windfall taxes, notwithstanding the levy already introduced by the government. At PMQs Liz Truss once again ruled out extending the windfall tax on oil and gas companies and sounded like she regretted its introduction in the first place.

Labour, Lib Dems and the SNP all favour freezing the energy price cap at today’s levels and paying for it in part by extending the windfall tax. The Lib Dems, who were the first of the parties to call for a windfall tax and also the first to propose freezing the price cap, were set to pass a motion at their conference calling on the government to: “Close the loopholes in the current windfall tax by ensuring it applies to super-profits accrued since October 2021; scrapping carve-outs that allow oil and gas giants to offset their tax liabilities against investments they were going to make anyway; and setting a target of raising no less than £10 billion over one year, in line with similar taxes implemented in other European countries.” Labour’s plans are similar, though they would apply the levy to profits from January 2022.

The SNP’s position is slightly different. Having been less gung ho for a windfall tax on oil and gas companies initially than Labour and the Lib Dems they favour an ‘enhanced windfall profits levy’ which applies more widely, to firms outside the energy sector deemed to have made windfall profits during the pandemic. The Greens, meanwhile, want not just to freeze the price cap but to return it to what it was in October 2021, again paid for ‘through taxing the huge profits of the oil and gas companies’ though they are less explicit about how they would expand the existing levy to raise the huge additional sums needed for their plan.

In opposing windfall taxes the new Prime Minister is once again aligning herself with the free market think tanks. The ASI says that, even with the ‘sensible’ sunset clause and investment measures, a windfall tax on energy companies is still not the most effective way to raise revenue and sets a precedent that the UK is a ‘risky place’ to do business. The CPS also thinks the windfall tax will have adverse long-term effects on investment and hit the UK’s attractiveness as an investment destination. In the opposing camp the left of centre New Economics Foundation advocates increasing the Energy Profits Levy by 20 percentage points,  to raise £9.3 billion more than the £5 billion it is currently expected to generate in the next 12 months.

Corporation tax rates and the windfall tax are both seen by free marketeers as issues of competitiveness for the UK. Also part of this debate is the international corporate tax deal which has come out of the OECD’s ongoing work to develop a solution to the tax challenges of the digitalisation of the economy. There are two parts to this - Pillar One (how profits are allocated between countries) and Pillar Two (global floor for corporation tax at 15 per cent).

Having previously commanded broad cross-party support in the UK – Rishi Sunak hailed it as Chancellor – the proposed deal was criticized over the summer by two prominent ministers, both of whom have since been promoted by the new PM. Especially savage was Jacob Rees-Mogg, then Brexit opportunities minister, now Business Secretary, who said the UK should withdraw from what he called “a global corporation tax stitch-up which works against British interests." Simon Clarke, then Chief Secretary to the Treasury, now Secretary of State for Levelling Up, said that while it was important to work with other nations to close the “tax gap” and remove “perverse incentives”, the UK should “reaffirm that competition between nations is a good thing”. He warned that Truss would not allow her plans for tax free zones to be compromised: “we didn't come out of the EU to fetter our discretion on issues like that.”

In contrast, Labour and the Lib Dems support the OECD plans. Labour say that, along with a ramped up Digital Services Tax (DST), they would make business taxation fairer, more transparent, and more supportive of investment and entrepreneurship. Labour’s DST proposal (announced in August) is to raise the tax to fund a £1bn support scheme for struggling businesses.  The Lib Dems are likely to re-emphasise their policy, adopted a year ago, of supporting a higher global minimum rate (they and Labour both suggest 21 per cent) and making profitable subsidiaries of large groups pay the tax in their own right so the groups don’t escape the minimum rate because they fall short of the 10 per cent profit-margin threshold. This is another issue to watch.

There are other ideas out there in corporate taxation, beyond rates.

The centre-right think tank Policy Exchange published a report in February which concluded that companies should cooperate with government in helping to solve social and economic problems. But governments should be wary about imposing on companies, or encouraging them voluntarily to take on, social obligations which are not related to their business and in which they have no comparative advantage. Any obstacles or disincentives that inhibit the growth of new entrants, arising from the taxation system or from regulation, must be removed to avoid crony capitalism, it argues.

Commentary by the Social Market Foundation suggests that in the short-term, the Conservatives should focus tax cuts on reliefs or reforms that encourage investment such as full expensing of capital expenditure. The Government should look to create a ‘Human Capital Allowance’ to go alongside physical capital allowances to incentivise training and development of staff. Additionally they argue for targeted grants to crowd-in private investment, expansion of Help to Grow and lower taxes for firms such as co-operatives and social enterprises which have a track record of investment. Longer term, the Conservatives need to reform UK company law, they say.

Another contribution to the international tax debate – though one that would seem unlikely to gain traction in the near future – comes from Eurodad (a network of 58 civil society organisations from 28 European countries) and the Global Alliance for Tax Justice have published a draft UN tax convention, proposing to create a new global tax body at the UN and replace the ‘failed’ transfer pricing system. The Tax Justice Network has welcomed the proposal, claiming it could also provide the antidote to sanctions-busting financial secrecy.

Sales taxes and other business taxes – pressure grows for action to avert the ‘cost of business crisis’

There is concern across the political spectrum about the impact of soaring energy bills, wages and other costs on businesses, especially those which are small and/or energy intensive. An announcement on energy bill support is expected tomorrow (Wednesday). Tax breaks are seen by many as part of the answer. Calls for temporary VAT cuts, in particular, are growing louder. The proposal for an online sales tax looks doomed.

The Lib Dems were set (before their conference was cancelled) to agree a motion at their conference calling for a cut in the main rate of VAT from 20% to 17.5% for one year. They point to analysis showing that retail sales rose by about 1% and aggregate expenditure by 0.4% when a similar VAT cut was last implemented in 2008. The Lib Dem motion also called on the government to “urgently support small businesses with their energy bills” (the party has suggested this would be paid for by reversing the cut in the corporation tax bank surcharge) and to increase Rural Fuel Duty Relief from 5p to 10p, expanding it to more rural areas.

The SNP are calling on the new Westminster government to bring in an energy price cap for businesses, scrap VAT on fuel, and reintroduce the 12.5% VAT rate for leisure and hospitality businesses. If they won’t do this, say the nationalists, they must devolve the powers to the Scottish Parliament so that it can do so.

According to media reports quoting ‘allies of Liz Truss’ in August she is considering a temporary cut of 5 per cent in the headline rate of VAT. This would cost taxpayers £3.2bn pounds a month, or £38bn a year, according to an analysis by the IFS. The step is being considered as a “nuclear” option, a source told the Telegraph, with a 2.5 per cent cut also being considered.

Some would like to see the government go further. Mark Littlewood of the IEA has said he would like to see VAT halved. “I don’t think I’ll get that, but perhaps they’ll cut VAT by 5 percent? Are they going to slash business rates? Are we going to hear about these enterprise zones in levelling-up areas and what regulations might be suspended or relaxed in those areas?”

Debates over business rates are always prominent during the party conference season, driven by sectors which feel particularly hard done by such as retail and hospitality, and the MPs who are allied with them. The rising other costs on these businesses will give a new impetus to the debate. Scrapping business rates and replacing them with “a system that will incentivise investment and level the playing field between high street businesses and global giants” is a key plank of Labour’s ‘Plan for Economic Growth’. In their 2019 general election manifesto, Labour said they would "review the option of a land value tax on commercial landlords” as an alternative to business rates. This seems likely to be where the party ends up. It would not be surprising if it ended up looking very similar to the Lib Dem policy of a Commercial Landowner Levy.

Critics of business rates have often advocated an online sales tax (OST) to rebalance the taxation of the retail sector between online and in-store retail. The government has yet to respond to the recent consultation on an OST, but with the new Prime Minister saying there will be ‘no new taxes’ its prospects of introduction in the near future are surely nil.

An OST has the support of the Local Government Association (LGA), which argues that it would help to broaden the tax base for business taxes. It also has the backing of the union Usdaw whose General Secretary says it would be a fair and balanced approach to achieving a more level playing field between online and bricks and mortar retail.  Usdaw suggests collecting it annually, rather than at the point of purchase, to minimise the risk of costs being passed on to consumers. Potentially MPs will come under pressure to act on high streets if constituents see more stores in their locality close over the expected recession. However Labour has not expressed support for the tax, preferring to increase the separate Digital Services Tax, and it seems momentum is slipping away from the campaign for its introduction.

Think-tanks of the right are urging the government not to introduce an OST. The IEA says it would hurt consumers, would raise minimal revenue, that internet retailers would pass on the cost to customers and that it would be ‘a nightmare to administer’.  A Centre for Policy Studies (CPS) paper says it would do ‘more harm than good’ to consumers, businesses and the economy, with costs falling disproportionately in disadvantaged regions of the UK and among those on lower incomes, as well as on elderly and disabled people who now depend on online shopping. Research for the IEA by Julian Jessop found no clear rationale for an OST. Prof Len Shackleton, also of IEA, likened it to a tax on steam engines to protect horse-and-cart transport.

The Institute for Fiscal Studies (IFS) are also highly critical of the OST proposal. In a presentation at a CIOT/IFS debate, senior economist Stuart Adam said OST would need a high rate and/or broad base to make a serious dent in business rates but it would be ‘complicated and distortionary’ and have complex effects on prices, wages and rents in taxed and untaxed sectors.

Business will obviously be pleased by the reversal in employers’ national insurance. Beyond this the Lib Dems are continuing to press for the NI Employment Allowance to be quadrupled to £16,000, and argued for expanding the apprenticeship levy into a wider 'Skills and Training Levy'. The London Progression Collaboration (which is based at the IPPR) also argues that, if the apprenticeship levy is to meet its objective of increasing employer investment in training, the Treasury needs to give employers greater control over how their funds are directed.

Warnings of possible widespread pub closures are increasing pressure for cuts to alcohol (especially beer) duty as well as other forms of assistance. The government has frozen duty rates and consulted on a new alcohol duty structure, cutting the number of main duty rates. The proposals were broadly welcomed by pubs but the chief executive of the Wine and Spirit Trade Association called them a “missed opportunity” that was “definitely worse for wine, and not great for spirits”.

The proposals have been paused pending the transition to a new government but a decision will be needed soon, probably at the November Budget. Feeding into the debate will be the strong instincts of the new administration and its think tank allies against what many of them see as excessive ‘nanny state taxes’. Research by Dr Kristian Niemietz of the IEA estimated these taxes cost a moderate smoker and drinker about £140 a month. These taxes could be cut back to a realistic estimate of the external costs imposed on others by those activities, he has suggested. However, given all the other pressures on the public purse it would be a surprise if there are across the board cuts in this area in the near future. A small further cut in beer duty is more foreseeable though.

It has been widely reported that the new Government plans to scrap the Soft Drinks Industry Levy. The Guardian (20 September) suggests this has ‘run into legal and parliamentary hitches’ but these seem unlikely to do more than slightly delay the tax’s repeal.

Still on ‘sin taxes’, in a March paper, the Social Market Foundation (SMF) called on the Government to introduce regulations which would require operators to pay an annual levy to the Gambling Commission. Again this seems unlikely to gain favour with the new regime in government.

Employment taxes – will NI cut be followed by income tax changes?

This year’s national insurance rise is set to be reversed – probably in-year – and the Health and Social Care Levy scrapped before it even comes in. The income tax personal allowance freeze is likely to end earlier than planned and we could see a cut in the basic rate earlier than planned. We may see changes to how the self-employed are taxed.

A pledge to reverse this year’s increase in national insurance contributions (NICs) – at a cost of £13 billion per year, according to the IFS – was at the centre of Liz Truss’s leadership campaign and we can expect this to be at the heart of Friday’s mini-Budget. NICs rose by 1.25 per cent in April to fund the NHS and social care. From next year, the extra tax will be rebranded as the Health and Social Care Levy (HSCL). Justifying the policy reversal, which will benefit higher earners more, Truss told the BBC: “[T]o look at everything through the lens of redistribution I believe is wrong because what I'm about is about growing the economy and growing the economy benefits everybody.”

While the NICs reversal is all but certain there is a question mark over its timing. Simplest would be to let the NICs rise lapse as planned at the end of the current tax year (as well as repealing the HSCL which would otherwise replace it). However the new administration appear keen to make the change sooner – ‘within days’ of taking office according to some reports, suggesting implementation as soon as the start of October. More recent reports in the Daily Mail and Daily Telegraph suggest the start of November is current thinking. Even the later of these dates would present challenges to both software companies and HMRC.

A related issue is whether the increase in tax on dividends will also be reversed by the government. Given it was introduced as a companion measure to the NICs increase it seems likely.

The NICs increase was of course a big dividing line between the parties when it was legislated for last year. Labour, SNP and the Lib Dems were all against the increase, saying hard-pressed workers would face a ‘double whammy’, with employers also passing on the cost of their increased NICs. Labour did not say explicitly what they would put in their place. The usual formulation has been that they would target ‘those with the broadest shoulders’ (with capital gains tax implied as at least part of the solution).

Labour and other opposition parties welcomed the Truss announcement that she would scrap the NICs hike, though Labour published analysis showing that an employee working full-time on the national minimum wage will gain only £1 a week as a result of the change. A motion that would have been debated at the Lib Dem conference would have reaffirmed the party’s calls for the government to scrap the NI increase.

The Lib Dems have also been calling on the government to end the freeze of the income tax personal allowance, calling it “a stealth tax falling disproportionately on low earners”. (Reminder: In the March 2021 Budget the then Chancellor announced that the government would freeze the personal allowance and higher rate threshold between 2022 and 2026, rather than increasing them in line with inflation, which was the previous plan. At the time inflation was below two per cent.)

A senior ally of Liz Truss quoted in the media said she was "certain" to end the freeze. The source told the Daily Mail in late August: "When inflation is running at 10 per cent you cannot have the thresholds frozen because you will have people paying a higher proportion of tax on their income at a time when bills are going through the roof."

The higher rate threshold may also rise. ‘Treasury sources’ have told ‘The I’ that Truss was keen on cancelling Rishi Sunak’s freezing of the 40 per cent tax threshold at £50,270 and raising it by around £30,000. The briefing appears to have come from an adviser to the outgoing Chancellor, Nadhim Zahawi. The article refers to a document of possible tax-cutting measures prepared for Truss by the Treasury. The adviser told the paper: “The current Chancellor has prepared some ideas for the next Prime Minister to consider, and one has gone down particularly well within the Truss camp: raising the 40 per cent tax threshold to £80,000.”

The Adam Smith Institute is one of those urging the government on in this area. Among its suggestions is to index income tax thresholds by inflation. In the immediate term, the Government should at least unfreeze the personal allowance, taking those on the minimum wage out of income tax, they argue.

During the leadership contest, Truss’s rival Rishi Sunak said he would cut the basic rate of income tax from 20% to 16% by the end of the next parliament if he became Prime Minister. This built on the existing government position (announced by Sunak in the March 2022 Spring Statement) of a 1p cut in income tax in April 2024. While not yet legislated for this 1p cut can be assumed to remain the government position.

Will they go further? Plenty of people at the Birmingham conference will be urging them to do so. The TaxPayers’ Alliance is among them. Its analysis claims that with a 4p cut to income tax, GDP would be £11 billion higher over ten years, also increasing investment by £2 billion.

However the centre-left IPPR is more sceptical. They analysed the effect of lowering the basic rate to 19 per cent and found that almost half the total tax reduction would go to the fifth of households with the highest incomes, with just 2.6 per cent finding its way into the budgets of the poorest. IPPR researchers say this makes basic rate income tax cuts an ineffective tool to help households struggling most with the cost-of-living crisis. They argue that the £5bn would be better used in other ways.

Going further, the Resolution Foundation called over the summer on the two Tory leadership hopefuls to ‘think the unthinkable’ and raise tax during the worsening cost of living crisis. The think-tank said in a briefing note that a one per cent hike in income tax on all rates – with 60 per cent paid by the wealthiest fifth of UK households – would raise £9.5 billion a year for more support with gas and electricity bills.

However the government seems more likely to announce a cut – probably of just 1p but accelerating the Sunak timetable. The Daily Mail reported on 17 September that the Chancellor “is planning to announce a tax-cutting bonanza in this week’s emergency mini-Budget, which may include fast-tracking a planned 1p reduction in income tax.”

Truss has also argued for change to how the self-employed are taxed. Might this finally respond to the concerns of (among others) the IFS that the existing rules unduly benefit the self-employed (primarily because of how NI is levied)? Might it address the concerns of Thomas Pope at the Institute for Government that the current system biases businesses and workers towards contracting relationships rather than employment relationships?

Unlikely. The Truss agenda seems to be more geared towards making the system more generous towards the self-employed. In a campaign interview with The Sun she said: “The changes that have been made to IR35 are all about trying to treat the self-employed the same as big business. If you’re self-employed, you don’t get the same benefits as being in a big company. You don’t get paid holidays, you didn’t get those benefits. So the tax system should reflect that more.” According to the Sunday Times the Chancellor is likely to announce a review on Friday.

Campaigners for contractors and the self-employed will be hard to satisfy, however. Dave Chaplin, CEO of tax compliance firm Contractor Calculator, said his message to Truss was: “we don’t need another review, we need action.”

Another issue affecting some contractors is the controversial loan charge. Truss was challenged on the issue at a hustings in south London. She was asked: “Will you commit to a genuinely independent review, and to resolve this issue before more people take their own lives?”  Truss responded that it was “appalling to hear” of the suicides – which she described as “very, very tragic”. She restated her pledge to review IR35 and said she would “certainly look at” the charge, given that “the way the whole situation has been handled has been very poor”. However campaigners have noted that this was not a commitment to an independent review of the charge.

Where will Labour end up on employment taxes? In July, Rachel Reeves, the Shadow Chancellor, said the party could pledge tax cuts for millions at the 2024 election. Reeves told the Daily Mirror workers should ‘keep more of their money’ - funded by a possible hike on those who profit from stocks, shares and dividends. But while she was willing to set out ‘the direction of travel’ she said they would not set out the detail until an election. At the time she was not willing to commit to reversing the NI hike, saying: “We’d have to see what position the public finances are in at the next election.”

The Green Party proposes a single tax so that all incomes, including rental and investment income, are taxed at the same rate.

Competing for conference camera attention: Labour Leader Sir Keir Starmer, PM Liz Truss (Conservative) and SNP Leader Nicola Sturgeon.

Taxing families – a bigger transferable tax allowance?

One of the many reviews the new Prime Minister has promised is into the way families are taxed, ‘to ensure people aren't penalised for taking time out to care for children/elderly relatives’. Media reports suggest the review would focus on making more or all of the income tax personal allowance (rather than just 10% of it, as now) transferable between members of couples. Wording suggests this might be restricted to those with caring responsibilities.

This is something a number of policy wonks have been arguing for. Onward, a centre-right think tank, published a paper in December last year making the case for ‘a broader and deeper family tax allowance’. Specifically they recommended:

• Extend the marriage allowance into a wider Family Allowance, to allow cohabiting couples with children as well as married couples to transfer 10% of their personal allowance to their spouses
• Drive take-up of the Family Allowance by making it easier to access and more attractive for parents (paying the allowance as a lump sum directly to the lower earner and signposting through the marriage and birth certificate process and antenatal classes)
• Radically expand the tax break by allowing certain families to transfer their full £12,570 personal allowance to their spouse (it would cost £665 million a year to extend to families with young children and £457 million a year to extend to families with full-time caring responsibilities)

A second Tory-leaning think tank, Policy Exchange, set out recommendations for a family taxation shake-up in August. Identifying problems for both high and low earning households with a single earner under the current system, Philip Booth and Andrei E. Rogobete argue that tax-free allowances and tax bands for couples could be aggregated within a family; additional tax-free allowances (at different levels) could be given in respect of children to replace welfare benefits for children; the scale of progressive tax rates could then be applied to the aggregate family income. This approach, similar to that which is adopted in France and Germany, would mean that all families would pay the same amount of tax whatever the split of earnings between the adults in the family.

A third centre-right policy shop, Bright Blue, has called for the transferable tax allowance to be open to all couples with young children, not just those who are married.

A ‘family think tank’ called the Marriage Foundation has called for the Government to use the tax system to reverse the fall in the number of people getting married and having children. In a report it points to the tax relief offered by the Hungarian government to parents which it says has resulted in a rise in fertility rates from 1.25 to 1.59 births per woman. Harry Benson, Marriage Foundation’s Research Director, claimed: “Married families are typically more stable, pay more tax, and require fewer benefits. Fewer marriages therefore mean more family breakdown, less tax and higher welfare bills.”

The Conservative Policy Forum (CPF) consulted with its members about families and communities. Suggestions from members highlighted by CPF included that the married tax allowance should be generously enhanced when parents have children, and also that the combined salary of both partners should be what determines the cut off for Child Benefit payments, not one earner being in the higher tax bracket.

While this is unlikely to be an immediate priority for the Truss administration, given the range of more urgent matters before them, it is an area to watch for the future, and could in time prove one of this government’s most significant tax reforms (as opposed to rate changes), depending on what is adopted.

Property and capital taxes – Will inheritance tax review go anywhere?

Might the Chancellor make a bold move on inheritance tax? Meanwhile wealth taxes and property tax reform are hot topics on the left but less likely than ever from the current government.

Liz Truss announced during the leadership campaign that she would review inheritance tax (IHT). As veterans of party conferences will tell you, while no tax is ever popular with a Conservative audience, IHT will reliably get the loudest jeers. However this does not seem to have been a planned announcement, coming as it did in response to pressing from an audience at a leadership hustings. Truss had told the audience in Leeds: “Our tax system isn’t working. It’s too complicated. I would have a complete review of the tax system.” Pressed on whether she would look at inheritance tax as part of that review, she said: “I would look at it again but I would need to look at it in the round.”

The influential IEA advocated abolishing IHT (and 19 other levies) in its 2021 paper ‘20 taxes to scrap: How to grow the UK economy by simplifying the tax system’. The paper describes IHT as “an inconvenient, economically distorting and arguably immoral duty that is often a form of double taxation, and which forces bureaucracy on to the families of the recently deceased.” The paper adds that: “It is also a tax that is full of loopholes, which can be utilised by the very wealthy. Consequently, the bulk of the annual IHT bill is shouldered by the middle classes, who have less ability to avoid it through forward planning.”

Given the other tax (and spending) commitments made by the new government it seems implausible that abolition of IHT could be on the agenda too. However it is undoubtedly a long-term aim for many influential people in and around the new administration so no-one should be surprised if a direction of travel is set (perhaps with an increase in the threshold) to reduce IHT’s reach. If reports that Kwarteng is planning a ‘knock-out surprise measure’ at the mini-Budget (beyond those being widely reported) are correct a long-term intention to scrap IHT – perhaps replacing it with capital gains tax (CGT) on death – or at least to take the ‘middle classes’ out of its scope surely has to be a contender, even if it would further challenge the national finances.

The new government is even less likely than any previous Conservative regime to have any truck with a wealth tax. The new Exchequer Secretary Felicity Buchan argued strongly against such a levy at the CIOT/IFS debate at last year’s Conservative conference. However this issue continues to have salience for those on the left. The IPPR continues to argue that the government should tax income from wealth the same as income from work

Public sector union Unison has called on the new government to increase taxation of the rich. The union has polled 3,000 voters and 54 per cent backed the union’s proposal for a one per cent annual wealth tax on assets worth over £5 million, including property. In its Together We Rise report, Unison also calls for a one pence hike in the higher and additional rates of income tax, and increasing CGT rates to match income tax.

Analysis by Tax Justice UK has concluded that nearly £40 billion was ‘given’ to business and the wealthy in tax cuts under Boris Johnson, over the two and a half years up to his resignation, while taxes increased on working people. A review of tax ‘winners and losers’ across every Budget that took place while Johnson and Sunak were in Downing Street found that the Conservative government had given at least £35.8 billion to businesses in tax cuts, and £2.2 billion to the wealthy, before they both resigned last month. TJUK has suggested the Chancellor equalise capital gains with income tax, tackle tax avoidance and end tax loopholes.

Back in January, the Resolution Foundation found that the tax take from wealth-related charges has remained ‘stubbornly flat’ in recent decades in the face of the huge rise in the amount of wealth held by households. A key driver of this wedge has been inflation-beating house price growth which has led to large increases in the value of main residences: ‘a windfall that has remained untaxed’. It says the most obvious solution is to end the main residence exemption within CGT. In explaining how main residence CGT would best operate, the Foundation says it should – on fairness grounds – apply to some past accruals as well as those made in future; but no attempt would be made to tax gains that have already been realised; CGT should not be forgiven at death (as currently happens), but transfers between spouses would not be taxed at that point; through a rollover relief, tax should not be due when people move house, except where they downsize or leave the property market; and improvement and transaction costs should be deductible.

The Green Party would like to increase tax on the wealthiest to tackle rising inequality and support those on the lowest incomes, arguing that, during the Covid pandemic, the richest 10 per cent of households enjoyed an estimated increase in wealth of £50,000 each on average, dramatically widening the gap between the richest and poorest households.

Wealth taxes also have support among some Labour backbenchers. However, keen to move away from the Corbyn era, Labour frontbenchers steer away from talk of a specific wealth tax or even a ‘mansion tax’, although we know the party thinks people who get their income through wealth should have to pay more (see above). Labour announced in April that it would replace ‘non-dom’ taxpayer status – which allows UK residents whose permanent homes are abroad not to pay UK tax on overseas income – with a shorter-term scheme for temporary residents. The party also proposes changes to the treatment of private equity bonuses, paid as carried interest.

The debate on residential property taxes is relatively quiet at present. Advocates of replacing council tax with a proportional property tax, led by the campaign group Fairer Share, continue to make their case, but the measure’s strongest card with the previous Conservative administration, that it supports ‘levelling-up’ by redistributing the tax burden from the north to the south, is thought less likely to gain traction under the new regime. A pledge of ‘no new taxes’ presumably includes new property taxes. With the IPPR arguing for it, however, we should watch for hints that Labour are considering such a move.

Lib Dem policy – as argued for at the 2019 election – is for the abolition of a separate capital gains allowance and taxing capital gains as income at marginal income tax rates. Labour (under Corbyn and McDonnell) also fought the 2019 election arguing for capital gains (and dividends) to be taxed at income tax rates without a separate annual exempt allowance for either (other than a de minimis threshold of £1,000). The difference, however, is that while Lib Dem policies remain in place unless and until the party changes them, all Labour’s policies from the pre-Starmer era have ceased to be policy unless specifically announced.

That said, there are reasons to think that higher taxes on capital gains and dividends may still be under consideration by Labour. Starmer and Reeves have both frequently used the formulation that they want ‘those with the broadest shoulders’ to pay higher taxes, rather than ordinary working people. A year ago, talking about the national insurance increase, Starmer told The Guardian: “Our analysis is that you could raise this money in other ways, whether that’s capital gains tax, whether that’s on properties, stocks and shares or dividends.” However more recently Labour has been quiet on its plans in this area, preferring to talk about its windfall tax proposals. Any clarity on Labour’s plans here, as with employment taxes more generally, will probably only come once the dust has settled on the Government’s plans.

Environmental taxation – green levies to be suspended, or scrapped?

Amid the current energy price crisis green levies are out of favour with the new administration. But a carbon border levy might be a rare acceptable new ‘tax’, and road pricing will surely be on the agenda at some point.

Climate change policy looks likely to be a key battleground between the government and the opposition. Despite a promise from Liz Truss during the leadership campaign to ‘double down’ on the UK's commitment to reach net zero greenhouse gas emissions by 2050, environmentalists are concerned that this is an administration which is shifting in the opposite direction.

They point to the leadership campaign when Truss’s team heavily leaked plans to deregulate business, which are thought likely to include environmental regulations, and in which she expressed doubts about the ‘depressing’ spread of solar power ‘paraphernalia’ on agricultural land. New energy secretary Jacob Rees-Mogg has argued for ‘every last drop’ of oil to be extracted from the North Sea. The mini-Budget is expected to end the UK-wide moratorium on fracking.

In her energy policy statement (8 September) the new Prime Minister announced that her Energy Price Guarantee would include a temporary suspension of green levies. According to reports this is a reference to the ‘social and environmental obligation’ added to energy bills, which currently adds £153 to the average annual household energy bill of £1,971. It is unclear how long this suspension will last or whether it will return at all.

It is also unclear what the prospects are for other green taxes, such as the climate change levy, carbon price floor and emissions trading scheme (ETS). In a briefing paper published earlier this year, the TaxPayers Alliance (TPA) highlighted that the main ‘green taxes’ in the UK cost taxpayers £11.5 billion in 2020-21, forecast to rise to £18.8 billion in 2026-27. The TPA’s former chief executive Matthew Sinclair, who has argued the carbon price floor should be scrapped and that green taxes generally are excessive, has been appointed by the new PM to run the No 10 economic unit.

However Labour are cautious about coming out in favour of higher green taxes, worrying that they will have a harmful impact on household incomes. The party prefers to emphasise its spending plans, which include a commitment to spending £224 billion on climate measures over the next eight years. At last year’s party conference Shadow Chancellor Rachel Reeves was asked by CIOT about Labour’s position on carbon pricing and whether the party would seek to strengthen the UK’s emissions trading scheme. She passed on the question, saying it was one for Ed Miliband.

The Lib Dems used to argue for a single, economy-wide carbon tax, but changed their position a year ago to favour a strengthened UK ETS instead. The party also has ideas for greening existing taxes, including VAT and stamp duty land tax. Additionally the Lib Dems want to adapt air passenger duty into a frequent flyer levy, and say the existing system of energy taxes could be simplified by abolishing the Carbon Support Price and the Climate Change Levy, which would no longer be needed if the UK ETS is more effective.

The Lib Dems also back a carbon border adjustment mechanism (CBAM) and this is one green tax which actually might find favour with the new government (notwithstanding that the ‘no new taxes’ pledge would require it to be badged firmly as an adjustment mechanism rather than a tax). A CBAM was backed by former International Trade Secretary Liam Fox in a speech in May last year and the Government’s Climate Change Committee has also called for it to be considered. In a report published in January the CPS argued that such a tax would enable the government to level up and decarbonise the economy simultaneously. It said a carbon border tax on energy intensive imports would see importers from outside of the UK put on a level playing field with British businesses. Other CPS proposals included boosting R&D through spending and regulatory changes, implementing ‘full expensing’ and a ‘green super deduction’ so businesses can invest in greener tech.

In May this year, then tax minister Lucy Frazer said a CBAM would be among the options in a consultation later this year. Frazer said that “the best way to prevent carbon leakage would be for all countries to move together in pricing, regulating and therefore reducing carbon emissions”, but that the government would consider domestic action.

Road vehicle taxation is an area which will surely see reform in the coming years, as petrol-powered vehicles are phased out in favour of electric. In a report published in February this year the House of Commons Transport Committee (which like all other select committees has a Conservative majority) called on ministers to set out their preferred options for replacing fuel duty and vehicle excise duty and to establish an arm’s-length body “tasked with recommending an alternative road charging mechanism to replace fuel duty and vehicle excise duty by the end of 2022.” One of those options should be a road pricing mechanism that uses telematic technology to charge drivers according to distance driven, factoring in vehicle type and congestion, say the committee, adding that if motoring taxation is linked to road usage, the committee has not seen a viable alternative to a road pricing system based on telematics.

The Social Market Foundation (SMF) also thinks that a new road-pricing system is urgently needed to make transport policy more fair and fiscally sustainable. An SMF report includes polling showing that more people support (38 per cent) than oppose (26 per cent) road pricing as an alternative to fuel duty. The SMF also conducted focus group research which showed that voters regard fuel duty as more unfair than other taxes.

Tom Sasse, Associate Director at the Institute for Government, has written that the Government needs to tackle charging and equity issues to ensure a smooth transition to electric vehicles. He also thinks road pricing is likely.

Tax in Scotland – waiting for Westminster

In Scotland, the implications of the cost of living crisis and a Liz Truss premiership could have implications for the devolved tax system, but the precise nature of those repercussions is unknown at the time of writing.

Suggestions that the new UK administration may be plotting to cut income taxes through threshold changes and/or rate cuts have fueled speculation of a Scottish Government response that has the potential to widen divergence further, with a senior figure within the SNP being quoted by The Times this summer as saying that income tax rises for higher earners in Scotland was an ‘inevitable’ response to the government’s budget challenges.

This would represent a departure from the SNP’s 2021 election manifesto pledge to freeze rates and bands of income tax, although any such changes would not be able to take place before the new tax year, as the Scottish Parliament lacks the power to vary income tax in-year.

Speaking in the Scottish Parliament as she outlined her administration’s legislative programme for the year ahead, first minister Nicola Sturgeon said the Scottish Parliament’s tax raising powers were ‘woefully inadequate’ for dealing with the current economic crisis, sentiments that were echoed by the interim finance secretary John Swinney in a budget update to MSPs the following day (Swinney is standing in for Kate Forbes, who is currently on maternity leave).

However, Reform Scotland believes that the Scottish Parliament could do more with the powers it has at its disposal. In June, the think tank published a new report, Taxing Times: Why Scotland needs new, more and better taxes. Written by the international public policy expert Heather McCauley, the paper argues that Scotland needs new taxes and a broader tax base with a greater focus on wealth, rather than employment taxes, and looks at how this might be achieved with existing powers over taxation (read a summary of the paper here).

While little change is expected to other devolved taxes in the coming year, some SNP members are pressing for the party to take a bolder approach to taxation. It was reported over the summer that party members would bring forward proposals for debate at the party’s October conference, including options for taxing large-scale whisky producers and making greater use of Scotland’s devolved tax powers.

Options for reform of land taxation have been put forward to ministers by the Scottish Land Commission and are included in an ongoing consultation on land reform, but the prospects for reforming council tax (already underway in Wales) remain remote. In March, public finance minister Tom Arthur told the Scottish Parliament that wholesale reform was unlikely by the end of the 2021-26 parliament, with ministers intent on tasking a Citizens’ Assembly with the job of debating options for reform.

Alongside speculation that we might see income tax changes, the government’s legislative programme has confirmed that there will be two pieces of tax legislation debated at Holyrood in the coming year.

A Local Visitor Levy Bill will give local authorities the discretionary power to introduce a tax on tourists, while the Scottish Aggregates Levy Bill will implement the devolved replacement for the UK Aggregates Levy and give Revenue Scotland responsibility for its administration.

The highest profile of these – the so-called ‘tourist tax’ – has been welcomed by some councils but criticised by tourism and hospitality groups, who fear its introduction may derail their ability to recover from the pandemic and cost of living crisis.

These bills are in addition to the annual Budget Bill and Scottish Rate Resolution, the latter of which will set income tax for 2023/24.

Other devolved and local taxes – new reliefs for investment zones?

Radical plans for tax variation are under consideration by the new government as it attempts to convince that it remains committed to ‘levelling-up’. There have been calls for further fiscal devolution to Northern Ireland. The Welsh Government is looking at a tourism levy.

According to media reports Friday’s mini-Budget will include proposals for new low-tax ‘investment zones’, to ‘turbo-charge growth in areas ripe for redevelopment’, putting ‘rocket boosters’ under the existing plan for freeports, which both Kwarteng and Truss feel is not radical enough. Businesses that move to and invest in these areas will benefit from tax reliefs and also a reduction in planning restrictions and environmental regulations to accelerate house building and infrastructure projects.

According to The Sun on Sunday the Government is also considering ‘slashing’ personal taxes such as income tax and national insurance for workers who live and work in these areas. “If No10 goes ahead with the plan, it would be a hugely radical shake-up of the tax system and is likely to spark massive controversy,” the paper observes.

This measure is likely to be the poster child for the government’s continuing commitment to ‘levelling-up’, amid doubts over whether the Levelling Up White Paper will remain intact and claims from Labour that the levelling-up agenda is ‘dead’.

Think tanks from the left and centre have had plenty of critical words for the government on this agenda. IPPR North unveiled stark results in January, including that funding for ‘levelling up’ pales in comparison to local government austerity. Research by the Resolution Foundation found differences in income across the UK were ‘significant’ and ‘persistent’. They said government plans to ‘level up’ cities around the UK will cost billions more than thought.

The Social Market Foundation (SMF) claims unhappiness of people living in big cities such as London must be addressed for the Government to deliver on its ‘levelling up’ promises. The findings pose a challenge to the Government’s rhetoric and strategy around levelling up, which has tended to focus on “overlooked and undervalued” places rather than the capital.

Demos and KPMG last month called on the Government to focus on improving the lives of those who choose to remain in their native towns and capitalise on their enthusiasm by sticking with levelling up and giving residents a voice on local investment decisions.

In May, the final report of the Independent Fiscal Commission for Northern Ireland, chaired by Paul Johnson of the IFS and commissioned by Northern Ireland’s Minister of Finance, reported. It had been asked to carry out a comprehensive review of the case for increasing fiscal powers available to the Northern Ireland Assembly.

The commission recommended partial devolution of income tax under which the NI Assembly would have a degree of control over the rates, and potentially bands of income tax, but where administration would continue to be carried out by HMRC. It suggested stamp duty land tax, landfill tax and air passenger duty could be fully devolved. There is value in the NI Executive seeking devolution of excise duties for fuel, alcohol and tobacco, said the commission, but over the longer term. It identified complex administration and compliance issues, and said further detailed work is required to determine exactly how devolution of such duties could be operationalised as well as the costs involved.

The Welsh Government – a minority Labour administration – has committed not to raise Welsh rates of income tax for as long as the economic impacts of the pandemic last. There is a probably deliberate lack of clarity about how this will be determined. The Welsh Conservatives have called on the government to provide more clarity in indicating how it envisages using its taxation powers in the medium to long term.

The Welsh Government has today (20 September) launched a consultation on a tourist tax (officially a ‘local visitor levy’). The Welsh Government’s Programme for Government, and the Cooperation Agreement between the Welsh Government and Plaid Cymru, both contain commitments to introduce such a levy, which would place an additional charge on visitors staying overnight in Wales.

Welsh think tank the Bevan Foundation wants a tourism tax in Wales but insists it must be well-designed if it is to achieve its desired intention and not cause unintended consequences. It says ‘the jury is out on the Welsh Government’s latest plans’. The plans have been widely panned by the tourism sector in Wales.

The Welsh Government is also currently consulting on reform of council tax. The consultation seeks views on designing “a new system of bands and tax rates that is more progressive, including considering adding more bands to the top and bottom ends of the scale if needed”. It also asks whether a revaluation is needed, whether revaluations should be held more regularly, whether the framework of discounts, disregarded persons, exemptions and premiums can be improved, and whether the Council Tax Reduction Scheme which provides support to low-income households should change.

The Bevan Foundation has called for the UK Government to explore the devolution of the administering of welfare benefits to Wales. This call has been backed by the House of Commons Welsh Select Committee. In a report in March MPs on the committee recommended that the UK-Welsh government Inter-Ministerial Advisory Board on Social Security should undertake an assessment of the potential merits of devolving the administration of the same benefits to Wales as have been devolved to Scotland.

The new Westminster Government are not keen on further tax devolution and not keen on the Welsh Government using the powers they already have. During the leadership election Liz Truss said: "I've made it very clear, I don't like taxes very much and the fact that he [Welsh First Minister Mark Drakeford] wants to put a tax on tourism in Wales, I think is a very big problem, just as we are trying to recover the economy after Covid.”

Economic and trade policy – Chancellor likely to take flexible approach to fiscal target

Liz Truss has come to power on a promise to challenge the so-called ‘Treasury orthodoxy’, sacking the Treasury permanent secretary and demanding fast, radical action to tackle a cost-of-living crisis and shake the country out of years of sluggish growth.

The Chancellor is reportedly reviewing the government’s fiscal rule which requires that debt falls as a proportion of national income in 2024-25, the last year of this parliament. The Times has been told that while Kwasi Kwarteng is committed to reducing debt as a proportion of GDP over the “long term”, he is likely to extend the target for debt falling as a proportion of GDP into the next parliament.

During the leadership contest Truss pledged to review the remit of the Bank of England. She ruled out splitting up the UK Treasury but she will turn Number 10 into an ‘economic nerve centre’ calling the shots on economic policy.

The Chancellor is expected to announce that the cap on bankers’ bonuses (limiting them to twice their salaries) will be scrapped, as part of a series of measures designed to support the financial services sector. The government also reportedly wants to scrap insurance sector rules known as ‘Solvency 2’ which the sector claims inhibits its ability to invest in long-term infrastructure projects.

The unfinished business of Brexit continues to loom over UK politics. According to a ‘senior Tory’ quoted in the Sunday Times, the Northern Ireland Protocol is one of three things No.10 is now focusing on, alongside the mini-Budget and slimming the state. (This is reportedly “because the Americans have told them to sort that out before there can be a trade deal.”) It is also seen as a priority by Conservative members. The approximately 3,300 members of the Conservative Policy Forum, a party grassroots organisation, said in the summer that the top three policy priorities for the new leader should be the cost of living, cutting taxes and completing Brexit (including sorting the protocol).

Truss is expected to say that she intends to unilaterally continue the grace periods in the protocol, which have so far prevented full checks on goods travelling between Britain and Northern Ireland, and will seek to find a constructive way forward.

Eliminating most border checks in the Northern Ireland Protocol is one of the points in Labour’s ‘5 point plan to make Brexit Work’. The others are ‘tear down unnecessary trade barriers’, ‘support our world leading services and scientists’, ‘keep Britain safe’ and ‘invest in Britain’.  Labour insists it would not take Britain back into the EU, join the single market or bring back freedom of movement.

The Green Party is urging the Government to negotiate with ‘European partners’ to agree a veterinary agreement and to rejoin the customs union. This would remove the need for most of the checks on goods moving between Great Britain and Northern Ireland, says the party.

The IEA is calling for a radical free trade policy post-Brexit of unilateral recognition of the regulations of other territories for the acceptance of goods for the UK market. The CPS is proposing a new Export Tax Credit to incentivise SMEs to export. It would allow businesses to offset any spending in the pursuit of export growth against their profits and eventual tax bill.

The Resolution Foundation has warned that trade barriers are set to increase by more in agriculture and services (and particularly in more highly-regulated professional services) than in manufacturing. This is bad news for UK exports, as 20 per cent of our services exports to the EU are in the highly regulated category of finance and insurance, and a further 18 per cent are in other highly regulated services sectors, including legal and accounting, architecture and engineering, and air transport services.

Employment policy – employment rights could be political battleground

The Government’s deregulatory instincts are likely to provoke fury when they lead to proposals which weaken workers’ rights. This is a fight both government and opposition will probably be happy to have.

One suggestion from Liz Truss on the campaign trail was a radical overhaul of workers’ rights including a review of the 48-hour working week and other legal protections. This will put the Government up against the trade unions. In contrast, Jonathan Reynolds, Labour’s shadow business secretary, argued that in the wake of P&O Ferries firing 800 staff without consultation it was even more important for ministers to tighten employment law. How Labour responds to any attack on employment rights is worth watching given the care the party leadership is taking to avoid being seen as explicitly supporting the current strikes, but it seems inconceivable the party would not fiercely oppose any substantial diminution of employment rights.

The Boris Johnson government did not include an Employment Bill in the Queen’s Speech in May, despite a planned bill having been announced as long ago as December 2019. The lack of a bill was criticised by unions, trade and professional bodies, and left of centre think tanks. Measures expected to be in such a bill include flexible working rights, protections against pregnancy discrimination, and rights for staff to keep all tips.

By choosing to abandon the Employment Bill once again, the Government chose to gamble on a strategy of economic growth at any cost, allowing the dominance of rogue employers to come at the expense of the livelihoods and wellbeing of those who fuel it, argued the Centre for Progressive Policy.

The TUC says that ministers must come up with a long-term plan to get wages rising across the economy more generally. The union body is calling on ministers to raise the minimum wage to at least £10 an hour immediately. And the TUC is also asking the government to work with unions and employers on sector-wide fair pay agreements to improve living standards. Unite the union claims British workers are at ‘breaking point’, with anger over the cost of living crisis reaching a level not seen since the poll tax riots of the 1990s.

An investigation by Autonomy and researchers at the University of Exeter and the London School of Economics has found that thousands of people could be earning less than £4 an hour performing unregulated internet labour known as microwork. Such workers perform tasks such as identifying and captioning images to nudge along artificial intelligence operations, data entry, or clicking on ads to drive traffic. Will Stronge, director of research at Autonomy, said the UK Government should ‘name and shame the companies paying microworkers below the minimum wage’ and ‘unfairly exploiting thousands of microworkers’ in an ‘exploding industry which has zero regulation’. He added: “This invisible online workforce deserves better compensation and protections in work.”

Declining levels of worker power drives down the level of wages, says a briefing note from the Resolution Foundation, pointing to the latest evidence suggesting that wages could be between 15 and 25 per cent lower than they would be otherwise because of ‘employer power over workers’. The sharp decline of collective bargaining has resulted in higher wage inequality for some groups: the decline of unions accounted for one-sixth of increased wage inequality among men between 1983 and 2019, says the think-tank.                       

In a report, the Centre for Economic Performance (CEP) warns that precarious self-employed workers face severe hardship in the cost-of-living crisis. The author Maria Ventura said the condition of the self-employed is already precarious and any major new challenges may tip many of them over the brink into severe financial hardship. This may require specific policy interventions, said Ventura.

Moving to a shorter working week could help to close the gender pay gap, according to a report released by the Women’s Budget Group (WBG).

Social security and pensions – UBI support limited to smaller parties

There is not a great deal in the Government’s agenda so far for people who are on benefits and earning below the national insurance threshold. Liz Truss has promised to clamp down on the benefits system but without offering specifics.

One of the key policy debates at the now cancelled Lib Dem conference would have been on Universal Basic Income (UBI). Party members will now have to wait until March to choose between three options:

• replacing tax and national insurance allowances with a UBI for working age adults, set at a level which would compensate for the loss of allowances (while retaining most of the existing benefits structure including universal credit);
• introducing a Guaranteed Basic Income by increasing Universal Credit to the level required to end deep poverty within the decade and removing sanctions; or
• conducting large scale trials of UBI and GBI, keeping the party’s strategic options open until the outcome of such trials is known.

The SNP are also supportive of a UBI, but Labour are not. In a parliamentary debate in June Labour frontbencher Alison McGovern explained that the social security system has two purposes: to smooth incomes over a person’s lifetime, and to ‘address the needs that people have to enable their full participation in society’. Speaking in the same debate Conservative minister David Rutley also opposed UBI, saying it does not provide the work incentive that is ‘vital in these sorts of systems’ and that the Government have ‘fundamental concerns’ about what it might mean for targeting.

In a report the New Economics Foundation (NEF) has recommended auto-enrolling everyone in the UK onto the universal credit system so that new payments start to be processed automatically as soon as anyone becomes eligible. NEF said this would mark a first step towards a Living Income for the UK, a new social security system that will guarantee everyone the minimum income they need to meet the challenges and opportunities of a fast-changing economy; NEF is in favour of a Weekly National Allowance that would replace the personal allowance of income tax with a weekly payment of £47.30 to all but the highest earners. It claims this would effectively reinvest billions spent on a regressive system of personal tax allowances into a redistributive approach to ensuring that everyone has a basic level of income.

A working paper from Institute for Fiscal Studies looked at living standards of working-age disability benefits recipients. A reduction in disability benefits is associated with an increase in the likelihood of being in paid work, finds IFS, but a reduction in disability benefits is also associated with an increase in the likelihood of being in relative poverty, which persists even four years after the event.

Nicholas Timmins, senior fellow at the Institute for Government, writes that the end of the transition to Universal Credit is in sight, but that its completion remains one of its biggest challenges.

The Government temporarily suspended the wages element of the pensions triple lock for 2022-23 to avoid a disproportionate rise of the state pension following the pandemic. Liz Truss has since said she is fully committed to the lock, suggesting that pensions will rise next year by 9-10 per cent.

Shadow Pensions Secretary Jonathan Ashworth has stated that the Labour Party is willing to work with the government on auto-enrolment reforms if they are introduced in the next session of parliament, but warned it would vote against proposed changes to the charge cap without a ‘strong evidence base for change’.

In a report Resolution Foundation said pension auto-enrolment has been successful in increasing pension saving participation among workers, especially those on lower incomes. But it worries that workers in (often high-paid) Manager and Senior professional occupations are 12 times more likely to meet or exceed the ‘whole career’ cash living pension benchmark compared to workers in (often low-paid) elementary occupations.

The Social Market Foundation is promoting the extension of automatic enrolment to those aged 18-21 which it says will result in 910,000 young workers newly participating in a workplace pension, with approximately £800 million more savings every year.

By Hamant Verma, CIOT's Senior External Relations Officer and George Crozier, CIOT's External Relations Manager - with additional reporting by CIOT's Scotland External Affairs Manager Chris Young.