Tax | The Horsell's Mouth

Can flat tax be made fair?

June 10, 2010 — simonashall

I’m increasingly interested in the concept of a flat tax rate for the UK economy. Under such a tax regime – which would save a great deal of time and money in the collection – the personal allowance threshold would be raised and then a single rate, regardless of income, would be paid on all earnings above that figure.

Critics of the idea call it regressive because as a proportion of income, those on lower incomes pay more – really? With a 25% flat rate and a £10,000 threshold, someone earning £25,000 pays £3,750 tax a year and someone on £100,000 pays £22,500. I have to say that that doesn’t sound hugely unfair to me – the lower earner is paying 15% of their income and the higher earner 22.5%. Is there something I’m not understanding here? I think the real reasons that critics oppose it is because it isn’t progressive and they like the idea of punishing higher earners.

There are concerns that VAT also hits the less well-off – I agree that it does but that’s nothing to do with a flat tax rate as far as I can see. In fact, if the government were to build VAT and council tax into the flat rate and tax at 37.5% while abolishing VAT and local authority charges altogether, surely that would be even fairer to those on low incomes? Whether it would bring in enough money is another matter – but that addresses the other point about flat tax.

I’ve argued before that the 50% tax rate is morally justifiable but practically pointless because of the ease of evasion. One of the primary advantages that I can see of a flat rate is to get the wealthy engaged with the tax system and paying up. Needless to say, any move to a more encouraging tax outlook for entrepreneurs and wealth-creators would need to be accompanied by a total clampdown on loopholes – something that Labour seemed to shy away from.

Anyway, I’m still looking at it.

Posted in Social Justice, Tax. Tags: Social Justice, Tax. No Comments »

Reality a-tax

May 27, 2010 — simonashall

The Daily Mail is leading the charge for the right wing of the Conservative Party and David Davis suggesting that people with second homes, shares, jewellery and other assets should not face any increase in Capital Gains Tax from 18% to 40% in order to help people on lower incomes (below £10,000) stay out of income tax altogether. There is plenty of talk of “betrayal” and “revolt” among the 1922 hopefuls and a general feeling that a Conservative government doesn’t do this sort of thing.

Firstly, let’s remember that the reason we are in government at all is because we’ve been able to come to an agreement with the Lib Dems. Sure, a Conservative government with a outright majority would probably have steered clear of CGT altogether but we were 18 seats short of where we wanted to be and the result is compromise rather than full implementation of Conservative principles. It’s a little uncomfortable in places but the PM has said that stable government was necessary in this time of national strife and compromise is part of that.

Furthermore, David Davis says that he wants to protect the ”hard-working, responsible, self-reliant middle and working classes”. I’m not sure how many “ordinary” people he feels deal in more than £10,000 of capital gains each year but I suspect the answer is “not many”. You also won’t find in any of the major papers the fact that the current 18% rate was only set by Labour in 1998 and previously had been much higher under the Conservative government during the 80s and 90s.

The fact is that people who have these kinds of assets to make money on need to pay their fair share in helping reduce the deficit – that may be fair to those whose trading helped bring the problems about and unfair on prudent savers. That’s unfortunate, it’s not entirely comfortable and it’s certainly not Conservative; but it’s necessary and hopefully temporary.

What is important is that those who are being helped by this measure by being freed of tax burdens and encouraged to work at the lower end of the pay scale are given a very firm steer in that direction. There is no justice in asking some people to pay for a £10,000 income tax threshold if those benefitting from it are then not working or contributing to society. Just as we need the wealthiest to help the country out of trouble, so we need the bottom-up economy to get working too.

Having taken a centrist view of the CGT issue then, I’m happy to take a more centre-right view on Iain Duncan Smith’s promise to mend our benefits system, which is a national joke. Of course I believe that the poorest in society should have the help they need. But I also firmly believe that thousands and thousands of people routinely abuse our over-complex and under-thought benefits system for their own gain – at the expense of the entire nation and other taxpayers.

So I hope that left-leaning thinkers will see a connection here – between controlling the right-leaning tax tendencies of the Conservative Party but also changing the liberal attitudes to the Welfare State that have cost Britain money and not a little self-respect during the past 20 years.

Posted in Conservatives, Social Justice, Tax. Tags: coalition government, Conservative Party, Daily Mail, David Davis, Iain Duncan Smith, Liberal Democrats, Social Justice, Tax, Welfare State. No Comments »

Lesson from JK Rowling

April 14, 2010 — simonashall

JK Rowling with a book containing more truth than the Labour manifesto

I’m not a fan of JK Rowling – I think her books are terrible and the fact she gives money to the Labour Party is borne of an similar level of fantasy. Today she writes in The Times about DC and the party’s manifesto for single mothers and although the Times subs have done their best with it, it’s still a couple of commas short of iambic pentameter.

But depressingly, I find myself agreeing with some of what she says and I think she’s done the party a favour by spelling it out, albeit after the manifesto is published. I’ve written on it before and I’ll say it again – the Conservative Party policy to reward married couples with a (very token) tax break is a step backwards in bringing its attitudes in line with a modern Britain that isn’t interested in recapturing 1950s social norms.

Firstly, the fact is that society will no longer be told by government what it should find acceptable and unacceptable – the role of government in this area is now defunct and no amount of bleating by the right of the party will bring it back. Yes, the family unit is still the single most important building block of society but the family unit can no longer be described as one man married to one woman and their resulting offspring. A government that tries to impose this doctrine through the tax system will not succeed and the party it is formed from will ultimately lose credibility.

Secondly, JK Rowling points out that “it’s not the money, it’s the message” is a deeply misguided view of what single parents go through. For those who have decent independent incomes and families to fall back on when they part, it may just be about the message – although not a very welcome one, I should imagine. But for others who don’t have partners at any time in their parenthood or families able to support them financially following separation, it is very much about the money. And if anything, we should be spending the money otherwise used in this tax break supporting those who need it ie the single-parent families, not married couples.

I believe that DC takes social responsibility and justice seriously but this policy doesn’t back that up. Having said that, much else in the manifesto does. I joined the Conservative Party because I want to see a society where people can get opportunity, work and make a prosperous future for themselves and their families. But if they manage that, they don’t need state subsidy as well. In an ideal world, no-one would.

But this isn’t an ideal world and until it becomes so, that help from the state which exists needs to be focussed on those who need it; married, divorced, single or otherwise.

Posted in Conservatives, Social Justice, Tax. Tags: Conservative Party, David Cameron, Labour, marriage, Social Justice, Tax, The Times. No Comments »

Counter-attacking on Ashcroft

March 2, 2010 — admin

Michael Ashcroft, as anyone who’s read Dirty Politics, Dirty Times, will know, is made of tough stuff. No-one takes on News International and gets a score-draw without some serious clout behind them. Compared with Rupert, PM is just an amateur and I know that the chance to finally nail their bogeyman will get some Lib/Labs very excited – but really they should be stepping outside their glass houses before lobbing things at him.

Lord Ashcroft has announced that at the moment he doesn’t pay tax on his overseas income in the UK. Him and thousands of others. Labour has had 13 years to close that loophole had they chosen and have failed to do so. Why? Because of pressure from people like Lord Paul and their own donors, who told them very firmly that if the loophole was closed, the donations cashpoint would be too. So what Lord Ashcroft’s tax dealings actually boil down to is him perfectly legally taking advantage of a loophole that Labour left open in order to benefit themselves.

When he received a peerage in 2000, he gave assurances that he would pay tax in the UK. I think it is unfortunate that he chose not to do so and that he strung several Conservative leaders along on that basis. But the truth is that we don’t exactly know what the reasons for the delay were, as they are entirely his own business and the House of Lords has told Lord Mandelson – whose own financial dealings and peerage have been the subject of some considerable comment – to go and sling it. In fact, Mandelson is the leaver-in-chief of loopholes, having been the major figure involved in the wooing of big bussines over to Labour in the 1990s.

So it’s a bit rich that he’s the one doing most of the talking now!

And the Lib Dems shouldn’t feel as though they’ve got away from this, either. Chris Huhne said that the party had been bought like a “banana republic”, clearly forgetting in his rush to get the words out that Liberals don’t use phrases like that anymore. He probably also forgot that his leadership campaign was financed by money from a non-dom and that he has held investments in companies based in tax shelters. Never mind.

I’m sure that the Grauniad, whose newspaper today was oozing saliva from four pages of coverage and whose website almost has an Ashcroft section rtaher than a politics one, and the BBC will lap up the government’s follow-ups and keep the story running for a couple of days. But in the end what’s done is done.

Lord Ashcroft should have made good his undertakings to friends and colleagues. But he has every right to spend his money, in this country or another, how he pleases. And I’ll bet that Labour and the Liberal Democrats would accept his cash on exactly the same terms.

Posted in Conservatives, Tax. Tags: Conservative Party, Lord Ashcroft, Peter Mandelson, political funding, Tax. No Comments »

Debt? Darling can’t budge it

December 10, 2009 — admin

Your exchequer needs you...

Looking at all the papers this morning, it seems that they are pretty unanimous in their distaste for the Pre Budget Report announced yesterday. Even the BBC led with a Conservative-slanted headline (the old “denies” trick frames the allegation neatly without defamatory undertones).

Labour has had a long time to think about this PBR. It has brought Alistair Campbell back onside to help Gordon overcome his daemons against DC and it was its own idea to have a PBR in the first place, presumably because simply having a full budget in the spring would have been disastrously downbeat so close to a “presumed” election.

Let’s look at some of the things we got -

Moving the tax ceiling for NI increases to £20,000 when the average wage is £22,000
Borrowing from 2011′s budget to fund an increase in pensions and benefits
An expedient tax on bankers that while morally justified will achieve little
Moving more people into the 40% tax rate
Freezing on Inheritance tax threshold when a raising was promised
A reduction in Bingo duty to favour Labour’s core vote in the north
VAT increase to go ahead

Budgets have always been political so I’m not going to complain about that – Ken Clarke reduced income tax in the run-up to the 1997 election. All’s fair in politics and all that. But what this is goes beyond that – Labour’s umpteenth NI fiddle is a tax that is going to make employing people less attractive.

Their borrowing from 2011 to fund pensions and benefits is going to have to be clawed back after the election by whoever wins it. It’s a shameless, reckless action that goes against everything the past 2 years has taught us – just as world leaders meet in Copenhagen in an attempt to stop us borrowing global resources from the future, so Alistair Darling is borrowing money he doesn’t have from a point in time where he doesn’t have it either.

There’s a fair bit in there about bankers and rich people who earn more than £150,000 etc and I’m sure the Conservatives will be arguing that this is taxation against aspiration just as I thought they should in my previous post but one. I don’t oppose progressive taxation in principle but in practise it’s just posturing.

Barely anyone will pay any more tax than they do now and a good many will leave the country altogether, thereby reducing the tax take.

Many socialists insist that the country would be better without them. That is a petulant view that fails to understand this recession is not just the bankers’ fault; it is pretty much everyone’s fault. If you have borrowed on the value of your house, if you took advantage of cheap credit or if you drove demand on a product so its price increased and people had to borrow to purchase it, you played a part in the recession. I know I did.

The point is that blaming it all on the bankers is a government smokescreen to cover up its own failure properly regulating what was going on. Bankers are to blame, yes, but they are not by any means the only ones.

Nor in this budget is there any evidence that Alistair Darling has a clue where he will cut services in order to pay off our debt. My feeling is that he has given up on that one and is just going to leave it to the Conservatives to sort out. But it’s more important than that.

Our economy won’t be able to grow, our services won’t improve and we won’t see government action while this massive, crushing debt is hanging over us. From £1,000 per taxpayer in 2003-4, it’s now £6,000 per taxpayer today. The shackling effect of debt will spell the end of our economic pre-eminence unless we tackle it as soon as we can.

Thousands of families from all backgrounds have been forced into this during the past two years. Shocked into action and thoughts of savings, they have realised that in order to build reserves and invest properly (rather than through PFI-like schemes), they have to pay off their debts before they save. So they’ve cut their costs to do that.

The government’s idea is to keep spending in order that their income might increase and that money be used to pay off debt. But all the time that debt is increasing and any new income goes straight on trying to keep yourself straight and level.

Yes, there will be short-term pain for long-term gain from DC. But Labour’s Carry On Spending narrative is no comedy – it is a dangerous tactic that could lead to irreparable harm.

Posted in Economy, Tax, news. Tags: Alistair Darling, banking crisis, BBC, Labour, national debt, recession, road to recovery. No Comments »

Don’t Mansion It

November 30, 2009 — admin

The nation's favourite bean-counter - pity his idealogy isn't as good as his maths

I wouldn’t like to buy a mansion from the Liberal Democrats because they only seem to price them in increments of £1million. Back in conference season, just after Nick Clegg promised “savage cuts” to assauge the thirst of the Orange Book brigade, the nation’s favourite economist Vince Cable stepped forward with a plan to surcharge people with homes worth more than £1million 0.5% of the value above the £1m threshold.

Unfortunately, the Liberals forgot that, somehow, they hold seats in places likes Winchester, Lewes, Oxford West and Abingdon, Richmond and Kingston. Many of the MPs in those areas, almost all of whom face a serious Conservative challenge at the next election, came forward to say that they didn’t like the policy much. Today, Nick Clegg made appearances on a number of popular news outlets announcing a re-think. Otherwise known as an admission that the policy was a silly idea.

Instead, they are going to charge people with homes worth more than £2million a whole 1% in tax above the £2m threshold. I can’t think of many people in Woking with houses worth that much, although I know there are a very few. This copious nonsense of a policy will affect just 70,000 households in the UK and raise just £1.7billion a year. Not only is this a paltry sum compared with the £175bn the government will borrow over the next two years but Mr Clegg is not even proposing to use this money to pay off the debt.

Instead it is part of a muddled package to increase the income tax allowance to £10,000 taking four million people out of income tax - but also giving £700 to every taxpayer, including the super-earners, each year. To counteract this, he wants to reduce the tax relief on pensions for higher earners. Fine. If you want higher taxes for the rich, you can try – but you’ll always end up paying more to get the money from them than you’ll recover in tax, which is why the 50% tax band is nothing more than classist posturing. The best way to raise the tax take is to solve our economic problems, get business booming and increase people’s incomes. When they earn more money, they pay more tax.

So not for the first time, the Lib Dems have a credibility gap on tax. I understand they want the rich to pay proportionally more tax. Yes, so do I. But the way to do that is not to single out the rich, or even “super-rich” for special treatment because wealth has its own way of avoiding penalty. You have to engage the economy, make everyone richer and give the rich a reason to stay in the country - a favourable business and earning environment – to contribute a fair share. I don’t think that 50% is too high a figure – but doing it as Labour have done will not produce anything.

Nor this shambles of a Lib Dem policy on mansions. Nick Clegg says that the changearound is not a U-turn and that the policy does “exactly what it says on the tin“. To me, the tin appears to be saying that the Lib Dems have very little idea how to get the government’s revenues flowing again.

Posted in Economy, Tax, lib dems. Tags: Conservative Party, credibility gap, Economy, Liberal Democrats, Nick Clegg, recession, silly ideas, Tax, Vince Cable, Woking. No Comments »

Policy exchange, Darling?

November 16, 2009 — admin

I spotted this earlier on in The Telegraph, taking a brief break from its one decent scoop of the decade. Back in April, the Treasury apparently levvied a £30,000 standard charge on all non-domiciles, regardless of income in exchange for not paying income or capital gains tax.

How interesting. I seem to recall this policy from somewhere else, namely here (read down page), George Osborne’s brilliant party conference announcement in 2007 on Inheritance Tax, which confused the PM enough for him to bottle a November general election he would probably have won.

At the time, Alistair Darling said the £25,000 levy “would raise only a fraction of [the money] needed and said Mr Osborne had inflated the number of non-domicile people.”

“Yet again, this is an example of where the Tories are making promises on tax which they can’t afford to pay for. He is making a promise he hasn’t got the money to pay for. If you do that, you create the very instability which is the last thing the economy needs and people in this country would pay for that.”

Clearly, it wasn’t such a bad idea after all. At least in Mr Darling’s mind.

Posted in Economy, Tax. Tags: Alistair Darling, George Osborne, Gordon Brown, political credibility, Tax, The Telegraph, Treasury. No Comments »

Taxing around the houses

September 21, 2009 — simonashall

Vince Cable deep in thought

Up until today, I thought the Liberal Democrats had some good ideas about fair taxation, even if I disagreed about the end result of implementing them. They had argued to replace council tax with a local income tax because they didn’t believe the rich were paying enough and the poor were paying too much. There’s something to be said for that, certainly I feel the council tax is capable of improvement.

But where does this “tax income, not property” stance fit in with Vince Cable’s “£1m homes tax” proposed at the Lib Dem conference? It appears to throw that whole idea out of the window in a headline-grabbing exercise.

Let’s look at this properly. People who own homes worth £1m-plus largely, but not exclusively, have large incomes to match. The Labour government has already increased the top rate of income tax to 50% and I think that is right – I would even support it going higher on a temporary basis but I hope that in due course that it will return to 40%. People who earn enough to pay mortgages on large homes have already paid stamp duty, tax on their mortgage, tax on their income and high council tax bills. I think that’s enough punishment for owning a big house (or a not-so-big house in a sought-after area),

Go to the other end of the scale. A widow, 85, has lived in her family home all her life. Her husband fought in the RAF and subsequently worked for the same manufacturing company for 35 years as a middle manager – he died three years ago after a long illness on which the couple had to spend some of their savings to fund treatment. She has the resultant widow’s entitlement to his pensions and her own state pension.

The family home, which has been in their ownership since 1912, is a 5-bedroom house in a desirable part of Andover, Hants, and would fetch around £1m on the market today (who’s measuring this, by the way?) She has two children, one of whom has expressed an interest in living in the house and they have been putting money aside to pay inheritence tax.

Where is this £2,000 a year going to come from? Her income largely goes on heating, maintaining and paying council tax on the house. If the children are to pay it, that is a mis-directed tax and Vince’s tax should be on them (a tax on parents, the mind boggles). Should she spend more of her savings on paying the tax, even if that means she can’t afford healthcare at a later point?

Should she transfer ownership to her children now, forcing her to relinquish ownership early? How illiberal. Or sell up? Similar. This lady was born in the house and wants to die there – surely she should not be denied that dignity? She also wants to pass it on to her children – it forms the only significant asset of her estate. I cannot believe any party could contemplate legislation that would put that basic wish in jeopardy.

The LDs argued against council tax for precisely these reasons – that there is a small but significant section of society that is capital-rich but revenue-poor. They know very well the impact on pensioners in possession of historical but valuable assets of laws intended to catch the rich.

So why come forward with this poorly considered idea other than to catch some headlines during a conference that is sure to be eclipsed as the autumn continues?

Posted in Tax, lib dems. Tags: Liberal Democrats, silly ideas, Tax, Vince Cable. No Comments »

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