Jeremy Hunt has had a tax epiphany - Matthew Lesh (Image: Getty)
“I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS,” Hunt said.
The Chancellor is entirely correct – high taxes discourage investment, undermine innovation, and stifle economic growth.
The Chancellor’s comments have sparked renewed expectations for the Spring budget. While indicating the general direction of travel, Hunt has been careful to state it is “too early” to give precise details.
The extent of tax cuts will likely depend on the ‘fiscal headroom,’ how much extra revenue is available.
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Britain has several particularly burdensome taxes that should be the focus of any cuts. Stamp duty gums up the housing market.
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Income tax thresholds that ratchet up discourage people from working longer and harder.
The higher corporate tax rate scares away investment.
Last autumn, the Chancellor used the higher-than-expected revenue to take 2p off National Insurance for employees.
But, at the same time, the freeze in income tax thresholds meant tens of billions more revenue.
So for every pound given with one hand, four were taken with the other.
Despite all the tax-cutting talk, this government will still oversee the highest tax burden in the postwar era.
This pattern will likely repeat this year unless the government is willing to take a more radical reforming zeal to the size and responsibilities of the state.
The reason taxes are so high is that the government continues to spend so much, with record amounts going out on the likes of health and social care and welfare benefits.
This is not helped by the fact that economic growth has been pretty much non-existent, meaning less revenue coming in.
It is on track to worsen over the coming years due to an ageing population meaning fewer workers paying taxes and more demands on services.
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The quality of many public services has declined for all the additional spending.
There are, however, notable exceptions. The UK spends less on education per pupil than in 2010, yet the quality of schools has increased thanks to reforms.
In reverse, Scotland spends more on health and education yet has worse outcomes than England.
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The UK needs more than some minor tax cuts today.
To be globally competitive and boost growth, the government also needs to reform the state so we can have much bigger tax cuts in future.
Matthew Lesh is the Director of Public Policy and Communications at the Institute of Economic Affairs
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