November budget 2022: Chancellor has got it precisely wrong

NOTE: this article expresses the opinions of the author, Henry Law. They are not those of the Land Value Taxation Campaign.

There is almost nothing to be said in favour of Hunt’s budget. There is no principle behind preserving the pensioners’ so-called triple lock; it is of course meant to secure the loyalty of a group of people who can be relied on to turn out to vote.

Windfall taxes, however well they can be justified as expedient, are a bad thing in principle. They are retrospective legislation. The prospect of such taxes make businesses wary of investing. If firms – mostly utility monopolies – are making excessive profits, it means that there was something wrong with the original terms under which they were allowed to operate; these need to be reviewed. Windfall taxes are not the way to go.

Freezing tax allowances and NI thresholds is a very bad idea. The effect of these allowances is to reduce the cost of employing low-skilled workers and take away some of the incentive to replace them with capital, or to do away with the work altogether.

With five million allegedly being no longer in the workforce, freezing personal allowances and NI thresholds at a time of inflation will make it even more expensive for employers to tempt anyone back to work.

Nothing has been done to address the dead loss of VAT, which hits GDP by at least 5%; it needs to be got rid of. Again, at a time of inflation, freezing the VAT registration threshold makes matters worse and is exactly what not to do.

Raising corporation tax is another bad idea. There is no place for it in the world of internet trade and multi-national giants with the resources to run rings round the system. It is too easily avoided; the aim should be to get rid of it. This would attract businesses from countries whose governments have not cottoned on to the benefits, one of which is that it would add to the demand for business premises in Britain and lead to growth in the Business Rate base.

Talking of the Business Rates: there will be further tinkering with this essentially simple and straightforward tax, which has already been compromised with the addition of various reliefs and concessions. These exemptions provide a fruitful source of extra useless work for bureaucrats and lawyers to argue the toss about whether the occupier qualifies for the relief, as well as forcing everyone else to pay more. The real issue is avoided: patterns of work and shopping continue to change quickly, and property values are changing with them. The Business Rate valuation needs to be annual, which is practicable these days as geographic database systems can be used. It would also make things easier if the assessments were on site values only.

If the Chancellor was serious about increasing productivity he would have done this anyway; it is absurd to punish investment by slapping extra tax charges on installed plant.

One can go on and on. The absurd “freeports” should be scrapped. The very fact that they have even been proposed is an admission that the tax system inflicts damage on the economy. Instead of dealing with the issues nationally, freeports are just another bit of tinkering at the expense of everyone else, and, incidentally, put cash into the pockets of those who win the lottery through owning land in the zones. Whether they will generate any extra economic activity is questionable, though they might draw it from continental Europe which suffers under the EU yoke of misguided legislation.

The high speed railway should also probably be ditched, but the trouble is that nobody knows whether or not it would provide value for money. The test for infrastructure projects is the land value uplift that they generates. Unfortunately, the decision to build it was not made on this basis, but though cost-benefit analysis using assumptions on the value of time saved. The justification for the project was also shifted; it is now sold as a way to enhance capacity, ignoring the fact that a high speed railway does not cost just a teeny-weeny bit more than a conventional speed one, or that the abandoned but largely intact alignment of the former Great Central route could have been reinstated at a relatively modest cost. Given changing travel patterns, the extra capacity might prove to have been unnecessary.

Incoherent decisions about whether to build infrastructure are a general issue. The East-West link (the Oxford to Cambridge railway) is being reinstated and promises to be a busy route from the start, but will re-open without the lines having being electrified as part of the reconstruction. Electrification will now have to be expensively added later on, with disruption to the services while the work is being done.

Further north, across the belt from Liverpool to Hull, we hear of endless discussions about HS3 and the so-called “Northern Powerhouse”, when what is needed is generally better services, more rolling stock and better connections, all at conventional speeds and with affordable fares. On the railways as a whole, we find colossal waste, with relatively new trains going for scrap and being replaced by new, when they have 15 to 20 years of service life left in them.

Then there is the burden of zero carbon; I wonder how long it will be before it turns out to have been a boondoggle? The impression given is of a ship drifting while the captain and officers on the bridge are busy playing cards. All the useful initiatives that could be taken, are not taken, while most of what is done is misguided and will make matters worse.