I am delighted to put before the House proposals that I am confident will secure the economy against recession and lead to a relatively painless reduction in government debt. My proposals also have the merit of making tax avoidance impossible.
It is my intention to implement substantial tax cuts. The Income Tax threshold will be progressively increased to £20,000 as soon as practicable. The same threshold will apply to National Insurance contributions. VAT will be reduced to 15%. I am confident that this will create an immediate stimulus to demand for labour as employers offer employment to several hundred thousand who are at present out of work. The reduction in the rate of VAT will create an immediate increase in demand for goods and services, encourage production, and reduce the cost of unemployment and other welfare benefit payments.
Increased demand and lower costs will encourage competition and help reduce prices – providing a further stimulus to demand and enabling the UK to offer excellent value in export markets. Debts will be reduced and people will be able to save more. Confidence will quickly return. Within the lifetime of the present Parliament we expect the economy to be well on the way to recovery; at the end of the decade, we expect unemployment to be at a level not seen since the 1950s.
But I do not propose to implement these tax cuts through fiscal recklessness. I have decided to bring forward a change in the direction of fiscal policy, aimed, crucially, at bringing the taxation of wealth creation to an end. A growing share of public revenue will be raised by a levy on the annual rental value of land. I expect that the mere announcement of the Government's determination to introduce this measure will, of itself, lead to modifications in the outlook and activity of all who are engaged in business and commerce at every level, as they examine and appreciate the implications of the new policy.
There will be benefits on the supply-side, as this change in taxation will discourage landowners from holding vacant land and buildings out of use, or under used, whilst they wait for the recovery to happen. We shall make the recovery happen. We shall remove the present disincentives against development and enterprise.
I am confident that the country's stock of vacant houses will be brought into use and that the 300,000 housing sites with planning consent will quickly be developed.
There is a further bonus. Because land cannot be hidden or taken out of the country, the loss of revenue suffered by the exchequer to tax havens will be stemmed. Everyone will contribute his fair share to the running of the country and I intend to make sure that this happens with the minimum of bureaucracy.
I have thought long and hard about the issues and I must admit that it is with some diffidence that I present these proposals to you. But my initial scepticism has been overcome and I am confident that if UK PLC is to become a country where the enterprise and the free market are to flourish and big government is to be cut down to size, this tax reform, known as "Land Value Taxation" is the only way forward.
I am hopeful that this policy will be supported by all parties in the House. Our Coalition partners are long-term advocates of LVT (as land value taxation is conveniently known for short). The Official Opposition has also a history that embraced LVT and more recently the search for a viable means of capturing planning gains for the public revenue. Scottish and Welsh Nationalists and the parties in Northern Ireland are certainly aware of the issues involved and should see the advantages of the progressive lowering of taxes on wealth creation and their replacement by a duty on the annual rental value of land which will generally be lower than the average, in recognition of general locational disadvantage. Indeed, I foresee that the LVT policy, to be applied across the United Kingdom at a uniform percentage rate, will figure largely in any future discussions on devolution.
In short, LVT will provide the immediate three-pronged incentive to work, to produce and to invest - the three essential ingredients for growth, and I confidently commend this Budget to the House.
At the foot of this statement appear jottings which suggest an important after-thought by the Chancellor, on the parliamentary means of introducing LVT.
Why use Finance Act to introduce LVT?
Speak to PM about separate measure – a National Land-Rent Bill or some such title – to go through as a Money Bill. In this way, the detail of setting up valuation and appeals arrangements and other operational procedures for LVT is separated from the regular Finance Bill, which is already lengthy and complicated enough with all the usual Budget measures.
Added advantage of Nat L-R Bill - it can be introduced ahead of Budget (obviously, without figures), make its impact, and gain time. Should be able to get support from other parties on this one.
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