making the case for free enterprise

A Manifesto Fit for 2015: 15 Ideas to Transform BritainBy James Forsyth, Kwasi Kwarteng MP, Mark Littlewood, Dominic Raab MP and Chris Skidmore MP

With emerging economies rising up as giants, and the shadow of economic crisis still hovering over the UK, the challenge we face is immense. At the Conservative Party Conference 2012, the Institute of Economic Affairs and the Free Enterprise Group are hosting a panel discussion looking ahead to 2015 and asking what policy ideas could help transform Britain. This paper sets out 15 policy ideas to help ensure the UK thrives and is not left behind in this intensely competitive environment.

Idea 1: Link tax thresholds to earningsIdea 2: Time limited capital allowancesIdea 3: Provide a single total number of people on out-of-work

benefitsIdea 4: Introduce a British debt brakeIdea 5: Increase the basic rate limit on income tax to £40,000Idea 6: Reform planning law to allow the rapid building of new

runwaysIdea 7: Super-charge start-upsIdea 8: Wind down out-of-work benefitsIdea 9: Reward our educatorsIdea 10: Find the savings to deliver a supply-side tax cut for businessIdea 11: Ease the pressure of red tape on SMEsIdea 12: Introduce a voting threshold to prevent minority strikesIdea 13: Passports for careIdea 14: Excellence academies: means-tested selectionIdea 15: A new ‘enterprise card’ for immigration

Introduction and summary

Business/employment• Super-chargestart-ups• Findthesavingstodeliverasupply-sidetaxcutforbusiness• EasethepressureofredtapeonSMEs• Introduceavotingthresholdtopreventminoritystrikes

Care• Passportsforcare

Education• Rewardoureducators• Excellenceacademies:means-testedselection

Immigration• Anew‘enterprisecard’forimmigration

Planning• Reformplanninglawtoallowtherapidbuildingofnewrunways

Public spending• IntroduceaBritishdebtbrake

Tax • Linktaxthresholdstoearnings• Timelimitedcapitalallowances• Increasethebasicratelimitonincometaxto£40,000

Welfare• Provideasingletotalnumberofpeopleonout-of-workbenefits• Winddownout-of-workbenefits

Manifesto outline by theme – Boosting business and restraining public spending

Idea 1: Link tax thresholds to earningsByJamesForsyth,PoliticalEditoroftheSpectator

Fiscaldraghasseenthenumberofpeoplecaughtbythehigherrateoftaxdouble.TheheadofEnglishinalarge,Londonstateschoolisnowinataxband that was meant to apply only to the rich. The simplest way to avoid this problemgetting progressivelyworse,would be to legislate to up-rate thepersonalallowanceandthehigherandupperratetaxthresholdsinlinewiththe rise in earnings.

Idea 2: Time limited capital allowancesByJamesForsyth,PoliticalEditoroftheSpectator

TheConservatives should take a leaf out ofRonaldReagan’s book andoffer companies very generous but time limited capital allowances. These fiscalincentivesshouldencouragecompanies,whicharesittingonahugeamount ofmoney—UKPLCs currently havemore than £60bn of excessworking capital— to invest now rather than later.

Idea 3: Provide a single total number of people on out-of-work benefitsByJamesForsyth,PoliticalEditoroftheSpectator

Successivegovernmentshavesoughttogametheunemploymentfigurestoreduce the claimant count. The best way to remove this temptation would be toinsteadrequirethepublicationofthenumberofpeopleonallout-of-workbenefitseachmonth.

Idea 4: Introduce a British debt brakeByKwasiKwartengMP

Once the structural deficit has been closed, Britain should introduce itsown debt brake, following the Swiss and German example. We shouldbalanceour structuralbudgeteachandeveryyear.Shortfalls inanyoneyearshouldbecompensatedforwithgreaterausterityinthenext.Theonlydeficits should come from thechanges inbenefitsand tax revenues thatautomatically reverse themselves over the course of the business cycle.

Adebtbrakeprovidesenoughflexibility inaneconomiccrisis,withouttheunnecessarydiscretionthatallowedpersistentdeficitstoberunfrom2002.It forces a government to run surpluses in the good times, saving money for when trouble arrives. In practice, it ensures that government spending growsnofasterthantaxrevenues.Thankstoitsdebtbrake,thegrowthofgovernmentspendinginSwitzerlandhasslowedfrom4.3%peryearin2003to2.6%now.

Idea 5: Increase the basic rate limit on income tax to £40,000ByKwasiKwartengMP

Thehigher rateof income taxwasoriginally intended tobea taxon theveryrich,notthemiddleclass.WhenLloydGeorgeintroducedhissupertaxin1909,thelimitwassetattheequivalentofaround£500,000today,orahundred times average earnings at the time. Over time, the basic rate limit has failed to keep to date with average earnings, ensuring that in the last thirty years the number of people paying the top rate has multiplied by a factorofsix.Inthelongrunthisisverybadforoureconomy,asincometaxiseffectivelyataxonwork.

Thelimitissettofallfurtherto£34,370in2012-13.AccordingtotheIFS,thenumberofhigher-ratetaxpayerswillincreasefrom3.7millionin2011to5millionby2014.Agoodmedium-termobjectivewouldbetoraisethebasicratelimitto£40,000.Addedtothe£10,000personalallowance,thiswouldensureonlythosewhoearnedabove£50,000wouldhavetopaythehigherrate,restrictingittoaroundthetop10%oftaxpayers.TheHMRCsuggestthata10%increaseinthebasicratelimitcostsabout£3bn,suggestingthatthe16%increaseto£40,000wouldcostintheorderof£4bn.

Idea 6: Reform planning law to allow the rapid building of new runwaysByKwasiKwartengMP

London’spositionasaworldhubisbeingputunderthreatbyitsshortageof runway capacity. While demand is set to double in the coming decades, Britain’shubairportHeathrowisalreadyat99%capacity.ParisandFrankfurtenjoy 1,000more annual flights to the three largest cities in China thanHeathrow.WhileChinahasbuilt33airportssince2006,andplansanother45by 2015,Britain hasnot built amajor runway in the southeast for 70years.

Therearenoperfectoptionsforbuildingnewcapacity.Ratherthanseektoplan the industry, we should make it easier for the private sector to manage its own future. As long as the industry can cover any costs to others, there should be a presumption in favour of development. Planning regulation should be reformed to make it easier to directly negotiate compensation with affected locals.

ByMarkLittlewood,DirectorGeneraloftheInstituteofEconomicAffairs

It should be possible for a company’s first twelve staff to be treated asself-employed for employment law and tax purposes, with no questionsasked. Start ups are often high risk businesses requiring very flexibleandunpredictable staffingarrangements in their early years.Thecurrentemployment legislation removes crucial rungs on the ladder for those seeking work and discourages entrepreneurship – setting up your own small business can often simply be too cumbersome.

Idea 7: Super-charge start-ups

Idea 8: Wind down out-of-work benefitsByMarkLittlewood,DirectorGeneraloftheInstituteofEconomicAffairs

The original vision of the welfare state was that support would not typically bepermanent.The levelofbenefits(forout-of-workclaimants)shouldbereducedby10%aftersixmonthsandafurther10%afterayear.Additionally,theablebodiedshouldbesubjecttoauniversalworkfarerequirementaftersixmonths,undertakingthirtyhoursworktosupportthelocalcommunity.

Idea 9: Reward our educatorsByMarkLittlewood,DirectorGeneraloftheInstituteofEconomicAffairs

We live in a country where we allow people to make very good money for running a chain of restaurants or hotels, but not for running a chain of schools. We need to stop undervaluing those who have the skills and expertisetoensureourchildrenarenumerate,literateandreadyforadultlife.The freeschoolsprogramme isawelcomefirststep,butweneed to

allowtheprofitmotivetoensurerealliftoff.

Idea 10: Find the savings to deliver a supply-side tax cut for businessByDominicRaabMP

Weneedtofindpublicsectorsavingstodeliveracutinbusinesses’taxestospurgrowthandcreatejobs.Smallfirmsandstart-upswereresponsibleforcreatingtwo-thirdsofnewjobseachyearbetween1998and2010,sothesetaxcutsshouldbefocusedonsmallandmedium-sizedenterprises(SMEs).

To finance tax reductions, we should learn lessons fromCanada, whichcarriedoutawide-rangingreviewofthesizeandshapeofthestate,ratherthanfurthersalami-slicingbudgets.

Idea 11: Ease the pressure of red tape on SMEsByDominicRaabMP

TheWorldEconomicForumrankstheUK72ndoutof144countriesforthepressureofgovernmentregulationonbusiness.SMEsareoftentheworstvictims of this red tape. We should alleviate the burden through targeted exemptions fromemployment legislationandchecksonspurious tribunalclaims.

Idea 12: Introduce a voting threshold to prevent minority strikesByDominicRaabMP

Not a singlemajor public sector strike has carried amajority of supportfrom its union members since the coalition. The law should be changed to require strike action in the transport sector and emergency services to have thesupportofamajorityofthoseballotedbeforeitcanproceed.Thiswouldprotectthehard-workingmajorityinboththepublicandprivatesectorfromabuse of strike powers.

Idea 13: Passports for careByChrisSkidmoreMP

Extenddirectpaymentsforsocialcare,bycreatingdirectcashpaymentsinthe form of a care passport, in order to encourage informal care giving at home. At present this cannot be paid to a spouse or partner to provide care –limitinguptakeandentrenchingthedifficultythatmillionsofpeoplehaveincaringforalovedone,despitethefactthatevidenceshowsthebeneficialeffects of care at home and giving families the independence to choose howtocarefortheirlovedones.Directcashpaymentscanbeofferedatalowercostthanthecareequivalent–andtheexampleofGermanyshowsthatmanypeoplewillstillopt for them.Take forexample the£3.4bn thatlocalauthoritiesspentonresidentialcarefortheelderlyin2009-10.If,asinGermany, half of these people opted instead for a direct cash payment and stayedathome,thiscouldsavearound£1.14bnayear.

Idea 14: Excellence academies: means-tested selectionByChrisSkidmoreMP

Weshouldallowthecreationofnew‘ExcellenceAcademies’,whichwouldreturn to the historic principles that grammar schools were originally foundedon–providingameans for those leastwelloff toaccessafirstclass education, based upon academic ability regardless of background. This would allow limited selection for a number of elite state schools, for places only open to pupils from families with a household income of below a set amount. This would ensure that those pupils with academic talent and flaircouldbe recognised,withoutallowingwealthier families togame thesystem.

Idea 15: A new ‘enterprise card’ for immigration ByChrisSkidmoreMP

The link between migration and citizenship has become too close. Theintroductionof“Enterprisecards”,alongsimilar linestoaUSGreenCardwouldallowforstrictquotalimitsfornon-EUworkerstobeset.Onepossibilitymight be for each migrant worker, upon entry to the UK to be given an Enterprise card. There would be automatic recognition that no worker would beentitledtostatebenefits,schooling,orNHSservices,withoutadvancepayment. Only after ten years would an Enterprise card holder be eligible forUKcitizenship,havingdemonstratedemploymentandarecordofpayingtaxovertenyears.

About the Free Enterprise Group

Objectives

SupportersHarriettBaldwinMPNickdeBoisMPKarenBradleyMPRobertBucklandMPAidanBurleyMPAlunCairnsMPThereseCoffeyMPCharlieElphickeMPGeorgeEusticeMPMarkGarnierMPJohnGlenMPBenGummerMPSamGyimahMPMatthewHancockMPRichardHarringtonMPChrisHeaton-HarrisMPMargotJamesMPSajidJavidMPChrisKellyMP

KwasiKwartengMPAndreaLeadsomMPBrandonLewisMPBrooksNewmarkMPJesseNormanMPGuyOppermanMPPritiPatelMPMarkPritchardMPDominicRaabMPDavidRuffleyMPDavidRutleyMPLauraSandysMPChrisSkidmoreMPJulianSmithMPRoryStewartMPElizabethTrussMPAndrewTyrieMPMikeWeatherleyMPNadhimZahawiMP

• Encourage a competitive and free economic environment

• RaisetheglobaleconomicstandingoftheUnitedKingdom

• Challenge monopolies and oligopolies

• Free individuals to create, innovate and take risks

DISCLAIMER: All supporters subscribe to the aims of the group. However, articles written under the auspices of the group reflect the author’s own views and not necessarily those of all group members.

Contact:Kwasi Kwarteng MP on 020 7219 7000 or kwasi.kwarteng.mp@parliament.uk

www.freeenterprise.org.uk