BGOVERNMENT FUNDING

Taxation will be simplified and thus cost less to administer and to police avoidance.

All Quangos and Government Agencies must be ordered to produce a cost/benefit analysis of their work and achievements. 

Charities would largely take over Overseas Aid.

Then there are “Efficiency Savings”.  I would have a Cabinet Minister in charge that seeing that these savings are real.

The statistics below are worth reviewing and acting upon as I do in Section 7.

       b

 

  

GOVERNMENTS NEED  

Central and Local Government’s need money to cover the spending that the majority of their citizens wish them to cover.  So all Governments need money, but a fundamental principle, espoused by Adam Smith, is that Taxation should NOT distort the natural market.  The best everyday example of this distortion is that taxes on the car are a revenue earner, yet bus and rail transport costs the taxpayer money for every journey.  Our life and national economy is not improved by such distortions?  Ideally taxation should be a way for governments to raise the most money with the least distortion of economic activity.  (The Economist www.economist.com 2 May 2009).

Taxation can be used as a powerful weapon to change the way people behave.  Such as harmful activities, smoking, excessive alcohol or other drug abuse.  Powerful arguments can be used to support this use of taxes. 

I make the following claims:-

  • To sustain a progressive improvement to our material well being.
  • This document is a non-partisan policy suggestion for a tax regime that will sustain growth and have public endorsement.
  • It sustains growth because it recognises the issues needed to sustain the environment and still increase the standard of living year on year.
  • It commands public support because it does the above and is clear and fair to the vast majority of society.

TAXATION PRINCIPLES

I have some guiding principles:-·         

  • Taxes should not distort the market indefinitely
  • Complex taxes encourage avoidance and expensive collection and policing activities, so make the rules of all taxes, simple and clear, minimise deductible allowances and so pass the administrative burden on to the taxpayer or their agents as far as possible
  • Levy’s are a form of corporate taxation.  They are done to encourage something, such as training.  It is better to make the company prove it trained employees for some relief of tax then most of the administration falls on the company.
  • Poll taxes (and benefits) such as the TV Licence fee and Winter Fuel Allowance need to be abolished.  The latter made part of the Universal Credit to those who need it.
  • There are constraints. 
  • I favour that the total tax take for individuals should not exceed 40% of GDP. 
  • Also that Governments should only borrow to cover expenditure on infrastructure and even then keep it under control so that the interest costs can be contained within the 40% limit of normal expenditure.
  • Make the journey to work tax deductible at the cost of public transport.
  • Above all taxation and benefits should be designed to encourage work, saving and investment, so encouraging the growth in opportunity and the economy.  To my mind "rebalancing the economy" means getting more into Manufacture and the route to that is through better Design.  But that is another of my favourite topics.

There are six main forms of taxation.-

  • ·         Business
  • ·         Purchase/Sales Tax
  • ·         Income
  • ·         Property
  • ·         Wealth
  • ·         Trade Tariffs

Now let us consider some of the pros and cons of each of these taxation sources.

Business

The main business tax is Corporation Tax.  This varies with political wills or whims.  But we are generally competitive with our competitors in the developed world.  Our failure is in Productivity and no-one seems to have answers here.  I would commission all relevant professional bodies to look at this and come up with suggested answers.

There are also Business Rates, but these should revert to the local authority on which the business property stands and would become theirs to regulate to meet their local plans and voter demands.

There are also licences and levies and although they need to be justified they are a marginal cost to business and the citizenry.  In principle though I against levies as I comment upon in the Government Taxation section of this report.

If of course Brexit prevails then we could be faced with a raft of Custom Duties and these would be the most damaging of all as they affect competitiveness across international borders as they are intended to do.

Purchase/Sales Tax

Spending must be taxed, it is after all a tax on consumption  and is therefore good for the environment.  Now it is termed VAT, but it used to be called Purchase tax and Sales Tax is a common term internationally.  We should use this mechanism to restrain consumption. 

VAT would be used to reduce consumption over time, what could be greener than that!  People would be made fully aware that spending taxes would rise progressively so even if there is deflation buying now will be cheaper than in the following year.

So sales taxes, VAT, or whatever it chosen to be called is generally good for the environment as it discourages consumption which generates pollution, through waste and the non-renewable energy used in production.  But consumption taxes are the hardest on the poor.  A solution to this is not raise any taxes on the basics in the Cost of Living Index, such as food and children’s clothing.  It has some relationship to wartime rationing, when it is said the nation as a whole was at its healthiest.  But if the item is a luxury or has to be imported, then the rate should escalate with distance of goods transit.

As examples the Sales Tax on most foods would be zero.  There will be exceptions on expensive, scarce items or non-basic foods that travel long distances.  E.g.  10% from Europe and 15% from the rest of the world.  Luxury items could be 25% or more.

Cars could be taxed on a sliding scale up to 25% or more for a town-based 4x4 off-roader.  However, in general I am against complex road pricing policies, believing that transport should be a level playing field.  The level of tax on fuel automatically compensates for distance travelled and the level of congestion encountered because of the time chosen for the journey and we can have added levy to cover the costs of accidents and the green impacts.  The fuel tax could be engineered to recover the Road Tax and basic Third Party insurance.  Leaving only Fully Comprehensive as a voluntary add-on.

The Sales Tax would also be used to squeeze out the black economy.  It would be a legal requirement on the populace to get a receipt showing that tax had been paid on goods and services (It so in Italy, even if it is still ineffective in the south) and the buyer would be liable if they have no valid receipt.  Builders, painters, decorators often operate cash in hand.  Local Planning officers could inspect the receipts when checking the compliance of the the more extensive home improvements to Building Regulations.  Surplus VAT officers would quickly establish the profiles of service companies prone to the cash-in-hand payment methods.  A further step to squeeze the black economy would be to greatly increase the registration of all trades.  A continuum of registration from the very specific of home plumbing and joinery skills to the general requirements for Chartered Engineers.  The GDP would immediately increase by up to 10%.

Whilst in favour of free trade, the UK would likely be alone in placing a greater reliance Spending Taxes, which would lean more heavily on imported goods.

Income Tax

With a higher burden of the tax take coming from consumption (sales) taxes, the income tax structure will need sensitive and progressive reform to compensate and protect those hit hardest.

Income tax should be gradually reduced by phasing more and more people out of the lower tax bands completely.  Far fewer allowances would apply.  This reduces the resources spent on avoidance and collection – costs that are a waste to both Government and citizens.

Taxes should be progressive and not have any distorting step changes.  Perhaps a start at 10% going up by 5% with every £5,000 and upwards until the budget balances.  Will there be a 100% tax rate?  No, 70% is above the often talked about 50% rate and that would be the maximum for what are the very few who have other means of securing their future.  There must be a generous personal allowance, at least equal to the maximum possible benefit, so that work always pays more than living on benefits.  Each family member will be taxed in his/her own right.

NI payments would cease and PAYE would have to pick up that extra revenue.  NI is stepped and biased in favour of the rich whereas the new Income Tax would be progressive.

The reduction of income based taxes would support the elimination of the Poverty Trap.  A simplification of the Benefits system is long overdue and now underway.  More targeting of benefits but not cuts except to those who are cheating.

Investment Income

We do want to encourage people to save for their old age or a rainy day.  So assuming income tax has been paid and an individual or family has surplus cash let them invest it without further tax, more or less as they can for pensions.  So whilst income from savings is not taxed.  If there is a capital gain or loss then that is to the benefit or sorrow of the investor.

Personal saving, especially long term and for pensions must be encouraged with legitimate pension deduction in work being free of tax

Expand ISAs – take away any limit, in effect this will create a marked difference between money put away for the longer term and a short-term savings “buffer” for the proverbial rainy day.

Wealth in Life

Let us assume people have paid their taxes.  There is still without doubt, a disparity of wealth in this, as in any other country whether developed or under-developed. 

Redistributive taxes in life are wrong.  Breaking up wealth is bad for investment in the economy.  What is important is Equality of Opportunity and not Equality of Wealth. 

Suppose we could redistribute wealth what would happen?

First what do we mean by wealth.  If it includes non-cash assets then property would have to be sold, there would be a break-up of land and a consequent demand for developments in the previously green and pleasant lands, art and jewellery would be sold to the highest bidder, probably from overseas and pension pots destroyed causing chaos in the Stock Exchange.  The luxury end of the market would collapse so some of those people would have had their wealth taken off them and now their income stream destroyed.  The net effect would be a respectable 5 figure handout to everyone at enormous administrative expense.  Then there would be a boom in holidays, with rapidly rising prices and richest of the state would become travel agents and hoteliers.  In short the share out would not be enough to really change lives for the good in the long-term. 

But through Equality of Opportunity, everyone should have the opportunity by hard work and ability to become rich, even very rich.

Wealth in Death

Then there is Inheritance Tax (IHT) or Death Duties is it is often termed.  Breaking up wealth in the past is one reason why many of our Stately Homes are now leisure facilities.  This is not wrong, there is a fair valuation and then tax is taken above a set limit.  But it breaks up collections of art and period furniture, valued highly but are not cash, without selling the collections on to often overseas investors. 

IHT is a moral question.  On one hand, as I say, I believe that we must encourage saving.  The question then is do you take some of the unconsumed savings to the State or allow the benefiting relatives to take the remaining assets over.  One course would benefit the Exchequer and the other the lives and micro economy of the, perhaps extended, family.  I am still in two minds but I am sure that the assets acquired in life should be used to support the closing years of the life.  But I know it is a conflict with the encouragement of saving against spending as the money comes in, in one's earlier years.

The argument for it is simple - it shares wealth out.  But it does it?  It goes into the Governments coffers and apart from reducing the wealth of an old established family, none goes to even up society’s income and wealth in general, perhaps it holds back the rises in other axes on income a miniscule amount.  The arguments against are about reducing the incentive for families of more modest means to save and that tax has already been paid once on the income that created the wealth.  These are valid but I come down in favour of IHT.  But we must not discourage saving in life so I would look closely elsewhere at Investment Income Tax and Capital Gains taxes.

So I wrestle with this.  These issues are complicated by those people who could have saved but chose not to.  Those who genuinely never could afford to save should not be penalised, although some of these folks, for one reason, or another may not have made the best of their opportunities in life.  It is also complicated by family members who give care for free.  Is it merely that they cost of living is going up the reverse of when you were a child and parents were fit enough to give you loving care for free and the State did also help a little then.

How much care you need in our latter days is a lottery, it is in the genes as I often say.  The NHS philosophy is that you pool the risk, but should this apply with end off life care.  Everyone should get the care, but they must take life’s chances they pay (after death) or the State pays for it. Children have no God given right to inherit their parents fortune, large or small, they did not work for it.  If it remains after death great, but then….As I say I wrestle with this.  If a family member needs to live in the parent’s house for say 5 years then it should be free from IHT.

Property

The annual tax taken on property is for the local authority to set and receive.  I have said elsewhere that it should be based on the Land Area controlled by its owner.  There would be multipliers based on how close the land use complied with the need of local plan.  Thus waste or unused land would be taxed more.  Occupants of tall buildings would pay less and increasing distances for the centre of conurbations would attract decreasing tax.  These moves would free up under utilised land and take some pressure of town and city centres.

     Back  

Black Market

We all enjoy the black market and look for cash in hand traders who save us VAT.  But it is wrong and potentially dangerous on several fronts.  Steps could be taken to reduce this trade.  An example is many home improvements.  If you need Planning Permission that the Inspector of the final works should be required to take copies of the receipted bills.  Most traders of repute will be or should be VAT Registered.

I am sure that other simple means could be devised to detect and stop this illegal avoidance of what is termed earlier in this document as a Consumption Tax.

Enhanced Monitoring & Budgeting

There will need to be much more precise monitoring of the impacts of all these changes on the Basic Standard of Living.  The GDP, Debt Reduction will also need close scrutiny, indeed “rolling” mini budgets on a quarterly basis may well become the order of the day.  Reduction in Income Tax would be at least one quarter ahead of the imposition of a revenue compensating Sales Tax.  But each must have a predicted direction of travel in order that industry and households can adequately plan and adjust.  The current measures would clearly show that inflation would rise over 2 years as prices went up in return for the increase of people’s disposable income.  But the Standard of Living should increase as well.

Unemployment

It must be the case that is pays to work, if you are able.  So benefits have to be controlled.  Work should be encouraged and one step is by allowing the journey from home to work to be claimed against income tax.  Vouchers for the unemployed to travel to job interviews could be provided.  Community work should become mandatory after a set number of weeks of unemployed benefit.

More Babies

And we need to encourage babies, but not in reckless numbers as a means of securing a livelihood from benefits.  More children should be helped, by offsetting their care and education costs against tax.  So benefits should cease or taper off rapidly after the third child.  I know we are then left with a distressing problem of the multiple child, single Mum.  These are special cases and need to be individually considered.  I want to avoid the trap of people receiving more on benefits than working and their true status of partnered or not has to be monitored.  I do not want the children to suffer, but they must cease to be a burden on the State at 18.

Charities

Major charities are big business.

Giving to Charities should be encouraged to remove more of the Aid burden from the State.  Although Charities will not like it, I am of the belief that making gifts to approved charities tax deductible will be a bigger inducement for people to give than the present GiftAid system.  It could go hand in hand with the tighter control of Charities (there are just too many of them, often overlapping) and too much of the donations spent on executive salaries, marketing etc. And also a reduced focus of support from the donor in many areas.  Overall it is probably administratively simpler and transfer some of that burden away from the State to the charity to issue receipts. 

The Charities Commission is meant to “register and regulate charities in England and Wales, to ensure that the public can support charities with confidence”.  I went on to their site to see how many Charities there are.  There was no total to be found.  I suspect the number is in the 100s of thousands and the control is extremely light.

In any personal giving I look at the CEO salary and amount spent on marketing to see just how much gets to the target group. 

Major charities are, as I say above, big business.