Autumn Statement proposals: ten good, three bad, three meh

If some idiot was to make me Chancellor, I’d do something like this, none of which are likely to actually happen:

• Announce that, when fuel prices return to normal, there will be a retrospective windfall tax on the energy sector raising a target £30bn. But absolutely don’t announce any further details. More on the design principles here.
• Follow Nigel Lawson’s lead, and raise the rate of capital gains tax so it is equal to the rate on income. Raises at least £8bn.
• Abolish the non-dom regime and replace it with a straightforward exemption on foreign income/gains for the first three years after people come to the UK. Will be more useful to the workers we want to attract than the current mess, but won’t enable oligarchs and oil sheikhs to live in the UK tax-free. Plausibly raises £2bn.
• Close the stamp duty loophole that means most commercial real estate is bought and sold inside “special purpose companies” so that no stamp duty is paid. Will probably raise at least £1bn.
• Raise the annual tax on homes held in companies – ATED. Should yield £200m.
• Eliminate the tapers and clawbacks that result in anomalously high marginal income tax rates of well over 50% and sometimes higher than 90%. Pay for it by increasing the additional 45p rate, or reducing the threshold at which it applies.
• Scrap/cap over-generous inheritance tax exemptions, and use the revenues to reduce the rate from 40% to around 25%.
• Pensions tax relief costs over £48bn, with most of the benefit going to highest earners. Capping relief at 30% should raise at least £2bn¹Source: HMRC statistics and my napkin.
• Announce the long-term objective of ending employer’s national insurance, so that all income is taxed at the same rate. This will mean tax-cuts for employees, and tax rises for others – but it will benefit the economy as a whole.
• Start a review of other features of the tax system that penalise growth: top of the list, the high VAT threshold and the never-ending changes to corporation tax rates and reliefs.

On the other hand, here are some things the Chancellor will probably do, and which are neither brilliant nor terrible:

• Let fiscal drag collect an additional £30bn of tax with minimum political pain. The easiest way to collect lots of tax is to tax everyone, and this certainly does that. And conventional wisdom is that voters don’t notice fiscal drag; but until this year it was also conventional wisdom that voters don’t notice rises in national insurance.
• Lower the threshold at which the 45% additional rate applies. As Arun Advani points out here, this is something of a “poll tax” on moderately high earners, as it has the same cash impact on someone earning £150k as it does on someone earning £1m.
• Slight expansion of the existing windfall tax, perhaps extending it past 2025. It’s a poorly designed tax, and we’d be better off replacing it, but the case for taxing people who’ve obviously made a windfall is politically and practically irresistible.

And here are some things we absolutely shouldn’t do:

• Change the tax treatment of already-existing pensions or ISAs. People used these products believing they worked a particular way. It’s unfair, and will damage faith in the tax system and savings vehicles as a whole, if we change the rules of the game after people start playing.
• Introduce a wealth tax. Almost all previous wealth taxes around the world have failed, raise little/no revenue, or both. Most wealth tax proposals ignore this, and can be discarded as unserious populism. The few that are intellectually rigorous end up being politically unfeasible (because they tax pensions and homes).
• Create more points in the income tax/national insurance system where the marginal rate is over 50%. Chancellor Neidle would impose a 200% wealth tax on anyone proposing tax changes without saying precisely what they mean in terms of marginal rates.

Any other suggestions?

Image by DALL-E: “a tree in autumn, with its branches covered in brown leaves and one dollar bills, digital art”