How much tax will the Uk pay?

 

             The debate about the right level of public spending needs to be put into the context of how much tax politicians think they can impose. If you look at the last fifty years figures, you will see that no government, Labour, Conservative, Labour/Liberal or Coalition has ever tried to impose taxes higher than 38.7% of GDP. That high level was reached in one year, under Margaret Thatcher, when she was trying to bring an inherited deficit under control.

            Labour governments have been careful  about tax levels   – or, in  other words, Labour have spent more based on borrowing, and subsequently Conservative governments have put up taxes to pay for all the extra spending their predeccesors built into the budgets. In the 1970s Labour taxed at 34-35% of GDP. The incoming Conservative government had to increase taxes to pay the bills and curb the deficit, as well as cutting the rate of increase in the spending.  In the 1990s and early 2000s Labour taxed at 35-37% of GDP. The incoming Coalition government has had to raise taxes to cut the inherited deficit.

             The Conservatives had got taxes down to 32% by 1973-4, to a low of  32.3% in 1993-4 and to 34.6% in 1996-7 . The Coalition government proposes to keep taxes at the highest levels of the last fifty years for the five year Parliament. The Plan envisages tax rising to 38.5% of GDP by 2014-15.  Labour does not recommend any significant increase in current tax levels. Its bigger bank tax is a matter of a few billion, whilst Labour opposes the VAT increase which raises more than the larger bank levy.

             I think the politicians show wisdom in these decisions. I do not think the UK does want taxes above 38.7% of GDP. Politicians should therefore plan their spending based around a sustainable level of revenue of around 36% of GDP, the level achieved under Labour. Indeed, there is evidence that the UK economy has performed best when tax revenue is below 36% of GDP, as in the 1990s following ERM exit, and in 2002-5.

           It follows from this that unless you  now think the UK could and should go from the conventional level of tax to say 45% of GDP going in tax, current spending levels are unsustainable. This year the Red Book forecasts spending at 46% of GDP, miles above the sustainable tax level.

              These figures are all in real terms expressed as a proportion of output, because that is the way the Treasury chooses to present them. In cash terms, every year has seen increased taxes. Inflation has often eroded the value of allowances and offsets. People pay tax on the inflationary element in income and gains. Over this Parliament tax is scheduled to rise by 2% of GDP, but by a massive £172 billion a year, comparing Year 5 with the last Labour year. That shows the impact of inflation and growth on tax revenues.

                 Tomorrow we will look at how within that suggested total of GDP that the government can take, revenues can be maximised and economic damage minimised. Higher tax rates do not always yield higher revenues. Politics can get in the way of revenue maximising tax rates.

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70 Comments

  1. lojolondon
    Posted August 2, 2011 at 6:39 am | Permalink

    All very well, but if we had taxes of 20%, THEN you would see growth! To be honest, it would not make too much difference to most people’s lives, because if everyone has 20% more disposable income then houses go up 20% etc. BUT the fact is that the worst place for money is in the hands of the government, the best place is in the hands of the people, where a pound can travel around the system several times a year. Tell George to try it!!

    • Caterpillar
      Posted August 2, 2011 at 9:37 am | Permalink

      It is ‘true’ (at least if fitting the Nationwide median house price figures) that even with the recent national falls in real term house prices that they have risen at the same rate as real terms GDP, and yet they are not an asset that becomes more productive and contributes to growth. It is clearly wrong for the MPC/BoE to continue to support this this misallocation which in your (probably reasonable) growth scenario would continue to misdirect resources, equally the Govt could introduce capital gains on house prices growth above inflation.

  2. TomTom
    Posted August 2, 2011 at 6:49 am | Permalink

    Would be lovely if Public Spending were really controlled, but poor Project Accounting with lax financial controls mean Defence Procurement, PFI Projects etc all slip through the net by turning payment profiles into balloons and pushing costs into the future. The fact that parliament does not control spending is the hallmark of 20th Century politics whereby The Executive ran off with the budget and Gordon Brown pledged the entire GDP to support the banks without Parliament even bothering to investigate let alone audit.

    We live in an era of Arbitrary Government akin to 1641. There are no checks or balances simply Placemen in the Colisseum watching bear-baiting

    • Denis Cooper
      Posted August 2, 2011 at 9:50 am | Permalink

      The problem is that expenditure is nominally controlled by MPs, but with few exceptions the MPs allow themselves to be controlled by their party leaders, and therefore usually a majority of the MPs are controlled by the government.

      If certain financial decisions required supermajorities in both Houses, rather than just a simple majority in the Commons, then it would generally become necessary for the party in government to secure cross-party support for its plan rather than it being enough for it to whip its own MPs through the lobby.

      For example, a budget which planned for a surplus could be passed by MPs as now, under the existing terms of the Parliament Acts, but a budget which planned for a deficit would require special approval by supermajorities in both Houses under an entrenched amendment to the Parliament Acts.

      A national referendum could be an alternative route for the government to gain legal permission to run a budget deficit up to a stated limit and for a stated number of years, and that would not be an unreasonable provision given that in the end it is the people who will have to pay off the debts taken on by their government on their behalf.

    • sm
      Posted August 2, 2011 at 1:09 pm | Permalink

      I think a US debt ceiling does have its democratic merits.. even if its not deemed successful. It may even slow down exponential growth in interest based debt.

      • TomTom
        Posted August 3, 2011 at 6:42 am | Permalink

        Except the Debt Ceiling dates from Woodrow Wilson circumventing Art1 Sect 8 of the US Constitution and represents an Enabling Act for Bond Issuance – it makes Congress irresponsible

  3. matthu
    Posted August 2, 2011 at 7:06 am | Permalink

    I imagine the current tax figures don’t include any allowance for the clever accounting whereby energy prices are artificially inflated to subsidise wind farms, solar panels and the like.

    And yes, you can probably argue that this isn’t strictly a tax. But in everything but name it is – and exactly the same effect could have been achieved by imposing a tax and diverting our money to support government funded ventures.

    So what do the taxation figures look like after making an adjustment for all the various wheezes carried out under the auspices of climate change?

    • oldtimer
      Posted August 2, 2011 at 1:35 pm | Permalink

      This is a very pertinent question.

      The way that charges like feed in tariffs are calculated and applied – whereby IIRC they go directly to the producer, bypassing HMRC – then these are indeed an additional tax on the taxpayer. The same goes for the BBC licence fee, a tax in all but name.

  4. Mike Stallard
    Posted August 2, 2011 at 7:17 am | Permalink

    The government is getting into things where it has really no business to be. Yesterday, over our free school, we had a three hour meeting devoted entirely to coping with unnecessary bureaucracy. Very gently, and not so as you’d notice, our school is being steered in the direction of becoming just another factory for worthless certificates, controlled by the many many bureaucrats in London who, natch, are experts on education.
    They will, ever so nearly, get it all right too!
    But not quite.

    So what has this to do with tax?

    I leave you to work that one out.

  5. Helen
    Posted August 2, 2011 at 8:22 am | Permalink

    They never take into account that people in England pay more tax than in Wales, Scotland and NI. I’m talking about stealth tax. Bridge & road tolls, hospital parking, prescription charges, wheel clamping, fishing licences, top up fees, personal care, higher charges for drinking water, etc. – and we get far less in return for those higher taxes.

    Whenever the government comes up with money making schemes, it almost always involves taking more and giving less to those of us England.

    The consequences have yet to be felt. It will take a full generation for those to kick in – our children will inherit less, whilst still being saddled with student debt. There will be much less disposable income floating around in England than in the so-called Celtic fringes. The knock on effect on businesses will be dire.

    We’re fed up with it. Give us a government who has the interests of England at heart, not one who is buying favour – at our expense – with the minority of whingers on the fringes.

    Nor more taxes for England !!

    • norman
      Posted August 2, 2011 at 10:21 am | Permalink

      Don’t forget the new University tax – Alex Salmond has pledged to continue free higher education for Scots students. How are they going to make up the shortfall? Charging English students more.

      The real kicker – due to EU rules they have to treat EU students the same as Scottish ones so whilst Estonian, e.g., students will get to come and study for free at St. Andrews an English student will have to pay a premium.

      As an aside, Scotland paid more per capita per head (as a percentage of total UK tax take) in taxes than was received in spending per head (as a percentage of total UK spending) – 9.4% against 9.2%. Not sure what the figures for England are, perhaps even worse but the sad fact is we are all living well beyond our means.

  6. Stephen Almond
    Posted August 2, 2011 at 8:41 am | Permalink

    You seem to have got this the wrong way ’round!

    Try not to think “how much tax can we take” and then plan how to spend it.
    Rather think “how much money do we NEED to spend” and then set appropriate fair rates.

  7. zorro
    Posted August 2, 2011 at 8:46 am | Permalink

    Government should take no more than 30% of GDP, and ideally to encourage more private investment dynamic. I am sick of some of the clownish project overspending I see and the way the public sector is incapable of negotiating sound economic provision for the taxpayer. The IT overspending in government is symptomatic of this malaise.

    Zorro

    • Mike Stallard
      Posted August 2, 2011 at 4:53 pm | Permalink

      My son who lived in Bangkok and before that in Dubai paid almost no tax at all. My son-in-law who works in the Gulf also pays little or no tax at all.
      We pay out 50% of our income when all is taken into account. I believe the actual figure given is a whopping 44.50% but that is without petrol, VAT etc.

  8. lifelogic
    Posted August 2, 2011 at 8:51 am | Permalink

    “Higher tax rates do not always yield higher revenues” not even usually – 30% of GDP is about right but we have fools in charge who clearly wish to raise less tax and to appear fair rather than do what is best. Clearly the only want one term in power.

  9. Stuart Fairney
    Posted August 2, 2011 at 8:55 am | Permalink

    I see we achieved growth of about 0.2% last quarter where as Singapore was at 20%. When do you imagine we might achieve these kind of growth rates? If your answer is “never, let’s be grateful with 3%” why do you imagine this is good enough?

  10. alan jutson
    Posted August 2, 2011 at 9:06 am | Permalink

    John

    Think you should get Sir Vince and the Labour Party to read this Post, as they seem to think high rates of tax and borrowing are OK.

    Interesting to read of the recent negotioations in the USA where a spending Limit is set, which cannot be exeeded without a debate and vote, aware they are still in a mess, but at least everyone in the Country now knows the score, the government has been spending too much money.

    Compare that with the situation here where there seems to be no limit, and where government can just increase debt at a stroke.

    Fully aware that the two systems are different in many ways, but at least in the USA they seem to have a mechanism which stops (or at least makes public) uncontrollable spending, and then a limit is set, so something has to be done (or at least discussed) to correct it.

    Thus people are informed.

  11. Colm Costello
    Posted August 2, 2011 at 9:13 am | Permalink

    Excellent piece. An argument for lower taxes if ever there was one.

    What a shower of sneaky B******* Labour are hiding behind borrowing that cannot be seen as clearly as taxes.

  12. Forlornehope
    Posted August 2, 2011 at 9:21 am | Permalink

    Some years ago I was working with a large chemical company at a plant in the North of England. We found that not a single one of the big capital projects that they had invested in over the previous ten years had given a return. We gave some of the process workers training in problem solving. Within a few days they had identified simple and cost free improvements that ended up saving over a million pounds a year. That was just one of many such projects. There may possibly be a lesson here for government. Fewer big prestige projects and just focus on doing the simple things as well as possible.

  13. Denis Cooper
    Posted August 2, 2011 at 9:27 am | Permalink

    “The Conservatives had got taxes down to 32% by 1973-4, to a low of 32.3% in 1993-4 and to 34.6% in 1996-7 ”

    Surely the difference between these two cases is that in the early 1970’s the government was paying off debt, while in the early 1990’s the government was building up debt to bridge the gap between its spending and its reduced tax revenues:

    http://www.ukpublicspending.co.uk/downchart_ukgs.php?year=1970_2011&state=UK&view=1&expand=&units=p&fy=2011&chart=G0-total&bar=0&stack=1&size=m&color=c&title=

    “Politicians should therefore plan their spending based around a sustainable level of revenue of around 36% of GDP”

    36% seems too high, and a better target would be 30%; but in any case if party politicians think they can depend on revenues of around 36% of GDP then they’ll take that to mean that they can routinely spend 40% of GDP.

    A prudent private individual with an income of £36,000 pa might aim to constrain his expenditure to £32,000 pa, but a party politician with his eye of buying votes at the next election would have no scruples about spending £40,000 pa and building up debts to be dealt with at some ill-defined point in the future, preferably when the electorate had finally got fed up with his party and it was no longer in office.

    There’s some talk about whether we should have a legal debt ceiling like that in the US, but I would prefer to see a carefully designed and entrenched law prohibiting the government from ever running a budget deficit, except with special and not easily obtained approval for a single year at a time.

    And with personal fines automatically levied on those responsible for any breach of that law, starting with the Chancellor and working down.

    I’d say that if the Chancellor knew that he’d be fined £1 for every £10,000 of unauthorised over-spend then that should be enough to cure politicians of their pernicious habit of getting the nation deeper and deeper into debt for their party political ends.

  14. Brian Tomkinson
    Posted August 2, 2011 at 9:30 am | Permalink

    Can you explain how George Osborne’s pledge to reduce the deficit by 80% spending cuts and 20% increased taxation stacks up against reality?

  15. GJ Wyatt
    Posted August 2, 2011 at 9:32 am | Permalink

    Get the spending down! The taxes will follow.

    To defer taxation we must borrow.
    Today’s excesses are paid tomorrow.
    We’ll be gone so our children will pay.
    Well, too bad for them, but for us okay.

  16. Caterpillar
    Posted August 2, 2011 at 9:44 am | Permalink

    So given the (incomplete list of) example problems of inflation why does the Govt, Chancellor and Opposition allow the BoE/MPC to pursue its undemocratic* 4% CPI target (- which on developed country averages would be expected to knock 1% off growth -) rather than the official target of 2%?

    Does the Govt also want to pursue a 5-20 year ZIRP/QE experiment?

    (*neither via accountability nor argumentation)

  17. anon
    Posted August 2, 2011 at 9:51 am | Permalink

    As always good reading John. However, the biggest single problem I feel any government faces when attempting to bring down spending is that the electorate does not wish to face up to what that would entail.

    Sadly most people think measures that amount to shaving some off the edges when you actually look at what government spends will deliver the savings required to reduce the tax burden on ordinary people. Hence when the time comes to discuss big ticket item reform on issues where government does churn through both borrowed and taxpayers money the public, by and large, refuse to countenance reform.

    In this country we did not and have not had a mature debate about public spending since 1945 (yes I include the Thatcher years in that). The choice has not definitively been spelled out to people that you can keep more of your own money however that means you will have to rely on yourself rather than government more too.

    Instead, successive governments have tried to sell it to people that you can have everything more cash in your pocket and more government spending. We first need to confront this lie and get the people of this country to seriously think about what they want: them spending their money or the state spending it for them.

    For my own part I believe, unashamedly, that the people of a country have more right to their own money than the government and I am willing as a consequence to see government step back and spend less on things like education. India and China spend less on education than we do but they are churning out highly educated workers that are hoovering up jobs that once went to Westerners hence I don’t think the huge sums we’re spending are required to restore our intellectual competitiveness.

    Yet, I am inclined to believe that most people would instinctively react negatively to anyone who voiced such an opinion in the political sphere. People simply aren’t ready for this kind of argument. The ground hasn’t been prepared and unless it is as informed a piece of comment as this is it won’t go anywhere because no government would dare try to bring levels of spending down to the point where taxes could similarly fall to the point that ordinary people would be able to pay their taxes, pay their bills, treat their families and still be left with something saved in the bank at the end for a rainy day.

    This country’s shocking levels of personal debt will never fall until taxes go down enough to allow people to spend and save comfortably. I hope sometime in the near future brave politicians like yourself John will help make this clear to the voters so that we can deal with the root of our current economic problem: the fact that ordinary people had so little disposable income that to make our economies work central banks had to keep interest rates low and flood the financial system with cheap cash that then got passed onto consumers so they could spend.

    We cannot ever have a sustainable economy with high levels of tax that leave ordinary people unable to spend money and help businesses grow and create jobs unless they get a loan. Tax must come down for us to have a sustainable economy and if tax comes down public spending must also be substantially reduced.

    • uanime5
      Posted August 2, 2011 at 4:15 pm | Permalink

      India and China are hoovering up jobs because they only need to be paid a fractions of what a UK worker would charge.

      There’s another way to increase disposable income without lowering taxes; raise the minimum wage. At present the Government has to provide millions of people on low wages with additional benefits because they don’t get a living wage. The tax payer can no longer subsidise low wages to protect company profits.

      • anon
        Posted August 3, 2011 at 10:07 am | Permalink

        Again this amounts to tinkering around the edges and in a globalised market without capital controls do you think you could raise the minimum wage to the level required to give people enough disposable income to grow the economy without a capital flight? Making the country less business friendly is not going to promote economic growth indeed it will have precisely the opposite effect.

        We need to get real about where we are going not simply as a country but as a civilisation. China’s state spends 27% of its GDP, the UK government spends well over half this country’s wealth. For every penny the government spends it must tax private industry and individuals to underpin that expenditure. Thats money that would otherwise be available for discretionary spending to buy goods in the real economy and promote economic growth. Is it any wonder that British brands like Mulberry and Rolls Royce are experiencing their best sales in Asia whilst their sales closer to home trundle along?

        The Chancellor has said numerous times that we are not an undertaxed nation. If only someone would spell out what this means practically and help us move towards a point where we can become a self-sustaining economy we’d all ultimately end up better off.

      • BarryS
        Posted August 11, 2011 at 8:16 pm | Permalink

        Raising the minimum wage is the best way to increase unemployment. If people on minimum wage were not paying tax and NI at such absurdly low levels of income they would already be getting paid the “living wage”. Increase the tax and NI thresholds and simplify the benefits system and growth will follow.

    • sm
      Posted August 3, 2011 at 11:28 am | Permalink

      Its the creation of money to fund the spending particularly in housing in non productive assets.

      Housing living related costs and debt are the major problem?

      How much do you need to earn to service, the loan interest, taxes,service charges, electric,gas.

      Why do we have ZIRP/QE, because capitalism unleashed would zero the debts and the banks (now government solvency are at risk). Instead we have IMHO a rigged game where financial discipline are only visited on those without influence.

      Forever blowing bubbles.

      http://www.tullettprebon.com/Documents/strategyinsights/Tim_Morgan_Report_007.pdf

      http://www.tullettprebon.com/Documents/strategyinsights/tp1109d_TPSI_report_003final_LR.pdf

      We need quick financial wins and ending our voluntary subscriptions to the EU is one of them. Some honest government and after that a lot of things are possible.

  18. John Moss
    Posted August 2, 2011 at 9:54 am | Permalink

    Capital Gains should not be separately taxed. They should be carried across to personal tax or corporate profits tax, but discounted over time so you paid tax at your personal or business marginal rate on 100% of any gains in years one or two, but saw that fall 20% a year for five further years until you paid no tax on anything you help for more than seven years.

    This would encourage longer-term, equity investment in the things we need like small companies, homes to let and farms. If the principal hoe exemption were also removed, it would help stem some of the speculation on housing.

    • John Moss
      Posted August 2, 2011 at 9:55 am | Permalink

      Can’t spell!

      “held for more than seven years”

      “principal home exemption”

  19. Acorn
    Posted August 2, 2011 at 10:44 am | Permalink

    Is this the point where we debate what exactly is GDP. Market Price or Factor Cost version? If you have been on the IEA site recently, you will have read that the likes of David B Smith; are still trying to work out how you measure money and how it interacts with the economy. He should give prises to those that understand the difference between broad money M4 and M4X. His article; Restructuring the UK Tax System, is worth a read.

    Amateurs could be forgiven if they came to the conclusion that, had we remained on a Gold Standard, things would be a lot different today.

  20. John B
    Posted August 2, 2011 at 11:08 am | Permalink

    How about this.

    An absolute ceiling of 30% of GDP to be taken in taxes, to be enshrined in the British Constitution, and governments told, work within that.

    First it would require all politicians and bureaucrats to be trained in business management and to understand what efficiency means – none of them do – and for all government departments to be profit centres at least notionally- the taxpayer being the shareholders – having to fund themselves out of revenue and profit earned from output.

    Let’s call it post-non-representative democratic government.

    • uanime5
      Posted August 2, 2011 at 4:17 pm | Permalink

      So you’d be fine with the police not investigating crimes, courts giving prisoners shorter sentences, schools being closes, and the sick being left to die to ensure that the Government remained within their budget?

      • Martyn
        Posted August 3, 2011 at 6:53 am | Permalink

        Do you mean just like it is at the moment (like almost daily reported in the media) with the present level of taxation, or that it will become even worse at 30% of GDP?

      • APL
        Posted August 3, 2011 at 11:25 am | Permalink

        Martyn: “Do you mean just like it is at the moment ..”

        Personal anecdote:
        An item was stolen from my house in broad daylight. The police were called … I got a ‘crime number’ but then silence.

        To the people in the vacinity who may have been in a position to provide witness statements, the police never interviewed any of them.

        They couldn’t track down what happened because ‘that area was not very well covered by CCTV’. [spiting blood].

  21. Neil Craig
    Posted August 2, 2011 at 11:10 am | Permalink

    We need some consititutional limits on what government can do. It used to be the role of Parliament to stop the Executive raiosing taxes, there was a civil war over it, but Parliament is a famekeeper yurned poacher.

    EU Referendum has proposed referism – that the budget always be subject to a popular referendum. I would take a less nuclear option of a Bill of Rights including that if government spending is above a set limit, no departmental budget increases be allowedand that the limit may only be varied, up or down, by referendum. I strongly suspect the British people, if given a say in it, would choose spending well below 38.7%. This is something the Conservayives could propose, knowing it was electorally popular and that no other party, except UKIP, could outflank them.

  22. NickW
    Posted August 2, 2011 at 11:30 am | Permalink

    Will the Government raise tax thresholds in line with inflation?

    Or will we see tax rates creeping ever higher?

    Salary earners who receive an increase to compensate for inflation, pay tax on that increase at their highest rate, guaranteeing that their take home pay will fail to increase in line with inflation.

    If tax rates increase throughout this Parliament because of a failure of indexation, any prospect of growth is diminished even further.

    What is the overall tax rate if one includes VAT, fuel duty, tobacco duty, alcohol duty, airport taxes, council tax, parking fees, road tax, and insurance tax?

    Unsustainable is the short answer; but someone needs to work it out, because this figure is the one that matters and the one that properly indicates taxation and expenditure levels. 75% would be my guess.

    Should I also include as taxation private hospital treatment for joint replacement because I am too crippled by arthritis to look after my family, but the NHS refuses to provide treatment?

    Change the funding of the NHS so that service provider income is dependent upon the provision of service to each patient, so that a hospital under financial stress is forced to treat more patients, not fewer.

    • NickW
      Posted August 2, 2011 at 3:36 pm | Permalink

      Indirect taxation (VAT) was meant to replace direct taxation, (proportional to income).

      VAT was sharply increased to replace the discredited poll tax.

      But now we have sky high levels of both direct and indirect taxes, 20% VAT AND Council Tax, AND a reduction in the scope and standard of the services provided by the state.

      The economy is not growing because it is being starved of money; it is as simple as that.

      Indirect taxes are taking as much or more away from the consumer as income tax and NI.

  23. Susan
    Posted August 2, 2011 at 11:44 am | Permalink

    Britain needs growth in the private sector, otherwise all the Coalitions plans for deficit reduction will fall like a pack of cards. The only way to achieve real growth is by tax cuts funded by spending cuts. The 50p tax could be abolished tomorrow and would probably make very little difference to the tax take, however it would make a great difference to growth prospects. Britains tax is too high in general, and is making the UK uncompetitive for wealth creators, who already have reasons enough not to invest in Britain. Lack of a skilled work force and too much red tape being just two of them. Tax cuts will not happen of course, because of foolish people in Government like Danny Alexander, who insist that lower paid workers need the tax breaks. This on the face of it may seem fair, but in reality is economically unsound. It would be a lot of good a low paid worker having a tax cut if he has no job to go to. It was this effort by the last Labour Government to make all things fair to all people, that has caused all the problems in the first place. The money was spent by Labour before it was earned by the Country, in this misguided concept that all injustices in society should be eliminated. All their policies have led to is that they have left the UK completely at the mercy of those they despise the most, the wealth creators.

    Deep cuts need to be made to the public sector, this should have happened before any tax rises were even considered. The 50p tax, reduction in personal allowance and pension restrictions for high earners, are only there as a fairness tool to placate the public, not as a necessity for the economy. All a healthy person should expect a Government to provide is a good education, sadly lacking at the moment, basic healthcare and enough to live on should they lose their job, not the plethora of services it is expected to provide at the moment. The Government needs to be honest about what the state can realistically provide and cut the rest. Small state, large private sector is the only way to create wealth for the future, to alleviate this debt crisis. Living in denial of this fact, by both the public and Government will not change it. The adjustment, to re-balance the economy by its very nature will not be pain free. The Welfare State, though it was a good thing in the beginning, has turned into a monster of entitlement, keeping people in the benefits trap for years. Therefore, the only thing that has changed over time, is the shackles that hold working class people from a life of productive work.

    If, however, a certain amount of growth does return to the UK and all the newly created jobs go to immigrants and not to indigenous people of Britain, this would see very little gain for the Country. Unemployment would remain high amongst those out of work long term and on benefits, pressure on services and housing would continue.

    • uanime5
      Posted August 2, 2011 at 4:29 pm | Permalink

      “The 50p tax could be abolished tomorrow and would probably make very little difference to the tax take, however it would make a great difference to growth prospects.”

      You’ve got it backwards. If the 50% tax rate is abolished the Government will lose a large amount of tax revenue and it will have little effect on growth. No company is going to employ thousands more people simply because their senior management doesn’t have to pay as much tax.

      “This on the face of it may seem fair, but in reality is economically unsound. It would be a lot of good a low paid worker having a tax cut if he has no job to go to.”

      Tax cuts will still benefit the poor who actually have jobs.

      “All their policies have led to is that they have left the UK completely at the mercy of those they despise the most, the wealth creators.”

      Aren’t the wealth creators meant to be good as they create wealth? Also wouldn’t wealth creators be the best people to make the UK more wealthy?

      “The Welfare State, though it was a good thing in the beginning, has turned into a monster of entitlement, keeping people in the benefits trap for years.”

      Actually people remain on welfare because they can’t find jobs. There are 500,000 jobs and 2.5 million people unemployed so 2 million people will have to remain one welfare.

      • Bazman
        Posted August 2, 2011 at 8:17 pm | Permalink

        Exactly there is not enough jobs and to think tax cut for the rich will create these is the main fantasy of many right wingers. Tax cuts for the rich? Cloud cuckoo land to quote The Chief Secretary to the Treasury Danny Alexander.
        So Susan we just cut benefits? Income support, housing benefits, unemployment and child benefit? What in the real world do you think would happen on the day these people did not get paid and their landlord or building society did not get their money? That private company paid by the governments went bust and the people where laid off without any pay or benefits. Many working class and low paid workers are highly skilled and have seen their wages stay the same and their conditions eroded whilst companies make huge profits, so much for productive work when it is available. Released from the shackles of the welfare state to face desperation and poverty when there is no work? Those Ragged Trousered Philanthropists. Gosh! How inconvenient this all is. You need to wake up from your middle class dream.

        • Susan
          Posted August 3, 2011 at 12:06 pm | Permalink

          Bazman

          I always think it is unwise to make assumptions about people you do not know, particularly when they are expressing an opinion on a blog. They may be closer to the real problems that face working class people than you are, but have a different point of view.

          I prefer not to get involved in this old argument between right and left, and only endorse policies from any party that make sense to me. In other words common-sense decides my politics, not old dogma or prejudice.

          I believe growth in the private sector is the only possible answer to the UKs problems. To achieve this, the Government will have to cut spending and lower taxation, particularly the 50p tax to encourage investment by the wealth creators. High taxation impedes growth in an economy. I also believe the public sector could be cut substantially without any real impact on services, if is done in the right way. If however, the UK Government continues to increase spending, taxation remains high and growth is not forthcoming, the result will be the Armagedden you seem to envisage in your head, for the less well off.

          However, I am always open to see the other side of the argument, therefore, by all means post your vision of how growth can be achieved in the UK economy, other than how I and others have said on here. We have not yet heard any solutions from you only criticisms, so your reply will be of great interest I am sure.

          • uanime5
            Posted August 4, 2011 at 10:07 pm | Permalink

            You failed to explain how removing the 50% tax would encourage investment by the wealth creators. As Bazman and I pointed out the wealthy are nothing going to create more jobs simply because they don’t have to pay as much tax.

            Reply: they come here, earn here and invest here if the rates are lower.

          • Bazman
            Posted August 6, 2011 at 1:53 pm | Permalink

            What this government needs to do is invest in the infrastructure of this country and crackdown on tax avoidance by the rich. Only 1.5 % of the population pay the 50% rate.
            Research suggests there is no need to be so afraid of them. The Work Foundation finds that not only are most top company chief executive officers (CEOs) born and bred in Britain, with no global demand for their talents, but most come from careers within their own companies. Very few CEOs are hired from abroad either. These people are much less footloose than they pretend, with families here and children in schools, not many willing to be uprooted to hyper-expensive Monaco, even if tax rates were to rise. After all, just consider how well they have done right here: twenty years ago, a CEO earned 17 times his average employee, and now he earns 75 times. Tax cuts for the rich is a ticket to nowhere and they can ram it.
            Invest in what John? The utility companies with their cash generating monopoly? How come Germany and the Nordic countries are more rich and advanced than Britain with their high tax rates. Yes they are.
            ‘Immigrants in a lot of cases have taken on the unskilled work that British people were not prepared to do. This is proof that a great deal of people, who are claiming benefits, choose not to work. ‘ Says Susan. Who probably lives a cushy middle class life supported by the middle class social security system. I do Know about this little secret.
            A lot of people on benefits live in areas where there is no work. No work do you believe that Susan? The immigrants came from countries where people are more desperate plus they are mostly young and here for fun and adventure. Your plans to make the poor of Britain more desperate so they work for food money will not and should not work.
            The benefits trap is a problem. If you have five children and no skills then it is not to your advantage to work. How can anyone stop this Susan? I and the rest of the country would be interested to know.
            Many of the appeals against the decision to cut incapacity benefit have been won by the claimant costing the government millions.
            This is how it often goes. The claimant cannot get a job and gets depressed, he goes to the doctor and says he is depressed because he cannot find a job The doctor puts him on incapacity benefit. Often the unemployment makes the person unemployable after a while. Benefit dependency. To say they are all work shy scroungers is like flat tax and yourself Susan. To simplistic. Leaving them to rot on benefits is not an option though, but helping them is not what I believe is the Tory end game. Saving money to spend on tax cuts for the rich is.

      • davidb
        Posted August 2, 2011 at 8:46 pm | Permalink

        Welcome newbie. Mr Redwood will soon have you educated and the socialist cataracts will soon be removed from your eyes.

        The 50% tax rate is expected to be counter-productive. People who pay high taxes go to places like the Isle of Man to reside – and thus pay nothing to our treasury – or arrange their affairs to minimise their tax bills. I know of hourly paid workers who refuse overtime because they refuse to pay the 40% higher tax rate. High tax rates ( like complex welfare systems ) disincentivise work.

        I see there is some evidence that the higher rate is bringing in additional revenues, but since we won’t really know for a couple of years whether it is the threat of the higher rate which has caused people to bring forward “income” to the year before the tax hike or not, the jury is still out.

        Personally I think it should be a lower rate of tax one pays the more one earns, as that will logically maximise the incentive to earn more, but since the state wants its dead hand all over our lives I don’t expect that the idea of us being free to spend our own money is likely to catch on any time soon.

        • sm
          Posted August 3, 2011 at 12:22 pm | Permalink

          The HOURLY paid worker would pay marginal tax of 42% (40% paye + 2% NI Ers on the marginal excess of £42,476 (35000+7475)pa. It is worth noting the employees NI contribution falls at that point to 2%. Marginal tax 42% till the next pinch point.

          The immediate marginal rate prior to reaching 42% was 32% (20% paye + NI 12%).

          I would suggest that reasons other than money account for the decision. He may have had a prior appointment or already worked 48hrs or more and preferred r & r. Hire another worker- or train an apprentice – a nice problem to solve.

          Moving to the Isle of Man what better way of arguing for a general anti-avoidance rule. It is UK dependant.

          I don’t agree with penal taxation but look at the unlimited support for the financial capital system and disparity in wealth its creating, lets have proper capitalism at the top as well as for outsourcing, competitive wages, free trade where serf workers are paid lets just say weakly and also with apparently rice allowances.

          Incentives to workers to move off benefits is a must.
          But until we actively manage immigration and support keeping jobs in this country then we must pay the socialized costs.

          Then lets hear we are all in this together.

        • Bazman
          Posted August 4, 2011 at 9:36 pm | Permalink

          Another fantasist. John Redwood maybe right wing, but not an idiot. How these people like davidb are smart enough to do the jobs they have or claim to have is beyond comprehension. Flying without wires at least.
          Taxing the poor as an incentive to get rich. You could not make it up.
          How many hourly rate workers earn enough to pay 40% tax? Most would have been working so many hours they would be dead on their feet. These highly hourly paid jobs are rare and to cut costs often employers put these jobs on a salary or employ two people at minimum wage. Often employers say they cannot get the workers they require despite paying the ‘market rate’ Who’s market rate? Funny that. When they pay stupid amounts to certain people that is ‘the market rate’. It is not a skills shortage, but a shortage of money and the will to pay it.
          The problem with moving to the Isle Of Man like many tax havens is that you have to live in a backwater with other ‘dead hands’.

      • Susan
        Posted August 3, 2011 at 7:42 am | Permalink

        uanime5

        Simply taking parts of my post out of context and using them in the way you have loses the actual meaning in the original post. It seems some of my post you did not understand or decided to misinterpret, either way the result is the same. Therefore I hope people will read my post in its entirety. This appears to be a habit you have adopted to promote your own politics.

        As to the 50p it is doing a lot of damage to wealth creation in the UK, I would suggest you read Mr Redwood’s latest entry.

        I never suggested in my post that some people do not stay on benefits because they cannot find work. However, for many it has become a way of life, thus my opinion that they are caught in the benefits trap. During the last Labour administration, in the boom time, work was available but many prefared to stay on benefits allowing immigrants to come into Britain to do the work they were not prepared to do.

        The rest of your reply makes little sense, of course wealth creators are the ones that will produce the growth in the economy. My comment on tax breaks for lower income earners, was relating to the fact that priority for tax breaks should be to produce growth, to create jobs in the private sector.

        • Bazman
          Posted August 3, 2011 at 7:07 pm | Permalink

          The problem is that many ‘wealth creators’ are only creating wealth for themselves and not their workforce or society in general.

          • Susan
            Posted August 4, 2011 at 8:58 am | Permalink

            Bazman

            That is a glib response, which we all could do, and most certainly one of those sweeping statements and generalisations you dislike so much.

            I have thrown down the gauntlet, now pick it up, if you wish to be taken seriously. What would you do to restore growth to the UK economy if you believe Mr. Redwood, I and others on here are wrong about how this can be done.

        • Bazman
          Posted August 4, 2011 at 9:12 pm | Permalink

          Avoiding Buying by the Which? Magazine principle on government contacts would be a start. As was purchased the Thameslink route between Bedford and Brighton to the German firm Siemens means that 1,400 jobs will be lost.

          • Susan
            Posted August 5, 2011 at 1:20 pm | Permalink

            Bazman

            I don’t disagree with you on this issue, although there were reasons why this contract had to be awarded in this way, as you probably know.

            However, one contract awarded by the Government, would still not be a strategy for long term growth in the private sector. Therefore, if you still believe Mr. Redwood, I and others are wrong about how growth can be achieved, you must at the very least provide solutions of your own. Otherwise, with respect, your constant challenges to other peoples posts, become invalid as an argument.

        • uanime5
          Posted August 4, 2011 at 10:18 pm | Permalink

          Mr Redwood’s latest entry doesn’t explain why removing the 50% tax rate will magically make investors spend more money in the UK simply because they don’t have to pay as much tax. If I missed the relevant part could you post it here, rather than claim it exists without providing any evidence.

          Even during the boom years there were still more people unemployed than there were jobs so it’s not surprising people remained on benefits. Also a lot of people were unable to compete with the immigrants, who were better trained or would work for less money. Most people are in the ‘benefit trap’ because there is no suitable work for them to do, not because they don’t want to work.

          • Susan
            Posted August 5, 2011 at 10:25 am | Permalink

            uanime5

            I believe Mr. Redwood’s entry does explain why the economy performs best at lower tax rates. I think you either can’t or won’t accept the explanation. However, I will explain myself. Britain has very high tax rates compared to other Countries. These high tax rates make the UK uncompetitive in comparison to others for wealth creators who are looking to put their money in low stable tax regimes. Just like everyone else, they are looking for the best return for their investment and not to be taxed too much personally. Countries who lower their taxation levels have seen their economies grow, which is what is needed in the UK. Furthermore, lower tax rates usually increase the tax take, as less people look for legal ways to avoid paying tax etc. because they see the tax rates as reasonable. The actual tax take for high earners in Britain comes in at around 62%, I believe, when loss of personal allowance and increased NI is taken into account. These high tax levels are not only a disincentive for people to work harder to do better, but also encourage people of skill, wealth and investment to leave Britain for kinder tax regimes. This in turn sees less tax taken, more wealth and investment leaving Britain and thus less jobs created in the private sector. Of course potential investors do not come to the UK in the first place, as they see tax levels as far to high. It is also to be remembered, that low tax rates in general, give people more of their own money to spend on goods etc which in turn helps the economy. I personally am a fan of flat tax, which is cheap to administer, no one avoids it and it is easy to understand for the public. I hope Britain will introduce it in the future.

            As to your other point. I understand there are 5 million people claiming unemployment related benefits. Just taking incapacity benefits, when people were to be tested to prove whether they should be claiming, a massive amount of people fell away, long before the tests were completed. This proves they should not have been claiming in the first place. Immigrants in a lot of cases have taken on the unskilled work that British people were not prepared to do. This is proof that a great deal of people, who are claiming benefits, choose not to work. Labour ran a lot of programmes to increase the skills of those claiming unemployment benefits and still people did not return to work. Ordinary people, on any estate in Britain, can give you examples of families who see benefits as a way of life. I feel for whatever reason you are living in denial on this issue.

            It is grossly unfair to low paid workers whose tax is used to support these people who will not work, to allow this situation to continue. It is also unfair to genuine claimants who are unable to work, who could be helped more if bogus claimants were not in the system.

  24. NickW
    Posted August 2, 2011 at 12:16 pm | Permalink

    If the economy needs stimulating, instead of cutting a few percentage points off the overall VAT rate, (which dramatically reduces Government income whilst not providing any stimulus to the economy), why not be more focused?

    Cut all VAT on all home improvements, including energy conservation measures, for (say) two years.

    There will be a massive increase in employment (and employment related taxes), which will probably cost much less than a small blanket reduction in the overall VAT rate.

  25. Samuel
    Posted August 2, 2011 at 12:41 pm | Permalink

    George Osborne made a speech not long ago about making sure “the financial catastrophe that happened under the last government, never ever happens again”. Wouldn’t it be better to make it illegal for the government to borrow money? Borrowing is just deferred taxation, and if it was made illegal there be no more budget deficits, and the government could be seen to be breaking the law, if it borrowed money.

    Reply: One of my colleagues proposed a debt ceiling bill for the UK, but the government is not keen.

    • Caterpillar
      Posted August 2, 2011 at 4:52 pm | Permalink

      Some goal alignment suggestions:

      Any government parties entering a general election with a deficit of greater than 3% should have 10% docked from their votes in all constituencies.

      All public sector workers should have a multiplier applied to their tax contribution (to be collected/refunded) at the end of year – if a deficit had been run then the multiplier is greater than 1, if a surplus had been run then the multiplier is less then 1.

  26. oldtimer
    Posted August 2, 2011 at 1:40 pm | Permalink

    The taxes defined as taxes, plus all the other costs imposed by quagos, local authorities under various guises are far too high and are unsustainable. They will kill any reasonable prospects for economic growth and deepen and prolong the debt crisis. The politicians have talked the talk but not much else. It is only a matter of time before they are found out by those on whom they rely to fund their continuing spending spree.

  27. uanime5
    Posted August 2, 2011 at 4:35 pm | Permalink

    The private sector will only grow if the majority of people have enough disposable income to fund growth. This can be achieved by cutting taxes, raising wages/benefits, or decreasing the amount everything costs.

    Whatever the Government decides it must benefits the majority of people to benefit the economy, not just the rich.

  28. Javelin
    Posted August 2, 2011 at 6:42 pm | Permalink

    So let me get this right. The Tories put taxes up to pay for Prior Labour Over spending. Then why is this fact drilled into the brain of every voter. Why isn’t this fact as sure as the sun rising.

    Why isn’t income tax reduced and replaced with a tax called Labour Debt tax? I’m sorry but zero kudos to Tory chancellors for not educating the tax payer.

  29. Andrew
    Posted August 2, 2011 at 9:42 pm | Permalink

    Our tax system is based on taxing employment, whether the tax is direct or indirect. Neither John Redwood nor any other conservative politician will consider a proper land tax, based on the old Schedule A. If property was to be taxed fairly and properly, income tax and cgt could be drastically reduced, encouraging enterprise and wealth creation. Those living in the South East would of course end up subsidising the rest of the country, to varying degrees – but as those living in the South East earn far more than in the rest of the country it would not be unfair. The South East is still of course subsidising the rest of the country through income tax, so there would be no real change. The direct and obvious benefit is that we would not be taxing employment or wealoth creation, but assets that contribute nothing to the creation of wealth. Allied to a more responsible and much cheaper financial sector, savings would be directed into companies that create wealth. It would also, incidentally, ensure that foreigners buying up London may think twice about doing so, thereby making housing somewhat more affordable for the brits. Anyone reading the S Times last week can see that Kensington and Chelsea is becoming a motor racing track for wealthy incomers. Is that what we really want, when so many parts of the country are having it very tough? What sort of society do we want? Why can’t the Tories see that taxing an asset that contributes nothing to the creation of wealth in our society should be taxed rather than all those assets that do contribute.

    • alan jutson
      Posted August 3, 2011 at 2:12 pm | Permalink

      Andrew

      —those living in the south east earn more than the rest of the country—– and should pay more tax.

      How about all of those on pensions, who get the same income as anyone else in the rest of the country, why should they be taxed more having had to save and spend more already, to live in the South East. ?

    • rose
      Posted August 4, 2011 at 11:55 am | Permalink

      Andrew, one of the reasons so many of us could never afford to live in the shabby bohemian village we had grown up in – Kensington – was the very high taxation of the property there. The same applied to the more jerry built Chelsea. The taxation, in the form of the old rates, was not related to income, and contributed more than anything else to driving out the natives. Through the rate support system of those days, most of the money raised was not even spent on Kensington, but on other boroughs deemed less fortunate, so Kensington remained as shabby as ever. Now, like Chelsea, it is smart and expensive looking, and full of rich foreigners. Do you want this process repeated throughout the country?

      • Bazman
        Posted August 4, 2011 at 9:14 pm | Permalink

        Inner city deprivation at its very worst.

      • Andrew
        Posted August 4, 2011 at 11:59 pm | Permalink

        Rose

        I understand your point, but remeber income tax would be adjusted downward, with appropriate reliefs, to compensate. My argument is that landlords do nothing beneficial for soicety. Here’s Winston Churchill on the point in 1909:-
        Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.

  30. Mark M
    Posted August 3, 2011 at 10:12 am | Permalink

    John, as much as I often agree with you, I feel you’ve missed the point about taxes. I don’t doubt that a Labour government would want to tax more, and indeed has probably tried. What the figures show is that 38.7% is the most you can get. Remember that people all seek to minimise their tax exposure and no matter what you do to try to get more tax, the people will adapt behavior so your efforts are in vain. Keeping that in mind, its obvious that tax rises cannot close the deficit.

  31. Electro-Kevin
    Posted August 3, 2011 at 4:49 pm | Permalink

    Taxes would be a lot easier to bear if the streets were clean and grafitti was cleaned up.

    • rose
      Posted August 3, 2011 at 9:06 pm | Permalink

      And if one could get along the pavements at all, filthy though they be. A boards, dustbins, and parked cars have taken over. We just walk along the grid-locked roads.

      • Bazman
        Posted August 7, 2011 at 5:57 pm | Permalink

        You live in central London Rose. What do you expect?

        • rose
          Posted August 7, 2011 at 11:05 pm | Permalink

          I don’t.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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