There has been a marked absence of willing to tax wealth in the UK. I have always felt this a serious error of judgement and discussion on the late Duke of Westminster's tax avoidance just highlights that.
I wrote a paper on this a while ago that did not see the light of day at the time but which I share now. The summary says:
This brief report looks at the financial wealth of the UK, its distribution and its taxation and suggests reforms to:
- Create a fairer tax system;
- Reduce inequality;
- Release funds for use to benefit those who have lost out under Conservative and Coalition governments;
- Boost investment;
- Encourage greater tax compliance.
It does this by:
- Suggesting an investment income surcharge be included in the income tax system that would increase the tax rate on the savings and investment income of higher rate taxpayers by 15%. This might raise £6.5 billion of new revenues per annum;
- Reforming capital gains tax to:
- Halve the annual allowance
- Have the tax paid at income tax rates
- Abolish entrepreneur’s relief
- Improve tax compliance
These reforms might raise £9 billion a year;
- Restrict some inheritance tax reliefs in advance of more thorough-going reform to raise £0.5 billion a year;
- Review the long term possibility of a wealth tax.
These changes raise a total of £16 billion a year.
The report also looks at the interaction of tax reliefs and pension contributions given that 40% of UK wealth is in private pension funds. It suggests:
- Restricting all higher rate pensions contribution reliefs, raising maybe £8 billion of tax a year;
- Requiring that 20% of all pension contributions be invested in employment creating opportunities in exchange for the tax reliefs available to pension funds. This might direct £20 billion towards new employment creating opportunities a year.
In total then this report suggests the source of £24 billion of tax revenues and £20 billion of investment funds a year as a result of a review of the relationship between wealth and taxation in the UK.
And I would stress that was before looking at major inheritance tax reforms whilst suggested land taxation reforms were not counted in totals a the benefits would go to local authorities.
I stress, it was just a working document that I have dragged out as it seems relevant today. But I hope it suggests that there are ways to create a more equitable tax system.
Yet again – together with http://www.taxresearch.org.uk/Blog/2016/08/10/who-might-create-a-uk-country-by-country-reporting-standard/ – a virtuoso demonstration that there is absolutely no shortage of ideas as to how progress towards a more egalitarian society, one at the same time providing a better quality of life for the vast majority of its members (*including* all but a tiny minority of the most incorrigibly avaricious) could be achieved – if only the political will existed.
I harbour the suspicion – which may be starry-eyed – that the greater part of any group of ordinary people reasonably representative of all social groups in the population of these islands would vote “yes” to such proposals as these, because they are so self-evidently both eminently fair and desperately needed to counter unconscionable/verging-on-criminal corporate (as well as some individual) behaviour.
So why won’t they happen? Inertia? Conservatism? The power of money and vested interest? Or is it at bottom that we all feel constrained to defend our own interests (not necessarily only in an ignoble way) and *all alike* fear that if they disarm while others don’t they will just end-up being taken to the cleaners, and that therefore no one who has anything at all to lose is willing to take the first step?
Only political parties can break through such understandable, instinctively defensive, attitudes and provide the impetus to start the ball rolling. That will never be done by the Conservative party as it now is, nor does there seem to be any prospect of it moving in that direction. For any party of the Left to do so requires that it first win an election on a platform containing the radical-reform agenda which this country now needs, for which Richard’s papers (among others) make such a compelling case.
Labour did that in 1945. Thatcher did it from the Right in 1970 – yes, to roll-back the “post-war consensus” *was* a radical-reform agenda, like it or hate it. Does anyone not a die-hard Corbynista seriously believe that Corbyn can emulate from the Left Thatcher’s (or Blair’s, come to that) success?
One thing I’d like to add that I feel strongly about. The cost of increasing the personal tax allowance between 2010 and 2020 will be c.£100bn (I’ve done the calcualtions)
Of course some of this benefits low income households, but the majority of this has been basically an income tax cut for middle and higher earners (hence why the tories were able to claim that they had reduced income tax by more than £1,000 per person at the last election.)
So I would add to the list: not increasing the personal tax allowance, (or at least not passing the benefits on to middle and high earners)
I agree: I would have much preferred a lower starting point and a low initial rate
I would add that all the tax I suggest might be raised should, in my opinion, go to reducing tax rates like VAT and reversing benefits cuts and not be sued to reduce debt
Nothing happens because the left is right and the right is right. Both sides are extreme. One wants 100% tax the other wants no tax. The politicians want to get reelected so they will not do anything to rock the boat. The problem continue’s. What ever happened to common sense? Neo liberalism does not work, we have had over 30 years of so called trickle down economics, it does not even drip down. We know communism does not work, yet both sides continue screaming their propaganda.
Cut health care? Why? Is that not an investment in people? What has austerity succeeded at? More unemployed.The politicians just repeat the same mantra, the masses just sit there, the rich are getting richer and there are more rich. The poor just get F****D.
What happens as automation takes over more jobs? Robotics and artificial intelligence are getting cheaper and more powerful by the day. So we know that jobs are going to disappear. So do we just leave the unemployed to fend for themselves? Not everyone can run a business.
Do we just let the lower class grow without even trying to help? Why are there no investment programs for working people? What happens if the unemployed and those in poverty double in number? More austerity? The political class does not even seem to be aware that there is a problem, could they really be that stupid? It seems that nobody wants to do anything except keep everything as it is.
Honestly I do not have an answer. But I got more questions all the time
I did not read beyond your third sentence which is so crass it is absurd
Prof Piketty raised the same issues.
My interpretation of the posters points are that his observations broadly agree with those of Piketty. You find them crass, I find them salient.
Essentially if tax is not a redistributive mechanism it is tyranny.
I believe Prof Felix Martin explains the nature of state created motivation tokens in his writings.
Anthropology and Economics are subjects which mathematician’s seem to struggle with, as the comprehension is not quantitative.
“Ἀπόδοτε οὖν τὰ Καίσαρος Καίσαρι καὶ τὰ τοῦ Θεοῦ τῷ Θεῷ”
Perhaps this will be my last post on this blog, that is not in my control.
If you read the Joy of Tax you would know that I think redistribution a fundamental role for tax.
What was crass was the comment that the right want no tax and the left 100% tax
Richard,
Just a quick thought, since your writing does make me think.
Maybe just eliminate income tax altogether? Replace with…?
Why?
What about tax simplification. Why, globally, are we so drawn to complexity. Is this so that the 10% that own 50% of our national wealth can continue to benefit themselves rather than contribute to the greater good?
A glaring cause for concern is National Insurance (NI) and income tax. The reason the employed suffer more taxation than those who can extract earnings as investment income (for example shareholders of smaller companies who take dividends in preference to salary)is that they are required to pay NI as well as income tax. Employers are also required to make NI contributions. In some respects NI is a tax that mitigates against full employment.
So why not merge NI and income tax? Set a more realistic basic rate, 25%, 30%…
Are there not similar opportunities to scrap CGT and IHT and replace them with a wealth tax? This could be determined as part of self-assessment – any increase in real wealth being taxed annually. And yes, reverse the tax shelters offered by trusts and corporate structures by drilling down to the individuals who benefit from their assets.
Surely, if our tax system was simplified, there would be fewer opportubities to work the system against the greater good? And also, there is the real possibility that more than 1% of the population would be able to understand what was going on…
OK let’s merge them
So now we have pensioners still paying what is in effect NI. Is that fair?
The reason the Rac system is complex is because, by and larg, it needs to be. I am nit saying no simplification is possible but many simplifications suit the wealthiest very well and the least well if very badly
OK, if NI was abolished, what about:
1. Make the basic state pension tax free if it forms part of the basic rate band, taxable at higher rates.
2. Abolish the income tax personal allowance and set a realistic living wage figure. Until a persons income exceeds the living wage they don’t pay tax.
As the living wage figure would probably exceed the basic state pension this would be a better protection for pensioners.
3. The living wage allowance is gradually reduced as a tax free allowance once a person’s income exceeds the basic rate limit.
4. If NI was abolished it would sort out issues like taking dividends instead of salary, the tax take would be the same.
5. There are a whole bunch of minor income tax reliefs that could abolished if we set a living wage allowance; including the recently added £5,000 dividend allowance.
Bob
These just won’t work
I suggest you read the Joy of Tax
I am not repeating it here