In November 2019, Boris Johnson announced that he was freezing income tax, VAT and National Insurance for five years. It was a key part of the Conservatives’ manifesto and echoed legislation brought in by David Cameron in 2015.
The point of the Triple Tax Lock manifesto promise was to freeze the rate of income tax, National Insurance and VAT such that they cannot increase for five years – and it makes good politics. However, it doesn’t necessarily make for a good tax system. Instead, it ties the hands of whomever the Chancellor of the Exchequer happens to be without reducing the need of the Treasury to collect more tax. So, we end up with the Treasury imposing ‘stealth taxes’ and targeting sections of the economy that can be attacked without much fuss.
After the 2015 election – and the Triple Tax Lock legislation, George Osborne (and later Philip Hammond) still found creative yet complicated ways to raise more tax, despite the Triple Tax Lock straitjacket, by focusing on sectors like small businesses and landlords rather than the nation as a whole by:
- Raising more VAT by making the Flat Rate VAT scheme inefficient;
- Raising more income tax by both introducing a tax on dividends (an extra 7.5% on limited company owners) and by attacking buy-to-let landlords by disallowing full tax relief on mortgage interest;
- Introducing changes to IR35 to collect more tax from freelance contractors in the Public Sector;
- And, trying to raise National Insurance for the self-employed (the so-called ‘white van man tax’) – although in this case, the Government was forced to U-turn because it was against the spirit (if not the letter) of the Triple Tax Lock.
The Triple Tax Lock thus makes it very difficult to find a simple way to raise taxes in a fair across-the-board way. Chancellors have to be more and more imaginative in finding ways to collect more tax – which leads to a more and more complicated tax system. Alternatively, as we have just seen in March 2021’s Budget, they may just pick on a convenient sector. From April 2023 Limited Companies (with profits above £50,000) will pay an extra 6% in Corporation Tax – putting a massive burden on big companies, family companies and the self-employed who trade through a company – whilst employees escape having to pay their share of the extra post-Covid tax burden.
We now face big economic problems and a huge National Debt as the economy tries to recover from the Coronavirus – and it is becoming very apparent that the Chancellor needs all the freedom possible in helping the economy to recover whilst managing the budget deficit. This is why Rishi Sunak has refused to commit to upholding the Triple Tax Lock manifesto promise. And given that we are all supposed to be ‘in it together’, and our problems are too big to be solved by focusing on stealth taxes and on certain niche sectors of the economy, there is a decent chance that the Triple Tax Lock will be dumped and we can have a fairer and a simpler tax system.