Why the government is planning a tax raising Budget


Tory activists are in uproar this morning over varying reports of tax raising measures Boris Johnson and Sajid Javid are considering for next month’s Budget. Plans currently being mooted include cuts to pension tax relief and the introduction of a recurring property tax  that could replace stamp duty. Critics have been quick to say that neither proposal fits with what the Tory party traditionally claims to want to do – rather than new taxes and limits Johnson ought to be pushing for tax cuts.

However, the view in both No. 10 and No. 11 is that this is the year for tough – and potentially unpopular – decisions. Given the Conservative party won’t be heading to the polls for another four years, there’s a sense in the upper echelons of government that now is the best time to do something radical. As I reported earlier this month, the Treasury is looking at tax-raising measures that will allow Javid to stick to his fiscal rules and deliver Johnson’s agenda. The first year of a government is seen as the best time to bring in measures that will upset some voters. If they can bring in extra revenue, it will give the chancellor more flexibility on day-to-day spending.

Yet what’s intriguing about many of the ideas being discussed is that they don’t fit with a Thatcherite approach to stimulating the economy – if anything they could be mistaken for Labour policies. Tories had argue, for example, that the top-paid were contributing record amounts: Boris Johnson started his leadership campaign by talking about cutting taxes for the best-paid by lifting  the 40 per cent (higher rate tax) threshold to £80,000.

But times change (fast) – and so does the demographic of Tory voters. As Johnson frequently likes to remind colleagues, in the 2019 election the party won many seats in the Midlands and North that have been traditionally Labour. This is where his team see their opportunity in the future – by keeping these voters on side they could make history and win a fifth term in office.

But with a new type of voter comes a new approach. In the manifesto, the Tories promised an increase in public spending. No. 10 believes that higher spend is necessary, but the argument runs deeper: there’s also a sense that the Tory ideal of Thatcherism is of the past and another way forward has to be found to keep the party’s new voters on side. A lot of Tory MPs are already reluctantly resigned to the idea that low taxes and rolled back state interference will not be a hallmark of this government. Philip Hammond’s last budget, for example, envisioned the tax take (as a share of GDP) rising to a 35-year high.

That doesn’t mean all the measures being discussed will definitely make it into the Budget. The idea of a recurring property tax is divisive and could even test Johnson’s large majority. It has been raised privately in government as part of discussions on axing stamp duty – which ministers believe paralyses the market and leads to fewer transactions. But a recurring property tax would quickly be dubbed a mansion tax and lead to a backlash from voters in the south with high value properties that would cost the most.

Johnson’s government has suggested already that it is willing to put a few noses out of joint in the south in order to pursue its level up agenda in the so-called red wall. How radical this government chooses to be in the first Budget since winning a majority of 80 will tell us how serious Johnson really is about prioritising his new voters