The FT has a comment article this morning from someone called Prof Nick Bosanquet. This retired professor of health economics who seems to have close links to right wing think tanks has made the most bizarre claim that what the UK needs right now is a sales tax to help its young people because that,. he says, would redistribute resources to them. His logic seems to be:
For the iPod generation, tax reform is crucial. The UK's independent Office for Budgetary Responsibility forecasts that, for the four years to 2016-17, revenue from income tax and NI will rise 23 per cent — much more than from sales, corporation and tobacco taxes. This is intensifying pressure on taxes on income, which weigh heavily on younger people.
This is an extraordinary claim. Very clearly income tax does not fall most heavily on young people. Income tax, as we know, is by far the most progressive tax in the UK with 25% of all income tax being paid by the top 1% of tax payers. Maybe the Professor mixes with some rather odd young people, but I would have thought he's have realised that by and large in the UK (and there are exceptions, I know) income rises with age. The most cursory observation suggests therefore that income tax liabilities fall most heavily on those who are older, not those who are younger, are at the outset of their careers and whose pay is relatively low as a result - and who he says are the focus of his concern.
But having given us a first staggering example of a wild claim without any foundation in fact he goes on to make another:
The UK needs a more broad-based sales tax, covering even groceries — a frontier of public indignation. This is needed if wealthier pensioners and the buoyant over-50s are to pay their fair share, balancing their privileged access to benefits. In his book, The Pinch, UK universities and science minister David Willetts rightly stressed the importance of the intergenerational bargain — but this has deteriorated in the past two years. Only tax reform can redress the balance and halt the economic decline of a generation.
Again, this is a bizarre claim: the over 50's have the highest savings ratios on the UK - for the obvious reason that they are putting money aside for pensions. They also have the greatest wealth - precisely because they do not spend all they earn. As a result a slaes tax has least impact on them.
On the other hand the young often spend more than their income - they borrow. As such a sales tax would have a massive impact on their ability to spend. The result is obvious - sales taxes are regressive favour older people and the wealthiest and so increase inequality and the inter-generational wealth divide.
But the right wing claim they are the solution to our problems. candidly, that is very seriously incorrect.
What is true is that we need tax reform - but what we need to tax is wealth in the form of land value, inheritance taxes ann capital gains. But a sales tax is the last thing we need.
Prof Bosanquet should stick to health, I think.
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The Bosanquet article is a truly crazy piece of work – it reflects badly on the FT that they are even prepared to publish stuff like this. It’s incoherent even on its own terms.
Despite the fact that what the coalition govt has done in terms of raising personal allowances and the NICs primary threshold is a very inefficient way of improving the net income of low earners (because most of the benefit goes to middle-to-high income families), the £9k personal allowance DOES mean that very low earners don’t pay income tax – whereas they DO pay VAT (and they’d pay a lot more VAT if it was extended to essentials as Bosanquet argues). So his argument that VAT reduces the burden on the low paid is simply wrong on its own terms.
The only bit of the article which makes any sense at all is the bit where he says that graduates face high marginal rates due to paying back loans on £9k/year tuition fees – true, but in that case use a graduate tax on high earning graduates to pay for the HE system instead (or indeed just fund it out of general taxation).
Agreed. Sales tax = worst taxes, NIC = second worst tax, income tax = not so bad, really, but not perfect.
“what we need to tax is wealth in the form of land value, inheritance taxes and capital gains.”
That’s the beauty of LVT (the best tax of all).
The bulk of taxed inheritances are inflated land values, and the bulk of unearned capital gains are on land values. If you tax these at source via LVT, there’s not really much need for IHT or CGT, in any event, the receipts would be dwindlingly small – at present these taxes raise about £3 billion each – about the same as the TV licence fee.
Okay,LVT sounds a good idea – can you give an idea on how/when it could be best applied? Thanks.
Richard, I commend you and Howard on your restrained responses. The idea that Bosanquet has floated is absolutely bonkers.
Presumably on this premise re-introduction of the “poll tax” would also assist young people and we all know the outcome of introducing the poll tax!
As an aside I am bitterly opposed to tuition fees. They are in effect a tax designed to restrict social mobility and one of the tools the wealthy use to consolidate their position. What Bosanquet proposes is simply another tool for them to add to their ever expanding collection.
Perhaps we should reflect upon this proposal. If a sales tax assisted in driving down consumer consumption. Lessening of mindless consumer consumption would be a huge positive for the environment and sustainability. Aren’t those the bigger issues we should be focused upon?
Not if people can’t eat
If the environment is not the top priority, eating will be the least of our worries.
Bosanquet has, of course, a perfectly adequate model for what happens when you put sales tax on food – Jersey’s GST, currently set at 5%. That it leaves a third of the population below the poverty line is probably something he hasn’t noticed.
It is a pretty bizarre proposal, not least because Sales Taxes (as opposed to VAT) are not even allowed under EU law. Perhaps he simply means extending and raising VAT but that is a bad idea as well. There are some on the left such as Roberto Unger who argue for high VAT to maximise revenue for social programmes that will be more progressive than the tax is regressive, but that is hardly a good option when there are better sources of tax revenue available. Also of course, this is not a proposal to increase the amount of revenue the Government receives, but simply to make tax more regressive.
It’s probably on a list of powers to be ‘repatriated’ from the EU if the Right get their way.
There is some justification for considering a consumption tax, but this should be a replacement for VAT which is rubbish, and could only work if income tax were abolished and only those receiving eocnomic rent paid ‘super-tax. A consumption tax should only apply to the purchase of non-renawables.
Richard, I read an article by Fabrice Georis, in Tax Notes (Tax Analysts), where he calls for the replacement of the corporate income tax with a tax on the capital of business entities. Any thoughts on this?