Nicholas Stern - that is Lord Stern, famous for his work on climate change - has an article in the FT this morning on the urgent need for tax reform in the UK. He concludes:
Reforming the tax system is not an easy task for a politician. But neither is taking the hatchet once again to public services that already bear the scars of earlier cuts. And, whereas underfunded public services will make our country weaker, a better tax system will help us to prosper. The choice is clear. Let us have a serious discussion.
There are a number of reasons why Lord Stern is right to say that. First of all politicians are avoiding this debate. It is vital, for example, that we do debate how to make the existing tax system work by closing the tax gap, but that is not enough: we need to imagine the tax system we want as well.
Second, he is right that good tax systems can help prosperity. Note that in saying so he is not suggesting cuts to achieve this aim. What he is saying is that of the options of cuts or a better tax system the latter is by far the better and easier to deliver.
Third, as his article makes clear, he sees the tax and benefits systems as being inevitably and inextricably linked. We have now moved to an era where this association is not made, and that has to be corrected as a matter of urgency or the range of tax reforms available to us is far too limited.
Fourth, banking and finance simply does not pay enough tax. And nor do polluting activities. The result is that we have an economy that far too obviously rewards harmful economic activity whilst denying the chance for beneficial economic activity to flourish.
And fifth (for now) we under-tax land and so wealth, and the social impact of this is now horribly obvious. House prices have become unaffordable as a result. Without taxing land, in (potentially)several ways, this cannot be corrected. The adjustment may take time, but it has to start and soon.
But the debate comes first. I will be contributing to it.
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The housing situation is the big one. But with a culture that sees housing as a perpetual asset bubble and mulch cow for equity we might have to wait until the bubble bursts so massively that we will have a wailing and gnashing of teeth in the face of negative equity -I, personally cannot see any other result as the irrationality of it all knows no limits.
LVT makes a lot of sense -but the chance of politicians taking this up or an equivalent cultural shift is about as likely as Halley’s comet floating past my lounge windows.
I agree 100% with this article. I have for many years thought that the tax system we currently have does not produce efficacious outcomes. Unfortunately the Conservatives are the only ones comtemplating serious changes to how we are taxed, albeit only the backbenchers.
Ed Balls is one of the worst culprits in the Labour Party for playing it too safe. His view on VAT is symptomatic of this. He only ever suggested a temporary cut in VAT and is now saying that he would not be able to cut VAT in 2015 were he Chancellor because he is “daunted” by the size of the deficit http://www.itv.com/news/update/2014-03-16/balls-rules-out-vat-cut-due-to-daunting-deficit/
VAT is one of the most regressive taxes going having a disproportionate effect on low income households. If Labour are serious about reducing the deficit (which I don’t agree needs to be done at the speed that either Tory or Labour suggest is necessary) then they should focus on taxing wealth and not income or consumption.
Incidentally I would add to the above list a levy on unhealthy foods. I think that this would also need to be done in conjunction with business rate exemptions for greengrocers and a renewed focus on healthy eating (including food preparation/hmoe economics) in schools. I accept that I am probably in the minority who would agree with this, I know that Andy Burnham has spoken out against it, stating that it would affect low income households more. But this affect would only be the case because often people in high-density urban areas do not have easy access to fresh fruit and vegetables. The low-cost pre-packaged food that is readily available from convenience stores is not only packed with salt and suger but also often contains meat of poor quality that has been reared in poor conditions.
We can have regressive taxes on unhealthy food BUT we also have to have a compensatory benefits system
If you have time to read, Richard, I could send you Jerry Jones’ and my draft paper on how to start to introduce LVT in a way which could be acceptable to politicians. I believe that if we don’t get Balls to seriously consider this, he (or whoever becomes Chancellor) will just tinker with Council Tax, as Stern suggests. It will upset many people and the revaluation exercise will cost a lot, but they will do it in the first year, hoping that it will be forgotten by next election time. Once done they will not revisit residential property tax for another 25 years – and we will never solve the permanent housing crisis, nor gross wealth inequality, nor the boom/bust cycle.
Please send Carol
Thanks