Low-hanging Brexit fruit
Exit from the EU opens up the possiblity of some quick wins, sometimes referred to as “low-hanging fruit”.
As mentioned a couple of weeks ago, one of the most malign features of the EU’s economic and fiscal policies is VAT. Governments can not reduce it below 15% or abolish it or replace it with a different sales tax or a different tax altogether. It is regressive and expensive to administer, especially for small business because of the amount of paperwork it causes. It is also vulnerable to fraud and avoidance. It adds to the government’s welfare bill as money has to be paid to the poorest people so they can pay it back to the government in tax. EU membership has stifled any discussion of the subject. Debate is always shut down with the killer statement that it cannot be changed. It is an important factor in the throwaway economy as it is charged on repairs, even to buildings. The issue has never been raised at EU level, not even by Green politicians.
Labour cut VAT in 1998 when it would have been better to remove it altogether from basic necessities and essential services. It would then have been difficult for another government to reimpose them.
With the UK outside the EU, the government should get VAT in its sights. It should not be paying out benefit to people just so that they can pay it back in tax. A complete phase-out should be considered. It would yield an immediate cut in the cost of living, and consequent reductions in government expenditure on benefits which are tied to the cost of living.
How to pay for this? Some of the losses from VAT would be captured in tax on downstream revenues such as Corporation Tax and the UBR. This is probably what happens in airports, where rents in the duty-free areas are almost certainly vastly greater than elsewhere. Another place to look – again as a quick fix – is the Council Tax ratio. Top rate Band G properties are liable to only three times the amount paid on Band A properties, when the ratio of their values is six to one. There is plenty of scope for an increase which would make the tax fairer, without even changing the existing structure of bands. It would also be possible to impose a national element of Council Tax to create an equalisation fund to transfer funds from wealthy areas to poor areas, where it could be spend on improving services, repairing and reinstating facilities such as parks and libraries, and on environmental improvements. This, too, would provide an immediate boost to the country’s most depressed regions. Additional revenue would also be potentially available after the next UBR revaluation if the agricultural rates exemption was abolished.
A further regional boost could possibly be achieved through the introduction of higher tax and NI thresholds for those living and working in depressed regions.
Being outside the EU’s tariff wall would also open up the way for cuts in living costs, through the import of food from cheaper suppliers such as South America, Australia and New Zealand. The government should give the go-ahead to this as soon as possible.