The Budget also announces:
- from April 2010, an additional rate of income tax of 50 per cent will apply to income over £150,000, and the income tax personal allowance will be restricted for those with income over £100,000;
- from April 2011, tax relief on pensions contributions will be restricted for those with incomes of £150,000 and over, and tapered down until it is 20 per cent;
It’s a start.
The policies I promoted in the TUC’s Missing Billions are getting into the budget.
But they need to go much further to ensure more reliefs and allowances cannot be used to avoid their duty to society.
50% should mean 50% flat on all gross income at £200,000 of income, I suggest.
Then we’ll move to a fairer society.
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Richard
How is using reliefs and allowances avoiding one’s duty to society? Tax evasion and avoidance I can understand, but reliefs are what the government has chosen to give to people.
Why shouldn’t someone be entitled to this just because he earns more? What is so fair about that?
Richard, you have completely missed the point.
This was a straightforward Gordon dividing line and a somewhat pathetic attempt to wrongfoot the Tories. He has got nowhere else to go other than to break his party’s manifesto pledges.
So its about politics – nothing to do with fairness.
Min
The UK should move away from allowances and reliefs in line with other EU member states. Such a simplification measure would admittedly put me out of a job, but hey ho I could then do something more useful than being a tax consultant…
Robbie,
WHY do you think the UK should do that?
What you’d move towards is a society bereft of the talent to create wealth, if you got your way.
As a matter of interest, what would be your description of a “fair society”?
Reading through the press, including the Independent and Grauniad, it does seem that Labour has lost power for a generation. The crux is surely that taxing the rich is a complete red herring – what is needed is to massively reduce state spending. Efficiency savings won’t do it, some big-ticket items will have to go.
The budget showed a complete lack of vision and courage. At least Cameron appeared to genuinely care about the state of things. And by the look of it, he’ll have a clear run until 2023 while Labour go through their 1980s period again.
Also, Cameron’s green credentials may be for real. Whether they translate into actions are another thing. But as far as the UK is concerned, I’d suggest TJN would be better to focus on the green new deal rather than the assault on offshore. For a generation at least.
By the way, big ticket items doesn’t need to be public services. I’m very surprised Labour hasn’t been leading discussions about whether to scrap Trident, for example.
It does seem to me that the level of debt plus the rising importance of sustainability means that we are living in a very different world, and I don’t think any politician has come up with an overall package that is compelling. Frank Field and Vince Cable seem about the only ones that are willing to even think about what the future might look like.
Paul
On your last comment we are agreed
Richard
It appears taht the line the media are taking is that the mess we are in is all Labour’s fault. Whilst I am very critical of Labour indeed, there seems to have been a decision taken that we should all forget that it was in fact the banks that created this catastrophe.
[…] was much in the budget that was depressing, not least as one commentator on this blog has noted: It appears that the line the media are taking is that the mess we are in is all […]
And who presided over the regulation of the banks, James, and cosied up to the City when the times were good so he could enjoy their tax revenues? Yep, that’s right – Labour.
Of course the banks were partly to blame. But for 10 years we had to endure Gordon Brown gloating about his “golden rules”, claiming he was the most “prudent” person of all time and had personally put an end to boom and bust. While the immediate cause of the recession may be the banks, the state of the UKs public finances are all Brown’s fault. He never repaid the borrowing when he had the chance and now he has run out of cash and ruined the country for a generation.
And more importantly for the TJN is the dawning realisation that actually, the City of London is the only place that can generate anywhere near enough revenues in the next 5-10 years to keep the UK afloat. Green technology may bring in money, but its a long haul. I suspect the next 5 years will see another boom in the City, simply because there is no other source of wealth creation in Britain and the Tories will do everything they can to engineer another boom.
I like gardening, and with many vegetables, broad beans and cabbages for instance, when the main crop is done, you can cut them off just above the roots, give them a feed and they grow back, for a second, light crop, before finally dying. That’s my prediction. I just hope some thought goes into creating a society based around sustainability rather than materialism over the next few years.
“50% should mean 50% flat on all gross income at £200,000 of income, I suggest.
Then we’ll move to a fairer society.”
Dear Mr Murphy
From what I’ve read from you before you seem to be implying the ending of an imputation system. If one owns a business one can either take salary or dividends. However dividends would be taxed higher in total than salary under as they will be paid out money that has had corporation tax paid on it which is higher than the combined effect employer’s and employee’s NI, hence why dividends are taxed lower in the personal tax base to compensate. What matters is the total amount of tax between gross revenue into the company and money ending up in someones pocket, not how this is divided between the two tax bases.
I think for higher rate tax (company and individual)the total of NI and income tax for salary is equal to that of corporation tax and dividend income tax, which is logical as otherwise individuals would take income as either salary or dividends dependent upon which was taxed less in total, so isn’t it little more complex than your suggestion above or am i misunderstanding you.
Peter
You are correct of course which is why I said in my first post that there was a great deal about Labour to be critical of. Remember that because of the off balance sheet PFI, finances are probably worse than they look.
However, it is a sad fact that none of the political parties saw the banking catastrophe coming and the Tories would not have regulated any better than Labour. Cameron himself has made some admissions in this direction, not quite as directly as I would put it though.
Ken
No I am not suggesting that – credit for tax paid would be given
That is not an allowance
That is a relief
Richard
I think hat James is saying is that we need to be objective on the party related issues here
Although many seem to impute party motive to me – including Newsnight the other day – I don’t have party allegiance
I have been heavily critical of Gordon Brown – long before it was fashionable to be so. See here.http://www.taxresearch.org.uk/Blog/2007/06/14/brown%e2%80%99s-decade-was-it-taxing/
But James is right. Remember the Tories asked for less regulation, more freedom for mortgages to be issued to anyone, and so on. The problem would in my opinion have been at least as serious if they’d been in office – remember George Bush did not save the US and left office with the same sort of popularity or less than Gordon Brown has
What is really worrying is:
a) No one seems to know what to do about it
b) That the economy is issuing a cry for help as it falls apart and no one knows how to respond
c) We aren’t moving in a sustainable direction.
I am working on a series of blogs on this now, which I hope to deliver soon, unless they become a book
Richard
Richard,
I suspect Labour will implode after the next election, which the Tories will walk. The interesting thing will be what happens then, as the old idealogical divides simply do not have any relevance when one considers issues such as the environment (where Tories have always been more traditionally rural and attuned to the environment but equally against the sort of government intervention that the environment needs), greater global integration (the world being an indivisible whole), and how to cope with an ageing population (I don’t think anyone really has any appetite for large scale immigration).
The next election will simply be a referendum on Grodon Brown and he is hugely unpopular for many reasons. But at present, as you say, “no one seems to know what to do”. I suppose the real fear is that someone in Europe elects a popular demagogue to fill the vacuum. Interesting times,not in a good way.
I can’t take the credit for this story, but it does illustrate how the progressive tax system can come unstuck!
Suppose that every day, ten men go out for beer and the bill for all ten comes to £100.
If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
‘Since you are all such good customers,’ he said, ‘I’m going to reduce the cost of your daily beers by £20.
Drinks for the ten now cost just £80.’The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers?
How could they divide the £20 windfall so that everyone would get his ‘fair share?’
They realized that £20 divided by six is £3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid £2 instead of £3 (33%savings).
The seventh now pay £5 instead of £7 (28%savings).
The eighth now paid £9 instead of £12 (25% savings).
The ninth now paid £14 instead of £18 (22% savings).
The tenth now paid £49 instead of £59 (16% savings).
Each of the six was better off than before and the first four continued to drink for free, but once outside the restaurant, the men began to compare their savings.
“I only got a pound out of the £20,” declared the sixth man. He pointed to the tenth man, “but he got £10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a pound, too. It’s unfair that he got TEN times more than I!”
“That’s true!!” shouted the seventh man. “Why should he get £10 back when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up. The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something very important….
they didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore…..
In fact, they might start drinking overseas.