I gave a talk to Quakers in Bury StEdmunds last night, and thank them for their hospitality. In the question and answer session, which took up the larger part of the evening, I was almost inevitably asked what I would be doing tomorrow if I was to be presenting the budget. It was a good question. It deserves an answer, albeit in somewhat less detail than if I was really at the despatch box.
I would first lay out the background to an economic plan for the UK that recognises three fundamental facts. The first is that we need more, better paid, jobs. The second is that we need to tackle wealth and income inequality. The third is that we are going ridiculously slowly in tackling climate change and its causes. I would also raise some fundamental questions of tax reform. So, in very broad outline this would be my plan.
I would commit to a programme of Green Infrastructure Quantitative Easing of not less than £50 billion a year to generate jobs in every constituency in the UK, to drive up pay, provide careers and tackle the causes of climate change in a way that also reduces our dependency on imported fuel. Being funded by QE the programme has no impact on real government borrowing or real lending costs but yields a substantial return for the economy as a whole and for the Treasury and so reduces the deficit.
I would link payment of the minimum wage to a reduced rate of employer's national insurance. This would be self funding in terms of benefits saved.
I would begin a programme of moving towards a guaranteed minimum income by announcing that those in work not earning enough to use their personal allowance would be paid the cash value of their unused allowance at the basic rate of tax. This would be funded by withdrawing all higher rate tax reliefs of all sorts, including those on pension contributions, personal allowances and charitable giving.
I would increase the national insurance threshold at the lower end to match the income tax threshold for the time being, providing a direct boost to those on lowest pay.
I would pay for this be aligning the capital gains tax rate and income tax rates and reducing the capital gains tax allowance to £5,000 a year and by introducing measures to prevent abuse of the right to transfer property between spouses immediately prior to sale.
I would also introduce an investment income surcharge of 15% on all investment income of those earning more than £5,000 a year from savings or capital gains to match the national insurance charges earned by those in employment for three reasons. The first would be to introduce horizontal equity into the tax system, where it is absurd that those who work for a living pay a great deal more tax than those who do not. Second, this would reduce the abuse of limited companies by those paying dividends instead of salaries to avoid national insurance charges. Third this would reduce income inequality. Pensioners would be exempt from the charge unless their income exceeded £23,000 a year.
I would reduce the tax relief on borrowing for buy to let mortgages, so that interest on any borrowing exceeding 60% of a property's value at the time of purchase would be disallowed for tax. The aim would be to reduce this ratio over time. The calculation would be on a per property basis. Funds raised would be used to fund new social housing.
I would announce the planned abolition of inheritance tax and its replacement with a lifetime gifts receipts tax, charged on cumulative sums received. This tax has outlived its usefulness in its current form.
I would increase the rate of corporation tax paid by small companies by 2% and by large companies by 4% as a specific charge to cover the costs that the risk of limited liability imposes on society when companies fail, as was evidenced in 2008. The charge would be a specific tax for the benefit of not having to pay all debt if companies fail.
UK controlled foreign company legislation would be radically overhauled to increase its effectiveness.
The OECD BEPS package would be welcomed.
The Diverted Profits Tax would be abolished but be covered by a new general anti-avoidance principle (see below) that would extend to artificially avoiding the creation of a permanent establishment in the UK.
The close company rules that permitted the apportionment of income from a company controlled by five or fewer people would be revived so that profits could not be permanently hidden from higher rates of income tax in a UK privately owned company. These rules would in the first instance apply to all investment and property related income and retained taxable profits held in cash or near equivalents and undistributed resulting from trading exceeding £100,000.
To compensate 100% capital allowances for trade related assets would be introduced for all such companies.
The UK research and development tax regime would be reviewed to prevent abuse for tax avoidance.
I would introduce mandatory country-by-country reporting for all multinational corporations of any size.
I would abolish the exemption from filing full accounts currently provided to small companies in the UK. Every company must account for its use of limited liability.
I would require that all banks trading in the UK provide an annual report to HMRC, to be shared with Companies House, on who persons beneficially owning more than 10% of any limited company might be and that they report how this has been established.
I would legislate to require all UK Crown Dependencies and Overseas Territories match these company law and disclosure provisions or require mandatory withholding of tax from all interest, royalty, copyright, dividend and management fee payments to them in the case of non-compliance. The right to extend this to other non-Uk territories would be reserved (the EU excepted).
The domicile rule would be abolished and be replaced by a four year temporary residence rule.
There would be no cuts in benefits but the benefits bill would fall because of the measures introduced to increase wages and employment.
The bedroom tax would be abolished.
New rules on benefits sanctioning would be introduced permitting such action only in the case of obvious abuse of the welfare system.
The benefits cap would be abolished. There would be almost no cost from doing so.
Child benefits would be restored as a universal benefit.
The personal allowance would be restored for those earning over £100,000 a year, but as with all other allowances would only be provided at basic rate.
The rate at which higher rate taxes started to be paid would be eased by the introduction of a 30% band for the first £15,000 of income over the basic rate band. The point at which the 45% tax rate was charged would be lowered to compensate.
HMRC would be subject to a wholesale review and an Office for Tax Responsibility, reporting to a new parliamentary select committee for tax would be created.
The HMRC board would be required to represent all taxpayers and their interests and not just big business.
HMRC would be provided with additional funding of £1 billion a year and be tasked with reducing the tax gap by at least £10 billion as a result.
The Office for Tax Responsibility would be tasked with establishing the tax gap and then monitoring progress.
The Office for Tax Responsibility would be tasked with simplifying the tax gap.
A new general anti-avoidance principle with penalties and a clearance system would be introduced.
A review of UK tax penalties, including the mandatory penalty regime for VAT, would be reviewed to prevent injustice arising.
This would be a budget for the lowest paid and the vulnerable. It would be a budget for jobs. It would be a budget for justice. It would be a budget that reduced inequality. It would be a budget for a level playing field. It would be a budget for tax simplification. It would be a budget for reducing the deficit. It would be a budget for business responsibility. It would be a budget that encouraged business investment but not business speculation. It would be a budget for a fairer, wealthier, more sustainable and progressive UK.
I would have no hesitation in recommending it to the House.
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This budget would clearly go along way to present a real response to climate change, address inequality and remove many of the distorting and unjust aspects of the tax system. What would be its effects on the current account deficit? It would reduce some of the attractiveness of the City, presumably with a loss of overseas income. What factors in the budget would serve to either increase exports or decrease imports such that the overall level of debt could be reduced? The QE measures would presumably go some way to address this issue, and the reduction in tax relief for buy-to-let would discourage the increased liquidity finding its way into the housing market and so an increase in business borrowing might be expected. This would still leave a high residual household debt that would continue to keep demand weak. A more active role for government in the money supply (complemented by fairer and efficient tax collection) would be very welcome, but what steps would favour lower household debt and an increased preference for equity investment over leverage? It would be good to see a model suggesting the actual impact of such a radical budget as the left needs a clear and credible policy vision based on these priorities, but it is the impact on people’s lives and the kind of country it would help us become that can be sold to voters.
I would love to answer all those questions
I have not got the resources to model all that
Sorry
Perhaps there needs to be more collaboration, such that there can be a macroeconomic modelling process for the kind of readjustment of the economy your budget advocates. The outrageous intellectual dishonesty in the politics that supports the current abhorrence must be effectively challenged by rigorous arguments that can work with voters. Tory slogans like “We believe in lowering taxes because you know better than the government how to spend your hard earned money”, need to be understood as “We believe the government should abdicate its responsibilities in the monetary system and enable you to get further into debt”. Similarly, “We must cut the deficit to avoid getting into the same situation as Greece” need to be countered with “We need an effective and responsible system of government expenditure and taxation to avoid getting into the same situation as Greece”. Being able to demonstrate why and how good value government expenditure and redistributive taxation benefits everyone (except the very rich) is a case that the left failing to make.
If you can find the funding I know the people who can do the work
You’ve forgotten abolition of Council Tax – the most regressive tax we have. The old domestic rating system used to be the most effective wealth tax we had (according to Kay & King, The British Tax System). Of course, replace with LVT – an even more effective wealth tax, which would help to solve the housing crisis at the same time.
Sorry!
I hadn’t had breakfast when I wrote that lot
You’re forgiven – just don’t do it again;o)
Oh dear, it’s as if the general election just passed you by…
Do you think debate stops at a general election
But this isn’t debate – it’s just recycling the same old policies that you’ve proposed at every budget for the last decade. The appeal of which, I assure you, does not extend nearly as far as you like to make out.
You believe what you wish
But if you are right why are you bothering to comment?
@Jeffrey Hammond. Just because the Tories won the 2015 General Election by deceit, dishonesty and scaremongering, assisted by a poorly framed 5-year lead-up to May 7th by HM’s Loyal Opposition, whose deep mistakes from September 2010 onwards were wondrously magnified by a meretricious Right-wing mainstream media bloc – sort of Right-wing Warsaw Pact of disinformation – to repeat, in the light of the above, just because the Tories won (all of 24% of the total electorate) does NOT mean their ideas and policies are right, and it CERTAINLY doesn’t mean we have to blindly support their malodorous proposals for further entrenching the privileges of their chums in the 1%.
Richard’s proposals recognise what needs to change to produce a sane and humane economy; it’s called constructive opposition, something Labour did too little of between 2010 and 2015, and which it is still failing to do, while indulging in the navel-gazing of its Leadership campaign.
They should have endorsed Harriet Harman as Leader for 18 months to 2 years, and let a Leader emerge from the Shadow Cabinet, as he or she proved himself or herself in taking the battle to the Tories, who have already surpassed the Coalition in the depth of their hostility to the 99%.
I’ll tell you what, Jeffrey, The UK would be in a whole lot better situation economically, fiscally and socially (not to mention, culturally), in 2020 if Richard’s budget were the trajectory of this and future budgets than the one Osborne will further force us down tomorrow. Instead we will hit 2020 much further down the road to the neoliberal nirvana that Osborne and his ilk imagine exists, but which for the vast majority of the population will represent a society and economy ever closer to a 21st century variant of the late 19th and early decades of the 20th century.
Great work Richard but did you miss Channel 4 news coverage last night:
George Osborne family business’ £6m offshore deal
Chancellor George Osborne’s family business made £6m in a property deal with a developer based in a tax haven, a Channel 4 News investigation has found.
An analysis by Channel 4 News shows 73,853 commercial and residential properties in England and Wales were registered in tax havens since 2009.
Last year, a joint investigation by BBC Panorama and Private Eye revealed allegations that the Coalition had brought in new rules to help multinational companies reduce tax on UK profits.
One insider told The Independent: “George Osborne’s claims over tackling tax avoidance are nonsense. The actual money collected is a fraction of this and the rest is fake, based on what [HMRC] is ordered to say are the invisible benefits of their efforts.
Clearly our Chancellor is running our country for the benefit of business and once again it’s the working poor who foots the bill…
Jeffrey 75% of this country DIDNT vote for this government!!
I seclined to be involved in that report
I could not be sure he knew so did not do it
I’d settle for “Simple Gifts”, see Copland’s “Appalachian Spring”.
This senior would vote for that, if only. Aaron Copeland, yes, pioneers in a new land.
I’d support most of this. As a package, it would make a huge difference to the country and the economy.
Where you say “I would link payment of the minimum wage to a reduced rate of employer’s national insurance”, should that read “living” instead of “minimum”? (Otherwise, I’m not sure what you mean.)
While I agree we should be working towards a Basic Income, I’m not sure that raising the National Insurance theshold is the best way to start. Presumably this would be quite expensive (as raising the Personal Allowance has been). Tax and benefits need to be looked at together here. I’d prefer to reduce the clawback percentages on benefits (65% for Universal Credit, plus more for Council Tax Support). That would help people who already earn too little to pay any NI (or income tax).
That should indeed read living
I accept your NIC point: I would like to move to a point where NIC might go though
But NI is another form of tax and most of my low paid employees pay more NI than tax. The really regressive thing is that NI has a top cut off point when you pay no NI on your (high) income. At least as a start cannot this level be raised so as to allow – for the same NI take – low income earners to have more NI free pay?
We may not be that far apart on this.
Low-paid employees now pay more NI than income tax. But more still in claw-back of means-tested in-work benefits (if they are claiming the latter when entitled to, which not all do).
Including claw-backs, the highest tax rates are currently on the low-paid – rates over 80%, compared to 45% or 47% on high incomes.
I would like to work towards a system in which everybody is paid a Basic Income unconditionally, tax-free, with no claw-back. And all other income, whether earned or unearned, is taxed in a series of rates which rise progressively as income rises, with no claw-backs in addition to the explicit tax rates. (This implies integrating income tax and NI.)
There are a lot of steps in this direction in Richard’s proposals. I would just like a bit more emphasis on the aspect of reducing benefit claw-backs.
I agree
See my work with Howard Reed for CLASS which argues for a basic income and abolishing NIC
We’re talking employer’s NI here, not employee’s – a higher statutory minimum wage (which should be at least a living wage) has an impact on employers’ costs, not employees’.
In general, with the certain exception of support for the disabled to work and possible exception of support for having children (the latter up to a sensible limit) in-work benefits should not exist. All they do is interpose the State as a middleman taking money out of pockets to no positive net effect. They’re not even redistributive.
Respectfully, that’s so wrong it is absurd
Thought you might like this extract from a comment under an article on AccountingWEB:
“It could be argued that any company not paying a living wage is ‘per se’ making a profit from the taxpayer by expecting them to bridge the pay gap with credits
One answer of course is to instigate a tax credit reclaim by the Government from company profits — broadly speaking this would entail any profitable company whose employees’ wages needed topping up by the taxpayer having a clawback from their profits to cover the taxpayer contribution
After all — why should profitable companies expect to have their staff costs underwritten by the taxpayer?”
Good comment
Nationalise the banks
Massive social house building programme
Introduce Tobin Tax
Strong regulation of the financial sector
Removal of ant-union legislation
Introduce capital controls
A basic income
A wealth tax
Massive investment in research and development, renewables, recycling and green energy.
NI contributions to be set at 12% for well paid as well as low paid
Capital gains tac and corporation tax increased substantially
Nationalisation of the utilities, the railways and the Royal Mail
Minimum wage to be raised to £10 an hour
Trident scrapped.
That OK for starters? 🙂
Any idea how you would fund a meaningful basic income if you also want necessary public goods and services?
http://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf
Surprised you didn’t have a Financial Transactions Tax in there. The extra revenue plus getting some sort of stability into the fruitloopery that is High Frequency Trading makes it irresistible, I would have thought.
The Tobin Tax is the same as the FTT which is now the Robin Hood Tax or so I believe, having produced the Stamp out Poverty film featuring Jon Snow which replaced the orginal Tobin tax film.
Trouble is that all these years on it still is not happening, I wish all the austerity measures took as long to put in place. They happen overnight it seems.
Like the curate’s egg, good in parts. But taxation needs the broad consent of taxpayers to be effectively collected . Can’t see you getting it on many of the points . I think you are spending too much time with people who agree with you. I’d like to see you proposing pilot projects and if they do not work, dropping the particular idea.
Life does not have pilot runs
Only reality
Your argument is spurious
Indeed-except economists think it does then when they retire they say ‘I got it wrong’ sorry about the suffering.
Sorry to come in on this late – been out walking. Agree w comments on reforming/replacing regressive council tax. Talking of NI, why is it that pensioners on incomes well above the average, like each of the two in our household, are exempt? Could use additional income to finance National Health and Care Service (and more?). Lower income pensioners would remain exempt.err
Agreed
There is a good reason why pensioners do not pay NI, but employees and employers do. It was introduced partly to fund the state pension – which is the most efficient way to provide pensions. No appropriation of others’ wages, which is what shares do and no middlemen taking their cut, no tax relief going mostly to higher rate taxpayers – simple, payments in fund payments out. As such it is wrongly named as ‘insurance’. The Labour Party took 15 years to design SERPS, which was by far the best system, but the tories destroyed it. We should be paying NICs for the NHS – that would take all of current NI contributions.