I'm always reluctant to say I am going to start publishing a part work in case I run out of enthusiasm for the task. But a couple of weeks ago I was asked to outline a programme for tax reform for the UK and I know it will not be used in the format in which I wrote it, so I will publish it, in parts, here, as I suspect no one wants a blog of more than 6,000 words in one go.
So let me begin with what I think the objectives of tax policy should be:
Tax policy objectives
Tackling tax abuse takes time, effort and commitment. It has a cost. This means it also has to be well planned and the objectives have to be clear, because if they are not stated then the reasons for change are not apparent. I think that tax reform should be driven by:
- A commitment to social justice that is reflected in a commitment to:
- Reducing inequality;
- Treating all equally with regard to tax;
- Creating fair markets;
- Funding fairly the services that the state needs to supply to the people of this country.
- A desire to close the tax gap, whether it be created by tax avoidance, tax evasion or tax paid late;
- The need to create a level playing field for everyone in the UK, where we all know that everyone is playing their fair part in paying for the public services we all enjoy;
- The necessity of creating a level playing field for British businesses so that they all compete on the basis of the goods and services that they can supply to customers and on their ability to innovate, invest and develop, including by training the staff, none of which is possible if some companies can gain commercial advantage by tax cheating, as is the case at present;
- The wish to promote the UK as a centre for ethical business practices that attracts capital, and so business, into this country because it is known that this is a place of integrity where the rule of law will be upheld, all of which are qualities that businesses with an interest in the long term appreciate.
It would be so good if our political parties could offer their versions of such a statement. Then we might have a much better understanding of what they are trying to achieve. As it is, such statements don't even make the footnotes of most manifestos.
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Well, if you were in the running for No. 10 I’d vote for you. ‘Nuff said.
Richard, are your reforms likely to involve a recommendation that there should be different rates of VAT so that it’s then a progressive rather than a regressive tax? For example according to the Office of National Statistics its CPI inflation index is based on about 11.6% of the typical household’s spending going on hotels and eating out. Many millions of low income households will spend a considerably smaller percentage of their income in those areas while the rich will spend a much higher percentage. However in the case of typical household spending on consumables such as cleaning products it’s about 6.3% but this figure is likely to be higher in poor households and lower in rich households. So increasing VAT on hotels and eating out and lowering it on household consumables are just two possible areas that will help make VAT a progressive tax.
I suspect you may ignore the impact of takeaway meals
Several countries do exactly the opposite and reduce VAT on restaurants, for example, to encourage that sector in general and employment in particular.
Are there comparative studies on whether VAT is more or less regressive in France than it is in the UK? Or are they both just as bad? More generally, does every tax measure have to be progressive by itself, or is it permisslble for regressive elements of one tax measure to be justified or outweighed by progressive elements in other tax measures or transfers (eg benefits)?
Yu can’t reduce VAT on restaurants under EU law
EU law has allowed reduced VAT on restaurants, since at least 2009.
Here is an explanation: “The Council adopted a directive allowing – on a permanent basis – the optional use of reduced rates of value-added tax (VAT) for certain labour-intensive local services, including restaurant services, for which there is no risk of unfair competition between service providers in different member states.” http://ec.europa.eu/taxation_customs/taxation/vat/key_documents/legislation_recently_adopted/archive_en.htm
And here is an example of it being used: “VAT cut boosts French restaurants” – http://news.bbc.co.uk/1/hi/world/europe/8128465.stm (although both the standard rate of VAT and the reduced rate have been increased since then)
I stand corrected
And you really think that’s going to change an economy
Think on, I suggest
Given that there will always be some inequality in the most egalitarian society, how much inequality would be acceptable to the progressive left?
Don’t you think it might be useful to quantify it somehow so we would know when we had reached it and could relax about it?
That is a ridiculous question that pre-supposes we can measure accurately enough and that stable outcomes are possible
Neither happens
Sop what is needed, given the democratic process, is a continual willingness towards a better situation which some will seek to stop us ever achieving, partly by putting false obstacles, such as this question, in the way
Far from putting obstacles in the way of equality, I’m interested in practical solutions to inequality rather than just emotional appeals to some unattainable Utopia.
So you’re saying that if we the same sort of egalitarian society as the Nordics, we should still seek to be doing more?
I am suggesting this is a journey, not a destination
We are a long way from the Nordic countries: so far we need not worry about what happens when we get there at present
The essential problem is the politics of it all. The essential problem with politics is the politicians we now have. The essential problem with the politicians is that they do not want their essential supporters to pay the taxes.
@Demetrius Agreed – unequivocally. The language, law, governance and bureaucracy surrounding our [modern] [sophisticated] financialised political system are built for “tax dodgers”. Although “ ‘Hard core’ tax dodgers to face strong crackdown” — from Osborne, today’s Financial Times news [1].
[1] http://www.ft.com/cms/s/0/c745a21e-c8c9-11e4-8617-00144feab7de.html?siteedition=uk#axzz3UXRvMvWs
I was right with you there up until “they do not want their essential supporters to pay the taxes”
Please explain.
What’s the point of a journey without a destination?
Should our destination be Sweden or Belarus (both with similar Gini co-effs?
Neither
Because neither is the UK
Richard have you ever considered a career in politics, or at least in an advisory capacity?
I ask because you have some great ideas, coupled with a distinct ability to explain them in clear and easily understood terms.
I have not been a member of a political party for many years
I am not a natural politician in the sense of the social worker case load that it requires a person take on
If I was offered an advisory role I would have to consider it
I do not expect it and certainly am not going out of my way to seek it
There is a role for the public intellectual, which is what some say I am, although I am not sure it is quite the term I would use, although I cannot think of another
Sorry for taking us slightly off topic, but I do think this is an important point in the consideration of any reforms whatever they might be about. The ability for a wide audience to understand them.
You may or may not be aware I am a junior accountant in training and 1 of the difficulties I have with UK tax law is understanding it. The language used and that they use up reams upon reams of paper defies logic I suggest.
I had a manager at a previous job who had the same skill as you clearly have. The ability to digest huge amounts of information and then explain and/or produce it in a much more simplistic way. It is a real gift and was priceless for me.
Furthermore, I think one of the reasons a lot of people do not become more involved in politics is simply because they don’t understand it, so they rely on what they are told in the press which as we all know is controlled and manipulated in many ways. Having someone with the skills you have would make a real difference I think.
I hope you don’t mind, I have been promoting some of your work in other forums and communications I have been having with MP’s in different capacities and I would strongly recommend you for some form of advisory role to government.
Thank you
Experience helps
I’ve been in practice for over 30 years now
But I admit, some never get it
The lowest Gini co-effs seem to be about 25/26, while the UK is 38. Should we be aiming for lower than that? Or is Gini too blunt and meaningless as a measure?
I prefer the Palma index
BUT you still miss the point. Such quasi scientific goal setting makes no sense when we can see the problem all around us
I agree with Demetrius that the politicians and their supporters are part of the problem. Let’s look at non-dom taxation. How can it take the HSBC leaks to put it on the agenda, and how can the calls for reform of it even now after HSBC leaks be so muted? I know that Richard has raised it in the past but it never seems to get much traction in the wider world. Why? First point seems to me to be that the politicians rely on non-doms for donations (certainly the Tories, almost certainly the Lib-Dems and quite possibly Labour). Secondly vast swathes of our print media are owned/controlled by non-doms. Thirdly the accountants/lawyers have a big input into policy both via their responses to consultations and their free work for the politicians and they have a vested interested in keeping non-dom for planning. Fourthly I fear that Labour would feel embarrassed to trumpet a change for non-doms when Gordon Brown did the last review and decided to basically keep the system.
I fully accept that non-dom taxation is not the only thing wrong with the tax system. But it is a glaring fault and is undoubtedly used by pedlars of tax schemes to those who aren’t non-dom – along the lines of “the non-doms can avoid tax and all you’re doing by doing this scheme is levelling the playing field with them”.
As far as possible all loopholes should be closed, small or large. I find it amusing that the right wing supporters of a zero tolerance approach to other crime eg litter etc seem to be rather less sure about the same approach for taxation.
Selective law making and enforcement is a wonderful thing
Richard,
You touch upon an absolutely vital component of the social justice paradigm.
Without selective law making, and especially, selective enforcement, the social justice movement is selling itself short by half. I am currently here, in the US, for a conference representing a broad cross section of society (there are students, administrators, social workers, pensioners, the NGO community and elected officials). The topic of the conference deals specifically with the concept of selective enforcement and better ways that civil society can promote this element through both campaigns, the media and the legal system.
Thank you for highlighting this critical issue.
‘we can see the problem all around us’
Really? How? Do we perceive inequality in the UK on a subjective basis, from our own experience or more objectively from the ONS? Or from sections of the media which have their own agenda (such as to generate readership by appealing to meaningless notions of unfairness)?
By meaningless I mean that those pushing for more equality tell me that the 1970s were more equal than today. Maybe so. But it was grim – we were all poorer. I’d rather have higher baseline prosperity for all, even if equality was worse.
The standard neoliberal argument comes out
Next you will be talking rising tides float all boats
Utter nonsense and you have exposed your own position, which is to undermine any move towards social justice the case for which is so well documented I do not need repeat anything here
So-trebling of food bank usage is higher baseline prosperity?????
I know you prefer the Palma index but bear with me. The Gini co-effs for Serbia and Germany are similar but where would you prefer to live, if you had to choose? The richer country where people have higher wages, or the poorer, both having similar levels of inequality?
Do you specialise in asking pointless questions?
I will be deleting your future contributions
I’d prefer a country with better equality – so that I would at least feel less guilty that I was doing better than others or had to avoid the ‘there but for the grace of God go I’ syndrome. More equality would stop me worrying about my fellow poorer citizens. It might stop the emergence of more ‘no go’ areas in our cities and slow down the rate of mental health issues. It would also make me feel less hunted because I’m convinced that Tories want to make me and millions of others intentionally poor.
Also, with all the talk of reductions in wage levels, why do you equate being richer with just wages? Wealth is not now really just measured in wages is it – it is also measured in assets and other stores of value (housing, financial instruments, luxury cars etc)? Wealth is measured now by the accrual of such assets and cash itself – not just wages. You are ignoring a number of fundamental issues.
And whilst this accrual continues unabated, not only do the poor grow poorer (the rise in the working poor is well documented) but the ranks of the poor are swelled by the diminishing middle class whose lives are sacrificed to give a return to those who are already wealthy enough to invest in the first place. So instead of just ‘trickling down’, the wealth being invested literally rinses away what wealth there was in the workforces and is sucked back into the wealthy.
I have to say that your use of language here is typically neo-lib – surely even you can see that the ‘higher baseline of prosperity for all’ you talk of is simply not possible if you also accept a higher level of inequality.
But then again, perhaps we should not be surprised.
I watched the Channel 4 Dispatches programme about our defence cuts this evening.
Taking it at face value, it was a deeply embarrassing programme. I’m certainly no war monger and I’d would love us to become neutral like a few other states I can think of – and I don’t want trident either . But really……………it was symbolic of how low this country has been brought by neo-liberal policies and ideas – many of which have just been adopted by Tory governments without thinking.
As I understand matters, tax is portrayed by the dominant neo-lib orthodoxy in the USA as an evil thing. So now, due to less tax income, you have had the hollowing out of public services – at national and local levels in the States so that even some local fire stations in some American states can essentially not deliver a service because of a lack of funding. The neo-lib way is to use promises of less taxation to win votes in elections but reassure the voting sheep…….sorry….public that they can still have good public services. And of course the voter still falls for it time after time. Both over here and in the States.
So as tax income has dropped in the USA, it has still been able to invest in its military by running huge deficits. And because its currency is used to trade oil and as for loans by the IMF, such huge deficits can be tolerated because they help towards creating an artificial cushion that sustains the value of the dollar (but not by countries like Japan or the UK whose currencies are somewhat weaker).
So there’s the rub. We’ve had years of American neo-lib tax cuts by the Tories that Labour did little to turn that back. And for our little country, all those tax cuts and failures to collect tax are like chickens coming home to roost. We can’t even fund our military properly, let alone anything else. And we still think that we can rub shoulders with the big boys and get our toys out in places like Iraq and Afghanistan. And when our service man and women come back injured, we can palm them off the charities without burdening the voter with their problems created by the fact that the injured and broken were trying to protect us.
We are not a poor country and the lack of proper taxation and its bogus use as a tool for political gain means that too much money is in the wrong place.
People need to go back to history. What made this country great was not the enabling of individuals to hoard money or have offshore accounts, but the willingness of Kings, Queens and Prime ministers to collect tax and put those funds to work for the greater good. For Britain. Whether taxes were to raise armies for our defence or aimed at reducing inequality and improving living standards or building infrastructure – these products of taxation benefited everyone in some way. And they still can.