Can You Fill the Giant Hole in Britain’s Budget?

Basic Income Tax Rate

Raise basic rate by 1 percentage point

Spread the pain thinly but widely by raising the 20% tax rate charged on earnings above 11,850 pounds a year. With employment at record highs, this will be a big earner.

Consequence: Wait! What about all those hard-working families who’ve been squeezed by a decade of austerity? Foodbank use will climb and stretched local council services will face more pressure. This will be a gift for Jeremy Corbyn’s Labour Party. Wouldn’t it be better to only raise the higher rate?

Higher Income Tax Rate

Raise higher rate by 1 percentage point

Target the wealthy by raising the 40% tax rate on earnings above 46,350 pounds a year. It’s a lucrative pot – 91% percent of all income tax comes from the richest 50% of taxpayers.

Consequence: Would this be electoral suicide? The Tories are supposed to be the party of the middle classes. Put up their taxes and you’ll create a major headache for an already unpopular prime minister.

Personal Allowance

Lower the tax-free threshold 10%

To help low earners, Brits pay zero income tax on their first 11,850 pounds a year. This costs a lot. Tories already lifted the allowance above inflation and you’ve promised to reach 12,500 pounds by 2020.

Consequence: Sounds like a U-turn! You’ll face a backlash for reneging on your promises. You’ll also risk creating an incentive for the lowest earners to switch to state aid.

Corporation tax

Increase by 1 percentage point

Cuts to corporation tax have been a major tax giveaway since 2010 and with Brexit looming, Theresa May has promised the lowest tax for businesses in the G-20.

Consequence: This would be a major turnoff for companies that might consider investing in Britain. They will go elsewhere. Voters would hardly benefit either as companies may pass on the higher taxes through lower wages.

Inheritance tax

Increase standard rate for estates left on death by 1 percentage point

Target the rich by raising the 40% inheritance tax. This applies to transfers of wealth on or just before death for anything above 325,000 pounds.

Consequence: This will please voters seeking more social equality but alienate core Tory supporters. Millennials struggling to get on the housing ladder will be enraged you’re dipping into their parents’ assets.

Alcohol duties

Raise 1%

Follow the Scandinavian model by lifting the current 44 pence tax on a pint of beer, 2.16 pounds on a bottle of wine and 7.79 pounds on a 70cl bottle of spirits. Drinkers are a huge drain on the NHS.

Consequence: You’ll be squeezing the poorest the hardest. People will go out less and choose to drink at home instead, hurting pubs. In a nation of drinkers, you’ll be guaranteed to annoy consumers whose spending is needed to drive the economy. You’ll also garner negative headlines from the tabloids.

Tobacco duties

Raise 1%

“Sin” taxes on smoking, the biggest cause of lung cancer,are an obvious way to fund the NHS. Smokers already pay 5.62 pounds tax on a pack and cost the NHS billions every year.

Consequence: You’ll be hitting the poorest the hardest, and it won’t even raise that much money.

Fuel Duties

Raise 1%

The prime minister already said fuel duty will be frozen in 2019–2020 for the ninth year in a row. But you could still increase the tax for the years after.

Consequence: There will be outrage from the ‘White Van Man’ who won’t back you in the next election. Poorer people and those in rural areas with bad public transport will be hit the hardest, squeezing living standards.

VAT

Lower threshold for traders

Traders only have to charge value-added tax if their turnover tops 85,000 pounds a year, compared to the EU average of just 20,000 pounds.

Consequence: This is politically toxic. Cutting the threshold too close to the EU average would drag 1.5 million small firms into the VAT system. The increases may even be passed on to consumers in the form of higher prices.

Stamp Duty

Raise 1%

Increase how much tax buyers pay on property purchases.

Consequence: The housing market is already suffering because of Brexit and this would make things worse. People will be less keen to move around, reducing social mobility and creating an inefficient market.

Digital tax

Tax tech giants on their sales rather than profits

Make companies like Facebook and Google pay a fairer share by taxing their sales in the U.K. instead of profits.

Consequence: Targeting huge companies will be popular with voters but it’s only going to raise you a few hundred million pounds a year—at most.

Income Tax

Scrap tax breaks for pension contributions

The Treasury gives tax breaks to anyone who puts money away for the future. It's popular with voters and also necessary at a time when aging populations are increasing state-funded retirement payouts. The problem is tax breaks drain the state coffers. Chancellors in the past have flirted with the idea of doing away with them.

Consequence: Sorry, too easy! Sure, you will get an immediate windfall, but as a Conservative chancellor it would be heresy—and could cost you the next election.

Capital Gains Tax

Scrap tax breaks for entrepreneurs

Company directors pay half of the normal capital-gains tax rate when they sell assets. It serves as an incentive for people to take a risk to start their own business. The policy has been much more popular than expected, proving expensive.

Consequence: Abolishing the relief would make the U.K. a less attractive environment for entrepreneurs and put investors off. You’ll be hampering efforts to boost productivity and turn the U.K. into a technology hub.

VAT on Food

Scrap tax breaks for food

Food enjoys generous but expensive tax breaks. Why not make people pay more?

Consequence: You can’t do this! Poverty campaigners will complain you're pushing children into starvation and food bank use would hit record levels. The Archbishop of Canterbury would condemn the government and demand a reversal of the policy, playing into the hands of the Labour Party.

VAT on Construction

Scrap tax breaks for new buildings

The Treasury gives generous tax breaks to anyone building new dwellings to encourage home building and help solve a housing crisis.

Consequence: Do this and house-building effectively grinds to a halt, pushing up prices and exacerbating a housing crisis.

Excise taxes

Scrap tax breaks for craft brewers

Britain’s small brewers enjoy reduced rates of excise duty. With their growing popularity maybe they don’t need the help anymore.

Consequence: Hipsters despair! Beer prices would rise as people switch to mainstream lagers.

Defense

Cut military spending 10%

Cuts in defense expenditure have helped pay for increases in health spending since the 1980s, but you’re now barely meeting a NATO pledge to commit 2% of economic output.

Consequence: You’re not only risking the wrath of U.S. President  Donald Trump, but back home, top generals will be up in arms and influential tabloids like The Sun would tear you apart.

Education

Cut education spending 10%

Even though the education budget has been largely protected from cuts over the past decade, spending has nevertheless fallen in real terms.

Consequence: School budgets up and down the country will be squeezed and teachers would go on strike.

Overseas aid

Cut overseas aid 10%

Britain spends almost 15 billion pounds a year helping poorer countries. Maybe some of that money would be better used on the NHS.

Consequence: You’ll be failing to spend the globally agreed 0.7% of GDP on overseas aid, angering other countries just at a time when you’re trying to restore your reputation after Brexit.

Police

Cut police spending 10%

Spending on law and order has already fallen in real terms by more than 18 percent since austerity began.

Consequence: Further cuts reduce the numbers of cops on the streets and knife crime in major cities will rocket. With the country on high alert for terrorism, the opposition would claim government policy is endangering public safety.

Low range debt increase

£5B issuance

You can simply borrow 5 billion pounds from investors through a bond sale. Much less painful than raising taxes.

Consequence: Are you sure this is a good idea? With Brexit on the horizon, Hammond has said he wants a war chest in case of another economic shock and now you will be taking a third of his 15 billion pounds headroom.

Mid range debt increase

£10B issuance

Borrow 10 billion pounds through a bond sale and you’re halfway to the target!

Consequence: That’s a risk! Borrow 10 billion pounds and you’re taking away two-thirds of your 15 billion pound Brexit rainy day fund.

High range debt increase

£15B issuance

Borrow 15 billion pounds from investors through a bond sale. You’ve almost reached your target in one go!

Consequence: You can’t do this, sorry! You’ll have used up all your Brexit rainy day fund. Christine Lagarde, the head of the International Monetary Fund will get on the phone warning you that the country risks continuing budget deficits well into the next decade.