I have already noted some tax reforms I would wish for this morning. This is in anticipation of this week's budget. Calls for technical reform though are not enough though. What we also need are programmes for immediate and long term reform to tackle the massive problems wealth inequality is creating here in the UK. I wrote a paper on the short term aspects of this last year that I share again 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 entrepreneurs' 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.
I would stress that all this was before looking at land taxation reforms, which were not counted in totals as the benefits would go to local authorities.
It was also just a working document and not the only solution I might suggest. Critically, it avoids the issues of wealth taxation itself. What follows is what I wrote on this in chapter 9 of The Joy of Tax (which was written as if I was presenting a budget) where I first presented necessary changes to capital gains tax that would permit inheritance tax to be eliminated and then suggested a wealth tax:
Back in 1965 when capital gains tax was created it made sense to exempt a person's home from charge to this tax. This country was not then the home-owning nation the government of the day wished it to be, and there was a need to build new houses. We wanted to provide that opportunity and an incentive to take it. Property wealth was surprisingly limited. There was a desire to spread it more widely. Times have changed. This country has become one where property represents a significant part of private wealth, but precisely because of the tax relief provided in 1965 that wealth is now hugely concentrated in an ageing minority who can still afford to own their own home. Many of the young now have no chance of owning a house precisely because, after fifty years of tax-free gains having accumulated in the property market, house prices have moved way beyond their reach. What was once a good idea is now a bad idea that is creating social and inter-generational stress in the UK. As a result gains arising from today on UK housing will be taxable. But, because I know that people need to move for many reasons during their lives, we will only collect the tax due when a person dies or when they do not reinvest the proceeds of the sale of their house in another home. No one will be denied the chance to live in a house to the value they have been accustomed to owning because of this tax charge.
Capital gains will also apply to the sale of all agricultural land and businesses in future, and upon the gift of all assets whether during life or on death. In the case of owner-managed businesses and family-run farms we recognize that continuity of management is important, and that businesses should not be denuded of capital as a result of tax owing. Consequently we will make special arrangements in these cases to accept part-ownership of the assets sold or gifted in lieu of taxes, but do make clear that such ownership will be actively managed to ensure that the state receives its share of future profits, and special rights shall be attached to any shares accepted as part of such an arrangement to ensure that these rights can be enforced.
With these changes to capital gains tax there will be little reason for inheritance tax in the future and as a result I confirm that this tax, which has been the cause of much vexation, will be abolished.
In place of this tax I am instead proposing a wealth tax. This is now possible for the first time because of the information- sharing agreements that we now have with so many of the world's tax havens. We will pursue such deals with those that have still not signed them. In the meantime any professional adviser who in any way assists a person to avoid tax by exploiting the remaining states who have not cooperated with us will under new arrangements become personally liable for all tax not paid as a consequence, without limit.
The wealth tax will not be charged on main residences, family farms and private businesses that will now be subject to capital gains tax in life, whether gifted or sold, and on death. Nor will it be charged on pension wealth.
This charge will then be on let property portfolios, financial investment portfolios, personal property and other assets of similar type primarily used to generate unearned income, unless they are otherwise exempted by law using the new principles for writing tax law that I have already outlined. The charge will be introduced on all such portfolios worth more than £1 million at the rate of 1 per cent per annum, although the rate will increase with the scale of declared wealth. All wealth will be subject to self-declaration. Any assets not declared will become the property of the state. Any asset undervalued will be subject to sale to the state at the under-declared price if the Department of Taxation decides to exercise that option. Wealth will be calculated on a worldwide basis.
The consequence was a proposal for a wealth tax targeted at financial wealth, or the savings of a very small but immensely rich part of society, to put it another way. And this, I suggest, is exactly what we now need.
I am not optimistic we will get it.
More on the theme of What I want for the Budget will be published shortly.
I will be commenting on the Budget on BBC Radio 2 at about 13.30 on Wednesday.
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I support this totally.
Ending austerity (see interesting link below to indicate that your thinking is not isolated) demands that the Government not only prints money but that the tax system is reformed – particularly in that even some of the rich such as George Soros and Amazon start-up investor Nick Hanauer are basically saying what you are suggesting – that the rich are under-taxed.
http://blog.spicker.uk/it-has-never-been-about-austerity/
[…] The next part of What I want for the Budget is available here. […]
I agree that the tax relief on pension contributions should be equalised across all incomes – 20% seems reasonable across the board, with the 40% deferment abolished.
What I feel is missing from your commentary is ‘simplicity’ – I know you are a fan of Adam Smith, but not the Adam Smith Institute but his 7th Canon of Simplicity really is good
Also good on simplicity is this from taxresearch.org.uk ( http://www.taxresearch.org.uk/Blog/2007/01/11/tax-justice-positive-5-simplicity-in-taxation-legislation/ )
I really liked the bit about being opposed to tax law being interpreted using the law.
Oops, the canon of simplicity is not one of Smith’s. Apologies for the error.
I am asking for simplicity – by reducing allowances and reliefs that is exactly what I am aiming for
There should be no tax relief on private pension contributions. All working people and their employers should contribute to a state pension scheme, where there is no leakage to the finance sector. The rest are just savings which you can make if you have sufficient disposable income. A decent state pension scheme (like SERPS) would require the whole of the current NICS contributions plus.
Oops, forgot about employers’ contribution. So maybe not all.
I think that a bit extreme bit I am moving that way
Isn’t it the case that pensions get tax relief on contributions, but pay tax on withdrawals once the pension starts to pay out, thus it is really deferred taxation.
No it isn’t, because there is always much less tax ion the way out and you ignore the time impact
Reform Scotland says the State pension is unaffordable. Something has to give. So scrap it, scrap NI and make everyone contribute to a mandatory defined contribution scheme which could be run by the State, the Third Sector or the Private Sector. This “would remove the burden placed on future generations as each generation would start providing for its own retirement”.
And we have one of the least generous State Pensions in Europe.
There is no such things as saving for retirement
You can invest so that the next generation may look after you
But mass saving for retirement is not possible because yoiu can only live off the next generation’s labour in retirement, not money
Richard Murphy says:
November 20 2017 at 8:03 pm
“There is no such things as saving for retirement
You can invest so that the next generation may look after you
But mass saving for retirement is not possible because you can only live off the next generation’s labour in retirement, not money”
These few lines encapsulate the nub of the problem (well a problem, but a very basic one) we are struggling with.
Thatcherism (and her neoliberal followers) broke that inter-generational contract. Supermac was no communist or bleeding heart liberal, and even he was appalled at the selling off of of the family silver. He would be. He was far enough up the social economic scale to know that people don’t do things like that and he had the wit to see that what has been good strategy for the aristos through the generations is good for the state and its people.
We have seen our collective heritage plundered for private individual profit.
We had no right to sell the Utilities. They weren’t ours to sell. They were built and paid for by our parents and grandparents and left in trust to us to maintain, benefit from and to pass on to our children and childrens’ children. We plundered the Mutual financial organisations and they survived barely a decade before ‘the market pirates had destroyed their accumulated assets.
We currently live amongst some of the most the selfish and self-centred humanity that has ever been part of this planet’s biosphere.
People will tell you they have paid in all their working life, and in a sense they have, but they have paid in to a contract that has been sold for a mess of pottage. And as you have observed previously much of what these people now have and hold they gained by virtue of what they have been given through inheritance (of the public estate) and by generous tax reliefs.
And they/we won’t even pay willingly to educate and house the next generation.
I am ashamed to be a part of this generation.
[…] But what does that mean? It means we can tax wealth. […]
“Any asset undervalued will be subject to sale to the state at the under-declared price if the Department of Taxation decides to exercise that option.”
Now that’s clever. I like that. That’s the sort of mechanism that encourages honest appraisal of value.
It works like “you cut and I’ll pick” when sharing the cake. Nobody is fooled twice by that lesson.
That’s the same principle which could apply to land valuations, if there wasn’t time for VOA to complete before introduction of LVT.
But where are we to find the people who will take the reins and do this.
How are we to create a parliament and a government which will serve the interests of the people who live in this benighted island of self-serving pirates?
Pass
One area of pension provision I would like to see reformed, and I’m not sure this is in the field of tax reform is that company pension schemes should include all employees. That is to say that board and senior management pension provision would be included in the same scheme as ‘ordinary employees’
I think we’d see a bit of focus on the quality and integrity of company pension schemes that way. The differential arrangements which have robbed pensioners of entitlement in recent decades have added hugely, I believe, to the inequality of real incomes. I don’t think companies would have so lightly done away with index linking and other beneficial arrangements, and the chances of companies going to the wall only to discover that pension funds have been depleted would diminish markedly I suggest.
This suggestion would not prevent individuals making additional personal pension arrangements of course, if they felt the need or desire to do so.
Better for the economy as a whole if they didn’t feel the need to I think.
[…] I want from the budget today. I wanted effective measures against tax abuse and real increases in taxes on wealth. I seriously doubt either will happen. I also want an end to austerity and again expect to be […]