|
Richard Murphy FCA comments on the recent Pre-Budget Report
So we've had a quite spectacular PBR. For the first time since the 1980s the top rate of income tax is to increase. For the first time in almost two decades the basic rate of VAT is to change. NIC has been changed by 0.5%. The government has tinkered with the tax system to provide a fiscal stimulus. But will it work? Is it the right thing to do?
There appears to be a broad consensus emerging amongst those who look at tax as a political issue, and that is that tinkering of this sort may not be the best way to manage the economy. I am not for a minute suggesting that unity has broken out between our political parties: far from it, the Pre-Budget Report seems to have driven a firm wedge between them. Rather, listen to comments from both Left and Right (as well as the Lib Dems, and these days Vince Cable guarantees them a voice that will always be heard) and the message that appears to be emerging is one that most tax professionals might find surprisingly comforting. It would seem to be ‘stop tinkering at the edges and make the whole system simpler’.
This was, of course, the apparent appeal of the flat tax proposals that caught the headlines only two or three years ago. Actually, it is far removed from that because no one on the right, from where this idea emanated, now seems to think one tax rate fits all. Instead the message seems to be that politicians, like so many others, would like a tax system they understand, matched by tax rates that they know will be paid.
Whether the clear water between the political parties is now blue, red or yellow, Vince Cable may, as has often been the case in the last year or two, have caught the mood of the moment by saying that VAT cuts will not produce the result the government wants and that more radical reform is required. He calls this cutting loopholes. The Conservatives will call this simplifying the system. Some in the Labour Party will call this creating progressive taxation. And yet curiously they seem to want the same thing. You might call it tax rates that do what they say on the tin.
No one can deny that it is a perverse fact that the poorest in our community pay the highest effective rates of tax. It is equally perverse that in an attempt to create a progressive taxation system, the government appears to have announced what amounts to an effective tax rate of 60% over small bands of income for those earning more than £100,000 a year, who otherwise have effective rates of tax which are very often lower than those earning £50,000 or more less than they do.
There can be no doubt that it is these anomalies that are leading to the calls for reform, calls that have been echoed by some in the professional institutes with concern for taxation, for some time. And yet what can be done to realise this objective, which appears to be shared by almost everybody but those ministers with responsibility for HM Treasury, and HM Revenue and Customs? Is it possible to create a tax system that is transparent, understandable, economically efficient and which still allows the political parties to offer their differing political solutions as to what is desirable without radical overhaul to the entire system every time the party in power changes, as would appear to be essential?
I admit to having my own political opinions (as some might be aware) and yet this question appears to me one where cross-party debate and co-operation do appear important. Whilst those engaged in the political process do, without doubt, believe that the difference their perspective can bring is of national importance, for a great many slightly less engaged with the day-to-day affairs of Westminster, the perception is of a continuing narrative with little apparent difference over time, at least when it comes to the structure of a great deal of the taxation system.
Is that co-operation possible? I do not know. But there do appear to be questions which need to be addressed by parties of all political hues if we are to get the tax system that we really need, and which allows differing political perspectives to be very apparent, as I think would be of benefit. Let me suggest just a few topics where progress could be made.
Let's start with a perennial: should we stop pretending that national insurance is anything but the second income tax? And if we stop the pretence, should it be merged into the existing income tax, or would we be better off with a two-track income tax system, one where allowances and reliefs are given and the other where you pay on all your income above a certain limit, from whatever the source with, as a result, very little opportunity for planning? And if we had that second income tax, should pensioners be exempt?
Let's take another: are capital gains really so different from income? And if they are, should this be reflected in the calculation of the gain, or in the tax rate?
Why don't we ask why we give tax incentives to saving? Do we really need ISAs, pension relief, VCTs, EISs and more besides to encourage us to save? Is this a good use of taxpayer money? Does it distort markets? Does the relief go to the right people? Wouldn't we save a lot of hassle if we had none of these arrangements?
And suppose we abolished all tax reliefs for gifts, but gave direct grants to all charities based on their income (and maybe monitored them a bit more closely as a result?)
Of course this is tackling the easy options, but why not start with the easy ones first? Is there a basis for tax reform here, with the objective of delivering a system that does what it says, and can be understood by many more people?
Don’t we all stand to benefit from that?
|
