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The tax regime in the UK is a
complete dog’s breakfast. It lacks logic, order and consistency but with 11,520
pages it is the longest tax code in the world. It is highly desirable but
equally unlikely that any Chancellor will ever have the courage to cut it down
to size.
Of much greater importance
than the sheer complexity of the code is that the general tax regime, regardless
which party controls the government, is a huge economic handicap. It imposes
burdens on business that reduce competitiveness. It creates parasites whose
sole function is to find loopholes; they contribute nothing to the economy. Most
importantly, it heavily discriminates against the very people who are capable
of making the greatest economic contribution – the ambitious, the aspirational,
the upwardly-mobile. In short, Mondeo Man.
The
entire system requires not so much reform as revolution.
Let’s get started with the
permanently unpopular council tax.
There
at least two major defects.
The first is that values are
not based on reality. They are those laid down in 1991.
The second is that it is
regressive, one of the criticisms of the older rating system that was abolished
by the disastrous poll tax. Because it is assessed on property value and not on
ability to pay, its impact falls most heavily on those least able to afford it.
One answer is a hypothecated
tax whereby the money need for local services is recovered through an income
tax precept collected by HMRC and transferred to the local authority. For years
the so-called public-sector financial experts have said ‘unworkable’, despite
the fact that it works perfectly well in some other countries. People then
would be able to see exactly the cost of local authority services.
The business rate needs
reform at the same time. This is major handicap for small businesses in particular,
with the rate often exceeding the rent.
Next, income tax.
The top rate is 45%, right?
Wrong. For those family people earning between £50,000 and £120,000 the rate can
be closer to 60% when the progressive withdrawal of child benefit is added to
the equation. Add in NI and the top rate now exceeds 70% for a family with four children. (Labour’s
proposed 50% top rate is purely class-warfare; it will raise almost no revenue.
Someone should explain the Laffer Curve to Ed).
There are now 5.3 million
higher rate income-tax payers, up from around 2 million.
National Insurance is a scam.
It was introduced to pay for pensions and other welfare benefits. For years. Like
the Road Fund it has been systematically plundered by Chancellors who use it as
yet another stealth-tax.
Then there is inheritance
tax, a deeply unjust levy.
It does not hit the seriously
wealthy. They can easily hold their assets in trusts, off-shore companies, and
other ‘tax efficient vehicles’. Once
again the primary victims are ‘people of the middling sort’ whose principal
wealth is their house, an easy catch for the tax-man. And this is tax on tax
because the assets have been accumulated out of taxed income.
Capital
gains tax raises only 1% of total revenues, but it is quite a handy tax-dodge
if revenue can be converted into capital.
VAT
is an absurdity, and it was no more than poetic justice that Osborne was seriously
embarrassed by the pasty-tax fiasco. A chocolate-covered
ginger-bread man is loaded with 20% VAT. If only his eyes are chocolate he is
VAT-free. It really is that barmy. The serious issue is that the tax-base is
very narrow, with rafts of exemptions.
Broadening the base might allow for the total abolition of corporation
tax.
Stamp
duty is an anachronism. It was introduced in 1694. It is a fetter on land
transactions, and high time it was pensioned-off.
But
it will all be a case of plus ca change.
The
Isle of Man has zero corporation tax, no inheritance tax, a top rate income tax
of 20%, 3% GDP growth even in these straitened times, about 2.5% unemployment.
I’m
alright, Jack!
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