I wrote the following late last year. Little has changed. I offer it again to those wondering what we must do to bring capitalism back under democratic control as part of the widespread demand that we create social justice in our country and throughout the world.
The pdf version of this document is here.
Overview
The UK is facing the largest round of cuts in government spending ever proposed by a Whitehall administration. At the same time the UK faces:
- The biggest ever tax gap in its history[i].
- The lowest number of staff ever employed by HM Revenue & Customs[ii].
- The lowest headline and effective rates of corporation tax in its history[iii].
- Low levels of tax for its banks[iv].
- High levels of corporate tax avoidance[v].
- Significant errors in tax administration[vi].
There are numerous indications that large sections of the UK population find it unacceptable and want action to be taken to address these issues.
This Briefing sets out a manifesto the tax justice - a demand for changes that would transform the way in British taxation policy and management could be transformed.
Cuts and the Tax Gap
We note
- The cuts planned by the ConDem government[vii].
- That there is a tax gap in the UK made up of £70 billion of tax evasion, £25 billion of tax avoidance and £25 billion of unpaid tax[viii].
- That the government has got rid of 30,000 employees at H M Revenue & Customs and is planning to get rid of 13,000 more over the next four years[ix].
- The massive errors in the calculation of people's tax bills by H M Revenue & Customs[x].
We demand:
- That the government stop the cuts.
- That all job cuts at H M Revenue & Customs be cancelled.
- That 20,000 new staff be recruited at H M Revenue & Customs to tackle the tax gap.
- That H M Revenue & Customs be told to raise the right amount of tax at the right time from the right person and that it be given the resources necessary to ensure it can do so.
- That we have a General Anti-avoidance Provision that bans tax avoidance[xi].
- The tax system is made progressive so that the rich always pay more than the poor[xii].
Business tax and the banks
We note
- That big business is not paying the tax expected of it[xiii].
- That big business is the only part of the economy expecting a tax cut over the next four years[xiv].
- That by 2014 big business will be paying tax at lower rates than any small business and any individual in the UK[xv].
- That the banks who created the current financial crisis are paying very little tax as a result of it[xvi].
- The new bank levy will raise less than the one off Bankers' Bonus Tax[xvii].
- That the government is opposing a Robin Hood Tax on the riskiest transactions banks undertake that could raise billions of pounds a year[xviii].
We demand:
- That tax laws applicable to big business be rigorously imposed.
- That planned tax cuts for big business be cancelled.
- That banks be denied tax relief on losses already funded by the state.
- That the bankers' bonus tax be made permanent.
- That the government introduce a Robin Hood Tax instead of the bank levy.
- That country-by-country reporting be required of big business so anyone can monitor where they make their profits and pay their taxes[xix].
Tax havens
We note:
- That the UK is responsible for ten tax havens[xx].
- The UK is itself a tax haven for rich foreigners because of its domicile rule[xxi].
- There has been almost no progress in increasing transparency in tax havens[xxii].
- Latest deals with tax havens like Switzerland confirm their right to provide banking secrecy[xxiii].
- Tax havens are estimated to cost the UK £18.5 billion a year[xxiv].
We demand:
- That the UK force its tax havens to reform
- That the UK domicile rule be abolished
- That automatic exchange of information between states on income earned by people and companies be established so that no one can hide their income from tax authorities
- That deals that preserve banking secrecy with Switzerland and other states be scrapped before they are signed
- That the secrecy surrounding offshore companies and trusts be banned.
Endnotes
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The fundamental problem is that there appears to be a genuine conflict between a just system of taxation and maximising revenue. Essentially, it is the question whether you want 30% of a lot or 70% of a little. The answer to that is at least as much a question of ideology as of mathematics and economics.
Given that finance is squeezing the life out of the real economy then there is no doubt at all that we could have more tax without the City
Absolutely agree with that. The banks are parasites, but not very effective ones because they are killing the host.
I support the Robin Hood tax, but think its naming is unfortunate. It promotes the idea of poor vs. rich, but really we just want to tax the unproductive and reckless.
Land Value Tax (with, if possible, 0% income and corporation tax but adding the necessary taxes on unsustainable use of resources [including human resources]) would be my suggestion…
I think land value tax is important
I do not think that it can for a moment replace other taxes
The injustices would be huge and massively socially destructive
That is why I continue to steer clear of it except as a replacement for council tax
“I think land value tax is important. I do not think that it can for a moment replace other taxes. The injustices would be huge and massively socially destructive.”
OK. So can you explain why home buyers should continue paying mortgages to an insolvent banking system for private gain, when it is socially and government-generated land location value which is the root source of mortgage payments?
If existing mortgage borrowers swapped their mortgages for LVT style payments to government, wouldn’t this at once solve the current problems of government finance, and immediately reform the banking sector too?
This is a policy whose only downside is to bankers and their industry, hoping for a resumption of mega-profits in the next few years.
Implementing a voluntary policy of swapping mortgages for LVT-like payments is simple with “Location Value Covenants” developed by the Systemic Fiscal Reform Group. So far *no* significant downsides or barriers have been raised – political, financial or economic.
http://www.systemicfiscalreform.org/Home/land-value-covenants
I think you ignore tha fact that bank failure would have massive social cost
I want reform
But I don’t want destruction on the way
I don’t really get you about bank failure and destruction. I pointed out that the reform reduced future banking profitability. You then reject the proposal as having “massive social cost” from “bank failure”. I think this is mistaken.
If the business activity of the banks is reduced, they employ fewer people. This increases real economic productivity, which is a good thing, yes? This happened in loads of industries over the centuries – stabling for horses, chimney cleaning, sail making. Farming is a great example of dramatically boosted productivity and reduced labour requirement.
In many cases, the fall in demand and profitability of banking services would result in mergers and acquisitions, followed by streamlining. Perhaps a reasonable size and economic burden of the banking industry would be comparable to that of the electricity transmission network.
Of course bank balance sheets would be protected when mortgage debt is acquired through the issue of treasury notes in exchange. Location Value Covenants pose no new risk to the safety of bank depositors or bondholders. Indeed by permitting the expansion of the economy, the value of the currency is preserved.
The banks’ main business model – creating new government fiat money against land titles is *entirely* bogus. And it removes the natural source of income for governments to provide local services (ie almost all of them). Hong Kong has, by historical quirk (because of Britain’s 99 year lease blocked land sales), avoided this, and in consequence has had low taxes, economic vibrancy and is now running chronic budget surpluses. The solution to their surplus is to distribute it as a regular dividend to citizens.
I’m now somewhat puzzled. I had thought that you recognised the bankers were “taking the mickey”, and bankers taking home giant bonuses demonstrated a major flaw in the system. I explain the bogus origin of these bonuses, and a remarkably simple reform to rapidly restore health to government finances, reduce taxes on production and cut banker welfare transfers and the upward redistribution of wealth. And it seems that your concern switches to the need to protect the future profits of the banking industry!
Your three statements here prove you understand the issues:
“Given that finance is squeezing the life out of the real economy then there is no doubt at all that we could have more tax without the City”
“I think land value tax is important”
“The injustices would be huge and massively socially destructive”
If you carefully analyse the economic and financial stocks and flows of the economic actors (bank, home buyer, government, real economy), you will realise that the injustices and political barriers to LVT *are* readily soluble through the instrument of LVCs. These are the right way to reduce chronic banker subsidies (and shut down tax havens for good!).
So I see nothing in the Location Value Covenant model which would not meet the strong approval of you and your associates.