Mirrlees – and consumption taxes

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The Mirrlees review has a number of assumptions on consumption taxes. The most important, it says, is that such taxes should only be charged on consumers.

It sounds so innocuous, doesn’t it? But think about it for a moment. What it is saying is this:

- No disallowable VAT for business. So, for example, banks should be able to recover all the VAT charged to them, which they can’t at present;

- No stamp duties for businesses – so no tax on their land dealings.

- The end of business rates.

- The end of taxes such as fuel duties, road fund licences and so much else to business.

No wonder business will like this. Here’s a massive boost for profits. This will redistribute enormously – a point they seem to utterly ignore thereafter in all their calculations on the distributional impacts of what they recommend.

Secondly, they argue that lower and VAT zero rates on necessities should be abolished – because they’re poor methods for redistributing. So let’s charge VAT on everything including food, water, reading materials, children’s clothes, and so much more. The argument is that redistribution can be better achieved through income taxes – a fact they do however assiduously ignore in their presentations on income tax where they do instead argue for a simpler profile of tax rates.

And they argue that in practice since over a lifetime income equals spending (again, indicating their willingness to entirely ignore the impact of capital ownership in the economy) so the fact that a low income household has a disadvantage in the VAT system they promote is not a problem because a) it will all work out all right in the end and anyway b) most low income households are only temporarily on low incomes – because they are students, for example – and so actually are living on their savings by choice and as such income is not a good guide to the capacity to spend.

I do seriously wonder whether these people have ever been out in the real world where people have no savings? I mean, one at all. Which is true of vast numbers of households in the UK.Not through any fault of their own – but because they do not earn enough to save – let alone make ends meet, week by week.

The callous indifference to this reality is staggering in the IFS proposal. And it is telling that apparently the only low income households they are aware of are students and the self employed having a dip in profits. That is all the presenter referred to!

Yes, I know they suggest some income redistribution to compensate for this extra VAT. I agree, that they do that. But there are conditions – not least being that a person qualifies and secondly claims. The VAT will apply to all. The take up of benefit claims is much lower.

As ever, the recommendations of this review are based on a false assumption – in this case the economist’s assumption that time is of no significance because the future can be discounted to the present in neoliberal thinking – and the complete lack of understanding of the reality of poverty in this country.

No wonder all rational people (using rationally as an indicator of wisdom rather than as an indicator of belief in neoliberal thinking) will see through the recommendations this report makes.