Wednesday is UK Budget day and we find out what sort of economic future we're looking at. I, along with many others, hope that this budget is a budget for business; one that goes for growth, boosts jobs, lets people keep more of their money and gives our economy the big kick it so desperately needs right now.
For some time I've been calling for more action to boost economic growth by backing job creation by businesses, entrepreneurs and wealth creators. We need to encourage them to succeed and grow and we must relish their success. The government has no money. That means it's up to businesses to get us out of the hole we're in. We need businesses to innovate, expand, create more jobs, become more profitable and, consequently, pay more taxes. We need them to help the country solve its own economic problems.
People want to control their own lives. They are happiest when they make their own decisions. Singles and couples, families with children and pensioners, no matter your situation, like me and everyone else, you want to feel secure, hopeful and positive - and you want to be able to plan your future with some measure of confidence. I believe it's the job of politicians to create the economic conditions that mean you are able to do just this. Today the government must help businesses grow so that their employees prosper, your pension prospers, the country prospers and we can all get back in control of our lives.
The acid test here is: do you feel much better off now than you did in 2010? No. You probably don't. Do you feel much more optimistic; can you see an end in sight; do you think your ability to cope financially is appreciably better than in 2010? No. Possibly not. And that is a big problem. We are now six years down the line from the start of the economic crisis. Six years is a long time. People have been very patient. But now is the time for the government to think bigger, to take those calculated risks and to enact sensible business-friendly measures. Otherwise people will start to think we're being wilfully stubborn.
None of this is rocket science. Nor is it playing politics. The bottom line is that despite all our efforts, the economy is not growing fast enough. In fact we have almost zero growth. Implementing new bold policies that boost growth is not turning round, turning back or giving in. It's building on the good things we've already achieved, flexing to accommodate and respond to the current situation and taking Britain's economy to the next level. In business, and in life, if something is not having the desired effect, you adapt it. Why should governments behave any differently?
So what am I hoping to hear in the budget today? What would I do if I was the Chancellor? I have five key plans:
Holiday on capital gains tax (CGT) for business investments
Analysis of US rates of CGT since 1954 shows that every time CGT has decreased, tax revenues have increased. This is because high rates of CGT 'lock down' assets; in particular, investors are not prepared to exchange goods if they are penalised with a high rate of tax. A CGT cut promotes market activity, leading to higher revenues. A study by the US Institute for Research on the Economics of Taxation found that a one percentage point reduction in the marginal rate on capital gains can trigger a 10% increase in revenues.
High rates of CGT lock entrepreneurs in their current businesses. That means entrepreneurs are unwilling to sell their businesses because of the rates levied on profits. Therefore, CGT cuts increase dynamism in the economy; entrepreneurs sell and then start new businesses - which is what we want. In addition, CGT cuts put more money in the pockets of workers because businesses can take on more staff or increase wages. Research has shown that abolishing CGT in Switzerland led to a 2.2% jump in national income in the short-term, and 3.11% in the longer term.
Aim to reduce corporation tax to 12.5%
I would reduce corporation tax to 20% in 2014/15 and aim to reduce the main and small business rates to 12.5% over time. Cutting corporation tax is a proven way to boost inward investment, create new jobs and increase wages. Taxpayers' Alliance research shows that these cuts put more money directly into the pockets of workers. In addition, the OECD estimates that a one percentage point decrease in corporation tax leads to a 5% increase in foreign direct investment. Oxford Economics found cutting the rate of corporation tax in Northern Ireland to 12.5% would create an extra 58,000 jobs by 2030, resulting in a 4% boost to the employment rate.
Empirical research in the OECD has shown that a 10% reduction in corporation tax increases investment rates by two percentage points, doubles the number of entrepreneurs and increases company registrations by 20%. Research has also shown that lowering corporation tax by 10% would yield economic growth of between 1-2%.
Raise the individual tax allowance beyond £10,000
We need to let people keep more of the money they earn by raising the individual tax allowance beyond the £10,000 goal. The government intends to raise the allowance to £10k by the end of the Parliament, lifting 840,000 more people out of tax altogether. But we must move faster. The Institute for Fiscal Studies estimates that if we had moved to £10k in April 2012 the average taxpayer would be £375 per annum better off - and a family with two working parents would have £758 more to spend.
The Adam Smith Institute proposes raising the individual allowance to £12,875, the equivalent of the Living Wage - taking 1,297,000 people out of tax altogether. This would incentivise work and reduce the government's outlay on social security. People need to be better off in work than on benefits. This is why we must raise the threshold to £10k and beyond sooner rather than later.
Abolish employers' NICs for long-term unemployed
Next I would like to see radical changes to employers' national insurance. I want there to be no employers' national insurance contributions (NICs) payable for the low-skilled long-term unemployed taken on within the next 12 months, with a £1k tax bonus for the employee if they stay for a minimum of one year.
People would get into work fast and it is likely that this measure would not only save taxpayers' money, through a reduction in welfare payments, but would also permanently remove people from the benefits system as many would choose to continue to enjoy the benefits of employment after the first year.
Aim to cut employers' NICs now and abolish it in the longer term
Finally, I think it's time to announce the longer-term intention to totally abolish employers' national insurance contributions and trim it by perhaps just 0.3% to 13.5% from April 2015. We cannot afford to abolish employers' NICs right now but we should be firm in our intention to work towards this goal in the long term.
I am not advocating that the government drops all the austerity measures, starts borrowing huge amounts of money and cuts personal tax rates for the rich. But we do need to focus on the things we know will give our economy the boost it so desperately needs so that people have more money to spend to help our economy grow.
I'll say it again: the government has no money. High-net-worth individuals, businesses, pension funds and international wealth funds have the cash. We don't. That's why we must take measures immediately to welcome them, woo them and encourage them to invest this money in British businesses right now. Let's get the money flowing again. Let's have a budget for business growth.
Adam Afriyie has been Conservative MP for Windsor since 2005. Before entering Parliament, Adam amassed a business empire that now employs 1,000 people in high-tech businesses across three continents.Suggest a correction