Tax is usually taxing

 

            Recent events interrupted my series on taxes. 

            Taxes are too high. Taxes have in  recent years  got higher. They need to come down.  There are too many of them. Too many of them stifle enterprise, success and saving. They deter investment, encourage tax avoidance, lower incomes, and  slow private sector recovery.

           Let us introduce a couple of  ideas to help the analysis. The first is that we should accept there is a maximum sustainable taxable capacity in any country, a level of national income that a government can take, before avoidance, disincentive and other factors kick in to make it difficult to collect more. It is the level elected politicians feel is the limit to their ambitions to spend more.  The second concept  is that if a government goes over this level, it can reach Tax Saturation, the level at which revenues start to fall, as the tax levels hurt enterprise and reduce activity and income. This is a kind of Laffer curve applied to the whole economy and to the totality of taxes levied. 

            You can see the UK this year has reached the point of tax saturation on Self Assessment Income Tax, which is forecast to fall by almost 10% despite some modest growth in the economy as a whole.  There has been a sharp reduction in higher incomes in response to the 50% tax rate imposed. That was before news came of its future reduction. The higher CGT rate is forecast by the government to induce a  fall in revenues from that tax next year.

             So what is the maximum sustainable level of total taxation in the UK?  If we compare the percentage of national income taken in taxes since 1970-71  (Red Book June 2010 p 104) we see that the maxmimum tax take  was 38.2% of GDP in 1982-3 and 1984-5, both years when the then Conservative government was trying  hard to get the inherited deficit down against a background of a recovering economy.  The highest under Labour was 36.4% in 2007-8. The lowest was 31.8% under the Conservatives in 1993-4 and 33.1% under Labour in election year 1978-9.

               All this would imply that at the very least democratic pressures seem to prevent a government taxing much  more than 38% of GDP.  It  is especially interesting that socialists who tend to believe in higher public spending on a wider range of items than Conservatives have thought the limit of our taxable capacity is around 36% of GDP during their eighteen years in office since 1970.

                Total current public spending is forecast at 42.5% in 2011-12, with total public spending at 46%. If the aim is to  pay for current spending out of current tax revenue in normal years, only borrowing in cyclical downturns, it implies that we need a lot of growth to get public spending down to the Sustainable tax level without making further cuts.

                There  is another theoretical level which is difficult to estimate, the level of taxation which would maximise growth. It will be below the sustainable level of taxation, but the question is how far below?  Would it be better to get there quickly to speed recovery? What reductions in public spending would be necessary to achieve that without losing fiscal credibiltiy?

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107 Comments

  1. lifelogic
    Posted April 2, 2012 at 6:34 am | Permalink

    It always surprised me that the “Advertising Standard Authority” clearly thought that the irritating “Tax does not have to be taxing” was a fair/true statement suitable for adverts on tv. But then they know who butters their bread. The adds were almost as irritating as Natwest’s current “Helpful Banking” adverts. But then the ASA also let an arm of the state claim that “One red bus is greener than 56 cars” (Average bus occupancy is about 12, they are large, cumbersome, take indirect routes and stop every few hundred yards to hold up the traffic)

    As you say there is another level of taxation which would maximise growth rather than tax revenue. Furthermore “gdp growth” is clearly not everything anyway. If one person employs someone to look after their children then the employee does the same GDP increases. But is their any real benefit overall to anyone in this compared to a relative doing it or a barter, perhaps in return for some free help in return?

    The level for maximum tax receipts is I estimate about 32%. The level for maximum good for the voters in wealth and general living standard is perhaps around 20%. It clearly also depends on how well the government spends it. Given the history in the UK, however, we can perhaps safely assume that most will be wasted (or spent on counter-productive, pointless or damaging things).

    The real question is how, politically, we can get away from a system where the government try to maximise tax receipts towards a new system where they try maximise “the benefit to the voters”. So they stop using tax payers money to try to buy votes, transfers to the feckless, line their mates pockets, or con people with tax funded propaganda and the BBC.

    • lifelogic
      Posted April 2, 2012 at 6:46 am | Permalink

      The other aspect is the absurd complexity of the UK system (just look at Pasty Gate/Child Benefit/tax credits). This complexity is very taxing in itself and diverts countless clever people into time wasting & jobs that would not be needed if we have a simple low tax system. It also forces people to have complex tax structures and offshore offices/trustees etc. all a huge waste of money, energy and time. Countless bright people in the state and private sector could then be released to do something productive instead.

      • Susan
        Posted April 2, 2012 at 9:50 am | Permalink

        lifelogic,

        Put simply what we understand is that high taxation impedes growth and low taxation encourages growth. However, heres the real problem, the public and two of the political parties have to be convinced that this is the case. It is the culture of the UK that has to change before you could ever begin to make the case for low taxation. The public would have to accept and agree to a much smaller state and cuts to all the services they have become accustomed to to pay for much lower taxation. Therefore Mr. Redwood, you and I can say this as many times as we like but without the public onside it can never become a reality.

        As no Political Party has even began this conversation with the public nothing will change.

        • uanime5
          Posted April 2, 2012 at 3:58 pm | Permalink

          Why would the public want less of the services they have become accustomed to in exchange for less taxation? Wouldn’t they be happy to with a higher level of taxation in exchange for these services?

          Also given how many companies want Government subsidies I doubt that they’d be willing to exchange these subsidies for lower taxes.

          • lifelogic
            Posted April 2, 2012 at 5:11 pm | Permalink

            What services? Most get nothing of much real value or that they actually want? Pointless windmill and house bling perhaps worthless debt paper to the pigis, white elephant stadia (used for a couple of weeks), lots of speed and bus lane cameras?

          • Susan
            Posted April 2, 2012 at 5:15 pm | Permalink

            uanime5

            You have just proved my point.

            The only possible way out of the financial difficulties the UK finds itself in is to encourage more growth by being a low tax small state Country. Yet you still cling onto the belief that high taxation and big state is the right way to go.

            I have never seen a public sector led debt ridden recovery what does it look like?

          • uanime5
            Posted April 3, 2012 at 6:30 pm | Permalink

            Susan you haven’t proved anything, nor have you explained why small state and low taxation is better than big state and high taxation. For those on low incomes higher benefits are far superior to lower taxation.

            Most recoveries have been public sector led recoveries. The most famous being how Franklin Roosevelt restarted the USA economy after the Great Depression through high levels of Government spending.

            Any example of a private sector lead recover is the ‘recovery’ the UK is currently experiencing. Sadly this is very slow because it’s not profitable enough for private companies to improve the economy quickly.

          • Susan
            Posted April 4, 2012 at 7:38 am | Permalink

            Uanime5

            Do you ever read anthing properly Uaime5. Sorry but I do have to ask because you seem to have difficulty in interpreting posts correctly.

            My point, which you proved by your answer, was that the Government would have to get the public to agree to cuts in services for a smaller state and lower taxation, otherwise they would still cling onto their belief in big state and high taxation.

            Most recoveries have not been led by a massive public sector sucking the life out of the private sector or by high taxation. They have been achieved by cuts and lower taxation. Britain needs growth in the private sector otherwise debt will continue to rise.

            Roosevelt lived in a time when there was no big state to pay for, were banking was a simple process and there was no Global economy to compete. Keynes method is now really of no use in a modern economy, as was really proved in the 1970, balancing the books is seen as the best way forward. To achieve this the economy must be pulled back into balance by making cuts to the public sector. You have been listening to Ed Balls too much.

            It the model of big unaffordable state and high taxation worked, which is what Britain has now, why is the UK in massive debt, we should be rolling in it according to you.

          • lifelogic
            Posted April 7, 2012 at 5:45 am | Permalink

            You say “For those on low incomes higher benefits are far superior to lower taxation.”

            Nonsense they would be much happier and more satisfied providing for themselves.

        • lifelogic
          Posted April 2, 2012 at 4:06 pm | Permalink

          The political parties and the state sector think it is not in their personal interests – even if they rationally know it is the right and moral thing to do. But how will the public ever come round with the BBC dripping such, lefty, big state, green, drivel & propaganda on them all the time.

          So what has Cameron done? He has appointed the pro EU, big state socialist Chris Patten to chair the trustees. Patten has alas clearly learned nothing useful in Hong Kong – other than about the restaurant food perhaps.

          • Susan
            Posted April 2, 2012 at 5:29 pm | Permalink

            lifelogic

            I don’t disagree but it still comes round to the same problem. If you cannot convince the public of the strategy of small state, low taxation equals growth any political party that proposes this action will be out of Government.

            The BBC is a massive problem, I agree, because they cannot even produce a play now without putting a political bias in it.

          • lifelogic
            Posted April 3, 2012 at 7:58 am | Permalink

            Nearly every question the BBC ever asks on anything seems to come from a lefty, big state, enforced equality, pro EU direction. Where do they get all these lefty loons from. Are they perhaps being reprogrammed in some sinister way in the basement of White City or now Salford?

    • lifelogic
      Posted April 2, 2012 at 10:58 am | Permalink

      If you think, as many seem to, that governments spend money better than individuals you surely have to assume that:

      1. Politicians are good at deciding what to spend/invest on in the public interest.
      2. That civil servants are good and efficient at running and managing things in the public interest.
      3. That politician are honest and fairly incorruptible and will not divert money to their mates.
      4. That politician will not divert the money to buy votes or win political advantage for their party.
      5. That politician have the interest of the public at heart.

      Does any sane person think all of this. If they do then perhaps looking at the list of prominent Oxford PPE graduate politicians might change their minds?

      • uanime5
        Posted April 2, 2012 at 4:02 pm | Permalink

        1) Politicians can consult with experts regarding these things.

        2) Well it is there job to do this.

        3) You forgot donors but yes we do need a stronger oversight over Government spending.

        4) It’s impossible not to do this unless you solely use tax payers money to make everything worse. It’s an important part of democracy that politician have to maintain public support or they will not be re-elected.

        5) Well they do need the public’s support to be re-elected.

        In conclusion if the electoral system was fairer we’d get some better politicians or at least be able to rid ourselves of the inept ones.

        • lifelogic
          Posted April 2, 2012 at 8:49 pm | Permalink

          If you want politicians and the state sector to pick winners (with tax payers money) you are expecting them to be honest, wise, almost saintly, scientifically knowledgeable, and have the interests of the public in mind all the time.

          Do you know many MPs or civil servants like this?

        • Alan Radford
          Posted April 3, 2012 at 6:00 am | Permalink

          uanime5 – please go away and learn the difference between ‘there’ and ‘their’.

          • lifelogic
            Posted April 3, 2012 at 8:10 am | Permalink

            There, their – poor dear – I do know the difference it is just that my fingers/brain do not always work quite right in my haste.

            Unlike some I tend to put more effort into the logic of my message rather than trivial things like spelling. It is way past time that spelling were rationalised anyway to make it more phonetic anyway. Spelling should evolve as language, nature and technology not be fixed in aspic by on old dictionary. No confusion can arise (other than in absurdly contrived situations) so why not have one spelling of (their, there) – we have one pronunciation after all.

            Then people can devote more time to what actually matters the logic and substance.

    • uanime5
      Posted April 2, 2012 at 3:56 pm | Permalink

      A 20% tax receipts Government isn’t possible unless it can guarantee everyone a job that provides private healthcare and enough money to purchase a house. If not then a higher level will be required for the welfare and healthcare costs.

      • lifelogic
        Posted April 2, 2012 at 5:13 pm | Permalink

        The best way to guarantee a job (for all capable of work) is not to pay them not to work.

        • Bazman
          Posted April 2, 2012 at 7:09 pm | Permalink

          Make them so desperate they have to work to stay alive. I suppose that would work and create work, but not the type you have in mind.

          • Susan
            Posted April 3, 2012 at 10:23 am | Permalink

            Bazman

            So what would you do to solve the problem.

            I am sure low income workers should be happy to live next door to and support through taxation someone who has never worked and has no intention of working due to the over generous beneifts system, when they are struggling themselves.

            The same British people who are not working now were not working through the boom years when there were plenty of jobs available. Immigrants came in and did the jobs they were not prepared to do. The reason is simple, it is the benefits culture which allows people a generous income without having to do anything to earn it.

            It is easy to criticize others but you must present solutions yourself.

  2. Julian
    Posted April 2, 2012 at 6:46 am | Permalink

    Good post.
    This idea was also covered in a recent Macro-Man blog post: http://macro-man.blogspot.co.uk/2012/03/peak-taxes.html

    • lifelogic
      Posted April 2, 2012 at 8:29 am | Permalink

      Indeed the problem in a nut shell – government expenditure heading for 45%+ of GDP (from perhaps 26% in 1955) and yet, however many new taxes Brown & Osborne introduce they are unable to raise much more than 35% from taxation and are killing any growth in the process.

  3. norman
    Posted April 2, 2012 at 6:57 am | Permalink

    Obviously this will be a right leaning result and theory and practice is always different, but Reagan in the 80’s commissioned a panel led by Milton Friedman to try and find the level of taxation that would result in maximum growth of the economy. The number they came out with was 19% if memory serves.

    I don’t think we’re going to see anything approaching that level in socialist Europe any time soon.

    As an aside, I now try and pay every tradesman cash, I don’t personally evade tax but we’re now taxed so much I feel it’s now a civic duty to try and do everything we can to limit the gluttony of the leviathan. I also buy from China on ebay when I can, back in the day I’d always go British because things would get here quicker. Also buy from smaller sellers on ebay rather than established companies, same reasoning as paying tradesman cash.

    I don’t imagine myself as some kind of modern day Thoreau but every little helps, as the advert says.

    • lifelogic
      Posted April 2, 2012 at 7:58 am | Permalink

      Indeed I too feel it has now become ones civic duty to try and do everything you can, legally, to prevent the state grabbing & wasting money that the individual can clearly invest far better and more wisely to create jobs.

      To adapt Samuel Johnson “Men are seldom more innocently employed than when they are, honestly, preventing the government wasting yet more money”. It is indeed quite the opposite of Osborne’s view that it is ‘morally repugnant’.

      What is morally repugnant however is encouraging people with tax payers funds to put silly green bling on their houses and huge, bird and bat killing, wind turbine machines all over the countryside or lending it the Pigis and giving it the corrupt EU organisations.

    • uanime5
      Posted April 2, 2012 at 4:32 pm | Permalink

      Well that just goes to show that maximum growth is incompatible with good living conditions. It would be impossible for Europe to have a 20% tax rate without abolishing most of healthcare and welfare, and impossible for the USA to have a 20% tax rate without a massive cut in their army.

  4. Andy Man
    Posted April 2, 2012 at 7:02 am | Permalink

    Why is there a particular percentage that stifles the economy? Places like Hong Kong and Singapore that impose very low taxes are awash with surpluses so it seems to me that the lower the tax the less the economy is harmed. Any taxation has a depressing effect. Why do politicians feel that they know what to spend money on better than the people that they steal it from? The evidence strongly indicates that they do not. Governments confiscate money and spend it on pointless bureaucracy, extravagant white elephants (Dome, Olympics, HST, etc) illegal wars and giving handouts to their cronies. The real ideal percentage of tax is zero but a flat rate of 15-20% tax on income and no other taxes at all would be a fair compromise. It would massively restrict government to the benefit of the whole country.

    • lifelogic
      Posted April 2, 2012 at 8:01 am | Permalink

      The real ideal percentage of tax is not zero. The state needs to maintain law and order, defence and some other basics – but 20% is more than enough for this. Otherwise some other country will invade and you will then have to pay taxes to them.

    • Caterpillar
      Posted April 2, 2012 at 10:20 am | Permalink

      Are there examples that are not city states?

    • Denis Cooper
      Posted April 2, 2012 at 10:29 am | Permalink

      The real ideal percentage of tax would only be zero if you wanted the state to have zero capability to act, in which case it might as well not exist and we could try out anarchy as an alternative to having organised government. Strangely when we do have temporary local outbreaks of near perfect anarchy on the streets people say they don’t like it, and want a police force to intervene and exert control.

    • alan jutson
      Posted April 2, 2012 at 10:39 am | Permalink

      Andy Man

      The points you make are so obvious, I wonder why our politicians simply do not understand, or at least take/use them as a WORKING EXAMPLE as to how sensible levels of tax bring/encourage growth.

      Surely to God we now have enough examples in the World, of both High and Low taxation systems over the years to evaluate.

      Why do we automatically think of the maximum money we can extract from the workers as a solution, why not think of the minimum/basics only that should be provided by Government, and a cost be worked out for that.

      Why do politicians of all Party’s think they have all of the solutions, when history proves it is them, and their ideas which has been the problem.

    • uanime5
      Posted April 2, 2012 at 4:36 pm | Permalink

      For a zero tax rate you wouldn’t have any healthcare, welfare, non-fee paying schools, police force, courts, prisons, army, social services, or roads. Energy and water prices would also be much higher because they wouldn’t get any subsidies.

      Yet another poorly thought out right wing idea.

      • Posted April 2, 2012 at 8:33 pm | Permalink

        Energy subsidies make energy cheaper do they?

      • Caterpillar
        Posted April 2, 2012 at 10:25 pm | Permalink

        uanime5,

        I agree with you that zero tax is problematic and not clearly an optimum, but the usual answers to your objections would include;

        On provision:

        Government could create money for its spending,
        Charities, philanthropists, scholarships etc. have contributed before,
        Private sector can provide at a market determined price.

        On pricing:

        If energy any water prices went up then their supply and demand would adjust appropriately (and let’s face it not all UK water needs to be potable, drip irrigation could be used more and even shorter showers are possible).

        • uanime5
          Posted April 3, 2012 at 6:22 pm | Permalink

          The problems with the usual answers are:

          A system of charity is the worst way to fund anything. That’s why every country moved away from this poor system to a professional one. State schools and healthcare is massively superior their charitable counter parts. The private sector versions only benefit a rich elite so are non-existence for most people.

          If demand decreases then prices will have to rise to make up for the loss. The result would be the poorest would no longer have access to any water or electricity, just like in most third world countries.

  5. Nick
    Posted April 2, 2012 at 8:03 am | Permalink

    They won’t come down. You’ve got 7 trillion of debts. How are you going to stop the debt from increasing without taxation?

    Be honest.

    The debts increased by 500 bn last year. 350 on the off the books debts, linked to inflation, and 150 bn for the deficit.

    Taxation raised 550 bn.

    The government spent 700 bn.

    It doesn’t add up. No matter what you do on the taxation front, it doesn’t add up. 100% taxation isn’t enough.

    So you had a vote on this. We didn’t. We weren’t allowed a vote. That means you’re responsible are we aren’t. Or are you saying that you’re responsible for the Yorkshire ripper’s crimes? I doubt that you think you’re responsible, because it was Sutcliffe making the decisions. Same with the government’s mess. We aren’t responsible.

    So your ‘Those with the Broadest Shoulders”. What about, those who caused the mess? What about getting them to pay?

    Or is it lets jail agrophobics? After all they are best placed to deal with incarceration.

  6. Brian Tomkinson
    Posted April 2, 2012 at 8:07 am | Permalink

    JR: “It is the level elected politicians feel is the limit to their ambitions to spend more.”

    Therein lies the problem. Three points:
    1. Politicians cannot agree what that limit should be.
    2. There has most clearly not been an effective limit on spending as we can see by the collosal deficit and debt.
    3. Most importantly, why do politicians think that they know how to spend our money better than we can when the evidence shows wastage and incompetence?

    We want less government, less government spending and lower taxes. At one time we thought that the Conservative party supported those principles – but no longer!

  7. oldtimer
    Posted April 2, 2012 at 8:22 am | Permalink

    It is clear that levels of taxation affect behaviour. As you point out, the historical evidence reveals that 38% is the maximum tax take that has been achieved in the UK and that the longer term average is closer to one third. Public spending should reflect this reality. Ultimately it must reflect this reality. Politicians think they can get round it it by a mixture of more and more debt and more and more inflation. In the short run of their electoral cycle they often can. That is a big part of the problem. It enables the main parties trade places and blame their predecessors for the mess they have created. The coalition is no different. It rightly blames the last three Labour governments, but it is not sorting out the mess – it is getting worse.

    Unfortunately the political class that actually controls taxation and spending does not appear to believe that economic growth (on which all else ultimately depends) should be very high on their list of priorities. They believe that pushing and shoving people to behave in ways they, the politicians, want is more important than letting people decide for themselves. Nothing will change unless and until someone brave enough to grip the issue takes control of runaway public spending. This will not occur under the present political leadership of any of the main parties. They all have their vanity spending projects, at best irrelevant to, at worst harmful to, the wider interests of the people of this country. Why else is the tax on jobs and investment so high?

  8. Stephen Almond
    Posted April 2, 2012 at 8:28 am | Permalink

    I’d like to put in a plea for indirect taxes. In other words abolish income tax and national insurance and collect all taxes through VAT and similar indirect taxes. Although there would be difficulties, as with every other system, here are some benefits:

    – everyone gets to keep and spend all the money they earn
    – Immediate and far-reaching simplification of tax
    – No income tax and therefore..
    – No tax forms for individuals to complete
    – No accountants required to be employed by individuals
    – vast swathes of the tax-collecting elite can be taken off the tax-payers teat
    – EVERYONE has to pay indirect taxes (think VAT in shops or fuel duty) including:
    – drug dealers
    – criminals
    – the rich
    – visitors
    – illegal immigrants
    – anyone in the black economy
    – The system for collecting most taxes (VAT) already exists and can be made to work well.

    • uanime5
      Posted April 2, 2012 at 4:39 pm | Permalink

      How much would income tax have to be for this to be viable?

      How will you stop it from disproportionately harming those who earn the least?

      What happens if people avoid this tax by importing good from abroad?

      • Caterpillar
        Posted April 2, 2012 at 10:35 pm | Permalink

        uanime5,

        1) If you go to

        http://www.guardian.co.uk/uk/interactive/2011/mar/24/budget-2011-interactive-tax-guide

        This is a year out of date but gives the idea of how much has to be shifted from income, NI and corporation ( run mouse over the boxes)

        2) Zero rating some goods / sevices, but additionally raise some by taxing wealth as well as consumption.

        3) Fuel plus service (ferry, flight, post etc) consumption tax set higher for individuals rather than businesses, plus vigilance.

        • uanime5
          Posted April 3, 2012 at 6:16 pm | Permalink

          Sorry my question should have been “How much would VAT have to be for this to be viable?”. Fortunately this website provides the answer.

          According to this website income tax is £147 billion, NI is £100 billion, and corporation tax is £43 billion (£290 billion in total). By contrast VAT raises £98 billion. So if VAT was trebled to 60% this should raise enough money to abolish income tax, NI, and corporation tax.

          However I suspect that the extra cost of everything would requires a higher level of welfare so that the unemployed, pensioners, and those on low wages would be able to afford anything with VAT on it. Thus VAT may need to be raised to 70%.

    • Caterpillar
      Posted April 2, 2012 at 10:40 pm | Permalink

      I’d like to see a group such as the IFS (or whoever has the expertise) to look at a combination of

      indirect/consumption taxation + wealth taxation

      and as Stephen Almond wonders dropping NI, income, corporation altoghether.

  9. MajorFrustration
    Posted April 2, 2012 at 8:36 am | Permalink

    All very interesting but given that GDP comprises – Consumption+Government spend+Company investment+ net Export/Import – all these imputs in terms of their value are assessed almost like “finger in the air” and moreover have changed even after say ten yrs. Government spending has to be cut yet still its rising and growth in the economy is just a hope. Expect more taxes from this weak governemnt

  10. Posted April 2, 2012 at 8:36 am | Permalink

    Sure, we’re over-taxed and I suspect that much of Blair and Brown’s extra spending will never come back to us, having go into the pockets of public employees. We need to start with how much we need to raise.

    Any cut in tax and/or public spending can be used by the left to say that some people risk grinding poverty if not actual starvation. Measures of poverty have been cleverly switched from absolute to relative, so the left can always howl injustice for as long as one person is paid more than someone else. We need a definition of absolute poverty and, associated with it, a subsistence-level which can then be guaranteed to all British subjects* with right of abode.

    To the cost of such outdoor relief you add the cost of defence and policing, and you then know how much to raise. That could be done by a flat tax on spending and you could shut much of HMRC. If people want to fund other people’s health and education, they can.

    * non-subjects can appeal to their countries for help

  11. Acorn
    Posted April 2, 2012 at 8:36 am | Permalink

    I like this JR, you and Dr Tim Morgan seem to be on the same page! Monetary and Fiscal stimulus of near £1,000,000,000,000 ain’t working. As Tim says, tax cuts are the only macro tool left in the box.

    “The widespread supposition that the UK cannot cut public spending further than the modest real-terms 6.8% currently planned is a myth. Between 1990-2000 and 2009-10, real state expenditures increased by 53%. No-one has yet explained why the British state somehow must spend about £700bn today having managed perfectly well on £450bn (at today’s values) ten years ago. Our research has revealed sharp and continuous declines in public service value-for-money going back over more than a decade.

    This said, we do not believe that any single macroeconomic bullet can restore competitiveness and growth to the British economy. This means that the only alternatives to an over-indebted, over-spending, low-growth future must lie in microeconomic reforms – in other words, scaling back the excessive regulation of businesses, a burden which has become particularly onerous for those small and medium enterprises which can alone create jobs and prosperity. Since such reforms would mean surrendering cherished shibboleths in areas such as health & safety, equality and employment rights, the real choice now lies between hard-nosed economic pragmatism on the one hand, and well-meaning sentimentality on the other. Here, the omens are not encouraging. Recent opposition to imposing an annual cap of £26,000 on cash benefits shows how out-of-touch some contributors to the debate have become.” http://www.tullettprebon.com/announcements/strategyinsights/occasionalpapers/2011/SOP20120305.pdf .

    • uanime5
      Posted April 2, 2012 at 4:44 pm | Permalink

      “No-one has yet explained why the British state somehow must spend about £700bn today having managed perfectly well on £450bn (at today’s values) ten years ago.”

      Could it be because incomes 10 years ago purchased more so people needed less welfare.

      “Since such reforms would mean surrendering cherished shibboleths in areas such as health & safety, equality and employment rights, the real choice now lies between hard-nosed economic pragmatism on the one hand, and well-meaning sentimentality on the other.”

      So the solution to the lack of people working is to make working even worse and more dangerous? This right wing nut doesn’t have a clue how to fix this problem.

      • Bazman
        Posted April 2, 2012 at 7:15 pm | Permalink

        Starve em. Same old same old from the same old right wingers who when realistic arguments about low wages and poverty are put to them just shut up, and so they should.
        If you will not work for it do not expect anyone else to other than desperate people. Interesting to see how these soft centred middle class simpletons live.

      • lifelogic
        Posted April 2, 2012 at 9:04 pm | Permalink

        You say “No-one has yet explained why the British state somehow must spend about £700bn today having managed perfectly well on £450bn (at today’s values) ten years ago.”

        Simple: the forces of evolution, that make the private sector become more efficient do not act on the state sector that way. Quite the reverse, they tends to evolve like a fungus to grab the benefit of the efficiencies made in the private sector and feed of them by passing parasitic laws and creating protected monopolies.

        • Bazman
          Posted April 3, 2012 at 7:35 pm | Permalink

          The forces of evolution do not apply to those with money. Quite the reverse Darling. Just ram it.

  12. Alan Wheatley
    Posted April 2, 2012 at 8:37 am | Permalink

    As to the 50% rate, if it is announced that a tax increase will be temporary, intended to help see the country through short-term difficulties, I would say it is blindingly obvious that everyone in a position so to do would arrange their affairs so as to minimise their tax liability throughout that period.

    The reduction to 45% changes the quantum but not the principle.

  13. Alan Wheatley
    Posted April 2, 2012 at 8:41 am | Permalink

    JR, I like the thrust of your analysis.

    Could you not pray in aid “prudence” Brown, who pledged to abolish boom and bust, and to control borrowing?

  14. Brian A
    Posted April 2, 2012 at 8:55 am | Permalink

    An excellent post. Sadly, there appears to be no evidence that anyone on the Coalition frontbench shares your desire to lower taxes to the sort of levels you mention. Moreover, they share their predecessor’s addiction to spending and show no real willingness to confront vested interests. It seems that the most toxic legacy of the Blair/Brown era is the belief by many in this government, and much of the electorate, that all public spending is inherently worthwhile, and therefore more desirable morally than private capital accumulation and investment.

  15. James Power
    Posted April 2, 2012 at 8:59 am | Permalink

    I too believe in a low tax, small government economy. I am fed up hearing politicians (Labour in particular) saying that “the government should be creating jobs”. Governments don’t and shouldn’t create jobs, they should create an environment where businesses thrive, as it is business that creates jobs.

    I fear we are in a downward vicious circle of increased taxes to pay for the unemployed (and unemployable), which stifles business and causes increased joblessness.

    However, there is no longer any true ideological party supporting this sensible, view. The current Tory leadership is far too soft to make the difficult choices that must be made to enable a large tax cut. The Chancellor’s welcome cut in corporation tax should have been headline news, instead we get nothing but negative publicity about nonsense issues like the granny tax and the pasty tax.

    My view is oft repeated, but still valid. Refuse to pay any money to the EU. If that means they kick us out, so much the better. £40+bn a year can go a long way, especially once we are able to access tariff-free goods from the rest of the world once again. The vast reduction we would see in food prices alone would be enough to win the support of the poorest, let alone the sensible right-leaning majority in the rest of the country. Oh for a true Tory government…

    • uanime5
      Posted April 2, 2012 at 4:48 pm | Permalink

      “I fear we are in a downward vicious circle of increased taxes to pay for the unemployed (and unemployable), which stifles business and causes increased joblessness.”

      Well perhaps companies can use the billions they have in cash reserves to create some jobs and stop this.

      “My view is oft repeated, but still valid. Refuse to pay any money to the EU. If that means they kick us out, so much the better. £40+bn a year can go a long way, especially once we are able to access tariff-free goods from the rest of the world once again.”

      The net cost of being in the EU is £4 billion, not £40 billion. Given that 53% of our exports go to the EU leaving it will cause a great deal of harm to the economy. The rest of the world is not going to double their consumption of UK goods simply because it will benefit us.

  16. Alan Wheatley
    Posted April 2, 2012 at 9:08 am | Permalink

    As to “tax avoidance”, I would accept that the more you can avoid the harder you are likely to try. However, much of the public debate has lost a sense of reason; it has become a favourite cause for those preaching from the highest of moral soapboxes.

    Tax avoidance is legal, tax evasion is illegal.

    Why should those of use who have bought an ISA be subject to the full force of the Chancellor’s wrath? If that is not what he means then he should jolly well say so.

    I thought Gordon Brown was bad enough, but in his case it seemed to be personal; the thought that someone else might be cleverer than him.

    Osborn simply looks a fool. If the chancellor thinks that a means of avoiding tax is wrong then he should change the tax laws. To threaten retrospective legislation is tantamount to admitting that he, even with the resources of the Treasury behind him, is not up to the job.

    It would be good for us all if the rhetoric on avoidance came to an end.

    PS: should readers think this might be special pleading, let me say my tax endeavours are at the level of ISAs.

    • uanime5
      Posted April 2, 2012 at 4:51 pm | Permalink

      Just because something is legal doesn’t make it socially acceptable.

      Also what taxes are you avoiding by having an ISA?

      • lifelogic
        Posted April 2, 2012 at 9:13 pm | Permalink

        “Just because something is legal doesn’t make it socially acceptable.”

        I agree look at 50% income tax, 40% IHT, 28% CGT and 4% inflation not much socially acceptable there. But tax avoidance is a very good thing in general as it diverts money to people who use it wisely rather than the state who waste it.

        “Also what taxes are you avoiding by having an ISA?”

        Income tax and capital gains tax of course.

        • uanime5
          Posted April 3, 2012 at 6:05 pm | Permalink

          So as long as you pay income tax and don’t have enough money to need to pay capital gains tax you’re not avoiding any tax.

    • sm
      Posted April 3, 2012 at 10:10 am | Permalink

      Re:Avoidance and artificial arrangements times are changing

      http://www.taxresearch.org.uk/Blog/2012/03/28/india-and-its-general-anti-avoidance-rule/

      Judges need to be instructed as to how to interpret parliaments will.

      Note the reference to Hoffman’s reversal of the Ramsey doctrine.

      Therefore the specific intention of parliament when making law needs to be made clear. Any new tax law needs to have its principal aim and purpose outlined.

      Note:
      George Osborne’s intent was clear and direct,it is now down to judges to reflect that sentiment and where conflict exists or return the law back to parliament for a decision.

      An ISA is specifically intended to do what it says, most uses would be totally compliant and exactly as was intended.

  17. Terry Harris
    Posted April 2, 2012 at 9:24 am | Permalink

    If only you were in number 11, John.
    Someone who understands how the real world works. Unfortunately, we are lumbered with a mixed vegetable stir-fry of career politicians who are just playing at running a country. And it is we, the ordinary citizens who suffer the consequences. Again and again, it so appears, regardless of the party in power.
    We need the Real Conservatives back in Downing Street.

  18. Caterpillar
    Posted April 2, 2012 at 9:35 am | Permalink

    Assuming a national identity I think it is important to have (a) security (so defence and police) (b) property rights (legal system). By symmetry I wonder why these aren’t funded by taxes on wealth rather than income etc. (call it insurance / protenction money)?

    How much should these basics cost (as a proportion of GDP)? After these, from an economic efficiency point of view, what else is worth funding through taxation (i.e. when is the market price mechanism not the optimum approach of resource allocation)?

  19. Daedalus
    Posted April 2, 2012 at 9:36 am | Permalink

    I always think when I read blogs such as this one that everyone should read this:-

    http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2004&month=04

    It really should be compulsory reading for everyone involved in government or opposition come to that.

  20. Posted April 2, 2012 at 9:39 am | Permalink

    “The level for maximum good for the voters in wealth and general living standard is perhaps around 20%.”

    You’re starting with the flawed assumption that incomes should be taxed in the first place. The way to maximise private wealth and living standards is not to tax incomes or output or profits at all – and for the government to collect revenues by levying user charges on the rental value of land instead.

    The tax rate required to maximise economic growth, living standards etc is something approaching a 100% charge, but 80% will do.

    And yes of course, this also depends on how the government spends the proceeds; by definition, the best kind of expenditure is stuff which boosts rental values even further (more roads, better education, citizen’s dividend etc and less quangos, third world aid, payments to EU, PFI, bureacracy and so on).

  21. stred
    Posted April 2, 2012 at 9:41 am | Permalink

    How about a Grumpy Tax? This would be levied on those who failed Dave’s Happiness Index and inversely proportional to the test score. The tax would have to be kept secret until the test had been completed. Grumpies votes have already been lost so it would be politically neutral.

  22. Richard1
    Posted April 2, 2012 at 9:42 am | Permalink

    Interesting analysis. If you know a source for the data or can get someone to dig it out it would be very interesting to see comparions of spend/GDP and tax/GDP over a few recent years in other countries. Relevant other countries could be: the US; France; Germany; Switzerland; Sweden; Japan; Korea; China; Australia; Canada; Brazil. Its becoming increasingly clear that its the size of the state and the level of govt spending thats the real problem in the UK.

  23. Mactheknife
    Posted April 2, 2012 at 9:52 am | Permalink

    There are many questions around taxation one of which is what is the optimum level, but another is what the tax take is used for. It was interesting in the published example of the governments proposed scheme to show us where our tax is spent, that the benefits portion was enormous in comparison to other areas of spending. For most working people the biggest bone of contention on tax is the benefit spending. In these times of “we’re all in it together” the benefits claimants got a rise of 5%, whereas most working people I know have had pay freezes for several years and face rising tax bills. How can that be “fair” John ?
    Its clear the austerity measures are not producing the results required with the latest economic data leaning towards a double dip recession. So what about some radical thinking and introducing a large tax break for standard and 40% rate payers, as George W Busch did to get the economy kick started ? If people have more money they feel more realxed in their spending habits.

    • uanime5
      Posted April 2, 2012 at 6:05 pm | Permalink

      Given that George W Bush’s tax cuts for the wealthy didn’t fix the economy we shouldn’t try them here. Perhaps we should copy what Obama is doing as that’s generating more growth.

      Also welfare spending is high because so many people get a form of welfare. The unemployed get job seekers allowance, those who work for a low salary get tax credits, and both get housing benefit because house prices are so high. The only way to reduce it is to create more jobs that pay a living wage.

      Reply: Your point about top rates misses the point that the average top rate for the leading countries is now below 40%

  24. Leslie Singleton
    Posted April 2, 2012 at 9:55 am | Permalink

    To stop your ideas, with which I agree BTW, being ignored or chopped off at the knees by unbelievers, one thing you should try and do (I certainly cannot) is explain how some countries do so well with much higher taxes than ours. I have no great researched knowledge of this but I have in mind Sweden where I understand tax levels are much higher and around 60%.

    Reply: Not any more – they tried that and had to change

    • Leslie Singleton
      Posted April 2, 2012 at 2:36 pm | Permalink

      Thank you for your reply (to the effect that Sweden has been forced to lower its high taxes) but as usual when considering such matters (whether there have or have not been “Cuts” in the UK is another example) it is difficult to know what to believe.

      Thus the below was what the Guardian had to say late in 1908, viz

      Quote

      Where tax goes up to 60 per cent, and everybody’s happy paying it

      The British want taxes kept low, but……………..in Sweden high rates underpin a successful society

      Gwladys Fouché

      The Observer, Sunday 16 November 2008

      Unquote

      Reply 1908 was a long time ago

      • Leslie Singleton
        Posted April 2, 2012 at 3:55 pm | Permalink

        Sorry–of course I meant 2008

        • Leslie Singleton
          Posted April 2, 2012 at 5:30 pm | Permalink

          Cannot believe you thought I meant anything other than my corrected date of 2008 which is in any event clear at base of the article I quoted and is not so long ago. Sob!! It seems to me that Sweden and we differ considerably in the homogeneity of the population. Sweden is more uniform in many ways and to a large degree. A big problem in the UK is that there is a wide spectrum of types of many kinds. The obvious difference is in wealth and earnings and in the UK many of the rich resent in effect paying to the poor. It is not difficult to think of other differences. I perceive that there is much less of this sort of thing in Sweden. In the extreme, if everybody is identical it doesn’t matter how much is taken in tax because there is by definition no other way than to give it back or use it evenly so much less objection.

          • Leslie Singleton
            Posted April 2, 2012 at 5:33 pm | Permalink

            PS Your replies should be timed which in this case would have made clear I corrected the date well before your inappropriate comment

    • uanime5
      Posted April 2, 2012 at 6:07 pm | Permalink

      I believe they still have a 60% tax rate in Denmark. Also France is planning to introduce a 75% tax rate at the request of business owners.

    • lifelogic
      Posted April 2, 2012 at 9:18 pm | Permalink

      A county can in theory do well even with high taxes, if the state sector is efficient and is kept efficient. Alas this never happens in practice,due to human nature and poor control of politicians by the voters.

  25. Rodney Dawkins
    Posted April 2, 2012 at 10:29 am | Permalink

    The other serious problem is tax credits. Wages just not moving, despite massive real increases in rent and home ownership costs, and now inflation. We have to stop subsidising employers with public money, so that they keep a lid on wage inflation.

    • uanime5
      Posted April 2, 2012 at 6:08 pm | Permalink

      The problem with removing tax credits is that it will remove any incentive to work in a low paying job. Unless the Government raises wages to make up for the loss of the tax credits it will make the problem worse not better.

  26. Simon
    Posted April 2, 2012 at 10:31 am | Permalink

    “There has been a sharp reduction in higher incomes in response to the 50% tax rate imposed. That was before news came of its future reduction.”

    If you announce a tax rise for the wealthy 12 months in advance, and say it will be temporary, two things will happen (1) as much of future income as possible will be brought forward to miss the new tax, (2) as much of current income as possible will be delayed until after the tax has been reduced.

    Increased taxation on those earning over £150k affects less than half of one percent of the population, and no credible means by which it could reduce growth has been put forward.

    On the other hand, increasing VAT effects everyone, and as a tax on consumption, is by definition bound to reduce GDP.

    It’s almost as if the government would rather shrink the state during a recession than grow the economy out of one.

  27. Bernard Otway
    Posted April 2, 2012 at 11:13 am | Permalink

    IMHO TAX IS LEGALISED THEFT,because Govt. of whichever hue spends it in ways we mostly disapprove of,we clearly in this country elect our MPs who then go and do exactly the
    OPPOSITE of what we want, EG overseas aid,welfare to those not deserving and entitled,
    allowing immigration at a level not wanted, and a list too long to continue.Until this fundamental issue is understood,the Black economy as it is called [and I am not being Racist
    before the “THOUGHT POLICE” come after me] will continue to grow,I think eventually it will be larger than the [legitimate but in my thoughts ILLEGITIMATE ] side of the economy ,just like Italy and many other countries.THE REMEDY TO STOP THIS LIES IN THE HANDS OF ” YOU POLITICIANS AND THE MANDARIN CLASS OF Sir Humphreys

  28. Sir Richard Richard
    Posted April 2, 2012 at 11:17 am | Permalink

    Mr Redwood,

    Whilst we’re all worried about the big things, the E.U., the NHS, RBS, etc., have you considered focussing on smaller (though still national) issues which aren’t as controversial but would still make a notable difference in people’s lives?

    For example, I would suggest the blanket ban on pistols introduced as a knee-jerk reaction following the Dunblane massacre (contrary to the recommendations of the Cullen Inquiry) might be questioned and they be allowed under the same restrictions as section 1 rifles. Or for example the requirement that shot guns be limited to 3 shots (except where on a firearms certificate) be removed.

    These types of changes are less headline-grabbing but people would certainly appreciate them.

    • uanime5
      Posted April 2, 2012 at 6:21 pm | Permalink

      Who would want to own a pistol? Feral youths?

      • Sir Richard Richard
        Posted April 3, 2012 at 8:42 am | Permalink

        No, people who enjoy shooting as a sport.

        Feral youths already own pistols, illegally.

      • APL
        Posted April 7, 2012 at 10:44 pm | Permalink

        uanime5: “Who would want to own a pistol? Feral youths?”

        Late to the party, but incase uanime5 hasn’t noticed, pistols & revolvers already having been made illegal, the only people that posess these weapons are that section of society called criminals.

        And if that isn’t simple enough for you. Since the ban on responsible people owning firearms, gun crime has increased several fold.

  29. Denis Cooper
    Posted April 2, 2012 at 11:23 am | Permalink

    Beyond the basics of defending the national territory and overseas national interests, and maintaining law and order, the main legitimate purposes of public spending boil down to keeping the nation together and avoiding disintegration along social or geographical fault lines. The longstanding problem is how to agree a limit to that essentially redistributive state spending when the government is chosen through the universal franchise and many of the electors still have an inadequate understanding of state finances, and there are too many politicians who prefer to mislead rather than educate them.

  30. lola
    Posted April 2, 2012 at 11:28 am | Permalink

    “So what is the maximum sustainable level of total taxation in the UK?” Eh? The implication behind that statement is that is right and proper for the damn’ gummint to maximise its tax take. Why? Why do we keep on assuming that the gummint is at all wise, and wiser than its citizens, as to how wealth is consumed? Why not reverse this thinking and seek to take the lowest amount of tax possible?

  31. Dan Course
    Posted April 2, 2012 at 12:33 pm | Permalink

    “Only as much government as we can afford.” There’s a quote that has always stuck with me.

    I’m glad someone is actually trying to play with some numbers rather than hold onto random quotes!

  32. waramess
    Posted April 2, 2012 at 1:16 pm | Permalink

    This is, of course the most distressing paart of it all. Real Atlas Shrugged type thinking, where we might consider governments have the right to tax us at the maximum level possible and only need to consider the possibility of declining revenues as the gating factor to increasing taxation.

    I thought, reading the Sunday papers yesterday, that there were far more outrageously true stories of government behaviour than your April Fool blog so, where does aall this lead to?

    I think maybe politicians of all colours might need to pause a little. before the electorate think in greater numbers of repeating the Bradford West result across the country at the next General Election

  33. matthu
    Posted April 2, 2012 at 2:59 pm | Permalink

    Caroline Flint (MP and shadow climate and energy secretary) seems to think that making the climate debate about things close to our heart is the way to win our minds. So she says:

    “Prices – because energy bills top the list of the public’s concerns, and people need to know there is fairness in the way energy is bought and sold.

    Jobs – because at a time when growth in our economy is flat-lining and unemployment is rising, the transition to a low-carbon economy has the potential to be a major source of wealth and employment for our country.

    And security – because the health of our economy and the functioning of our society depends on us having an energy policy which can keep the lights on. ”

    It seems to escape her completely that it is green policies that are pushing prices up, destroying jobs and making it more likely the lights will go OUT.

    Somebody needs to have that debate with her.

    http://www.guardian.co.uk/environment/2012/apr/02/climate-debate-bills-bears

    • uanime5
      Posted April 2, 2012 at 6:23 pm | Permalink

      Wouldn’t the increasing price of gas also push the prices up?

  34. Joe McCaffrey
    Posted April 2, 2012 at 3:03 pm | Permalink

    Historically the optimum level has been approximately 4-7%, enough to maintain national defence and a rule of law legal system. Due to the fact that we are now much wealthier and there have been technological advances that make the infrastructure of a legal system much easier it is probably towards the lower end of that scale or perhaps lower still. Unfortunately we have a populace that has by a deliberate process been made dependant, or at least made to feel dependant, upon the state for everything from healthcare to the delivery of post that it will require a drastic upheaval of public opinion to reduce the burden of the state – and challenge the few powerful vested interests that are those who actually benefit from it.

    • uanime5
      Posted April 2, 2012 at 6:27 pm | Permalink

      Historically the state didn’t provide any police, postal system, healthcare, welfare, or elected Government so it survive in 4-7%. However a modern state required more money.

      Also who are the ‘few powerful vested interests’ that benefit from the post office?

  35. forthurst
    Posted April 2, 2012 at 3:03 pm | Permalink

    How can there be a sensible conversation about optimal taxation when we have no control over the direct EU tax take nor the indirect costs of governmental bureaucracy imposed through EU ‘laws’? Nor can we control the immigration of EU nationals who take the jobs of British workers who then have to bankrolled by the state. Talking about optimal tax rates from within the EU is futile.

  36. Bert Young
    Posted April 2, 2012 at 3:16 pm | Permalink

    I spent 10 years living and working in Bermuda ( 1951 – 1961 ) ; there was no direct taxation . If you bought something you paid a tax – most things were imported . People were comfortably off , enjoyed a very high living standard , tourism was then the bread and butter of the place . I arrived on the Island with £15 in my pocket before my first pay-day – a month away ; when I left to return to the U.K I had accumulated enough wealth enabling me to buy property and set up my own business . Theres a message here . Get rid of Direct Taxation and institute Indirect Taxation . If you spend you pay tax , if you don’t you don’t pay tax . Those individuals who want to get on in life can do so and build a sensible and respectable society where the strong and able can take care of those less fortunate . By the way , I arrived as a teacher and came back as a businessman .

    • uanime5
      Posted April 2, 2012 at 6:28 pm | Permalink

      Did the state provide welfare, healthcare, or education? If not what happened to those who couldn’t afford them.

      • APL
        Posted April 7, 2012 at 10:58 pm | Permalink

        uanime5: “If not what happened to those who couldn’t afford them.”

        Could it be that, assuming the veracity of the anecdote, that everyone knew the State would not provide for their healthcare or education, they made provision for it themselves?

        Could it be that, for those unfortunate people who either through fecklessness or inability, there may have been charitable hospitals?

        Could it be that these things existed without the State?

  37. uanime5
    Posted April 2, 2012 at 3:53 pm | Permalink

    “The first is that we should accept there is a maximum sustainable taxable capacity in any country, a level of national income that a government can take, before avoidance, disincentive and other factors kick in to make it difficult to collect more.”

    This idea is too rudimentary to be useful as each country will require a different level of taxation and every person will have a different view regarding what contributes too much tax. There’s also no way to calculate what this level should be or even what effects will occur by going over it.

    Also it relies on the premise that it will be possible to avoid paying below this level of taxation, which is incorrect if there is a minimum level of taxation such as a Tycoon tax.

    “You can see the UK this year has reached the point of tax saturation on Self Assessment Income Tax, which is forecast to fall by almost 10% despite some modest growth in the economy as a whole.”

    Are you sure it isn’t just falling because of poor growth in the UK’s economy which will depress wages, growth being concentrated in areas where most people earn a low salary, or the problems in other economies which will affect the revenues generated by multinational organisations?

    “There has been a sharp reduction in higher incomes in response to the 50% tax rate imposed.”

    Again do you have any evidence that this isn’t due to the problems in the economy which have increased unemployment and reduced amount of work available. For example if due to a lack of work available someone who was earning £151,000 lowers their salary by £2,000 they won’t be in the 50% tax rate but it will have a minor effect on income tax they pay.

    Also how are lower salaries a bad thing as it results in more money being available for hiring additional employees.

    “There is another theoretical level which is difficult to estimate, the level of taxation which would maximise growth.”

    I suspect this will be different for people on different incomes. The correct rate is probably low for those on low incomes to encourage them to spend more of their income in the economy but higher for those on higher incomes as they spend a smaller percentage of their income in the economy. Perhaps we should calculate how much of their income a person in each salary band requires and take the rest in taxation.

    For those who are interested here are some fun facts about taxation.
    • Those who earn between £35,001 and £42,484 pay a 52% tax rate (40% income tax and 12% NI).
    • Those who earn over £150,000 pay a 52% tax rate (50% income tax and 2% NI).
    • For some strange reason most MPs complain about the latter 52% tax rate but aren’t troubled by the former one.
    • The Government raised £157 billion in income tax from 30 million people, so the average person paid £5,233 in income tax. As the median salary is £26,000 the average person has a 20% tax rate.

    • sm
      Posted April 3, 2012 at 11:00 am | Permalink

      Worth repeating.

      For those who are interested here are some fun facts about taxation.
      • Those who earn between £35,001 and £42,484 pay a 52% tax rate (40% income tax and 12% NI).
      • Those who earn over £150,000 pay a 52% tax rate (50% income tax and 2% NI).
      • For some strange reason most MPs complain about the latter 52% tax rate but aren’t troubled by the former one.

      But i think MP’s haven’t yet had time to complain – Danger UXB.

      Reply: Some of us have wanted tax cuts at all income levels and do object to the squeeze around the 40% threshold

  38. Barbara Stevens
    Posted April 2, 2012 at 5:00 pm | Permalink

    Its obvious to the layman and woman we are all taxed to much; take air travel, they’ve now increased the taxes on that, to such a level people just won’t go, accept of course those who can afford to. Even Mr Branston himself is wondering about the effect this will have on busineses. People will travel to France, where flying is cheaper, via the tunnel to take off on their holidays. Can you really blame them?
    Taxing salaries to the hilt won’t work either, eventually people will just give up and work elsewhere, probably abroad, they will gain all the skills we have.
    Pensioners have taken a beating this time round, and it’s those people who take the trouble to vote, they will vote according to their pockets and if they are less full, we all know which way they will vote.
    I’m afraid those that do work will find the burden harder as time goes on. Yet, take Iceland, they had their banks go bust but refused to bail them out, now the country is again in growth and prospering, and much better of out of the EU. Why is it that supposed intelligent politicians don’t see this success and realise it is the EU that is killing us. Greed as paid the biggest part in the banking saga, it’s still there with the million or so bonuses, but they should be told in no uncertain terms, do it again and you fall. I’ve yet to hear any party confess this will happen. We are all paying the price of that greed, and the failure of a government who spent our money like smarties. They still are spending on foreign aid which we all want stopped, wars, and such waste ly at politicians feet, not ours. It’s time they accepted that fact and acted accordingly.

    • uanime5
      Posted April 2, 2012 at 6:40 pm | Permalink

      “People will travel to France, where flying is cheaper, via the tunnel to take off on their holidays. Can you really blame them?”

      Alternatively you could have a holiday in France and avoid flying altogether.

      “Taxing salaries to the hilt won’t work either, eventually people will just give up and work elsewhere, probably abroad, they will gain all the skills we have.”

      I doubt that most people who work in a supermarket or a fast food restaurant will be able to afford to leave the country (especially with the cost of flying). Even if they do others can quickly be trained to perform their jobs.

      “Yet, take Iceland, they had their banks go bust but refused to bail them out, now the country is again in growth and prospering, and much better of out of the EU.”

      Iceland is not in the EU because the UK and Denmark are blocking them entering the EU because both countries lost a lot of money when Iceland refused to bail out their banks and guarantee all money in these banks. These countries are currently taking Iceland to the European Courts for not paying back this money.

      Also Iceland is not prospering as it is no longer a financial centre and there has been a large amount of instability regarding paying back the money to UK and Denmark.

      “Why is it that supposed intelligent politicians don’t see this success and realise it is the EU that is killing us.”

      The EU isn’t killing us. The EU is giving the average person more rights than our own Parliament would ever give us.

  39. Mike Stallard
    Posted April 2, 2012 at 7:20 pm | Permalink

    People have always grumbled about taxes.
    I am reading at the moment about the rise of Islam in the Roman Empire (632++). One of the main factors was that the taxes in the beginning were very much lighter than those of either Rome or Sassanid Persia.
    Go to Dubai, Saudi, Bahrein or even Singapore and the taxes are not nearly as heavy. You can be very rich on an untaxed salary.

    • uanime5
      Posted April 3, 2012 at 6:02 pm | Permalink

      And you can live in poverty when the Government doesn’t provide any healthcare or welfare.

  40. Alan Radford
    Posted April 3, 2012 at 6:10 am | Permalink

    The millionaire Third-Formers who find themselves unexpectedly in charge of the school have no intention whatsoever of reducing the size of the State. They have not one day’s business experience between them and will never make the the connection between income and expenditure – nor need they, having been born with a mouthful of silver spoons. For them, government is another game that comes with a raft of enjoyable priviledges that they intend to hang on to. Every single one of Dave and George’s ‘policies’ turned out to be nothing more than a conference sound-bite. Their actions speak for themselves.

  41. Leslie Singleton
    Posted April 3, 2012 at 6:22 am | Permalink

    Once again it’s (only) twp of my comments that await moderation

  42. Think This
    Posted April 3, 2012 at 9:49 am | Permalink

    The evidence suggests the optimal size of Government for maximising GDP growth is about 25% of GDP in developed countries. There have been numerous economic studies looking at the relationship between the size of the state and economic performance, whether in terms of GDP growth, productivity, real wage incomes, employment etc.

    I provide a link to a report by the Institute for Market Economics which has a report summarising key academic studies into this area (its a pdf file): ime.bg/uploads/335309_OptimalSizeOfGovernment.pdf

    Similarly the CATO Institute and Heritage foundation (both American bodies) have some interesting information on this. Here is a link to an excellent, well referenced article answering the exact question Mr Redwood poses:

    http://www.heritage.org/research/reports/2005/03/the-impact-of-government-spending-on-economic-growth

    As we know there is a ‘laffer curve’ for individual taxes, but there is also something called the ‘rahn curve’ for the size of the state and GDP growth. Google it for some more information! If we want GDP growth of something like 4-5% then we basically need to cut the state in half from its current spending levels, otherwise sluggish growth will persist.

  43. Atlas
    Posted April 3, 2012 at 1:29 pm | Permalink

    Well, we can without being coerced to paying £ 2000,000,000 for the Government’s “Snoop on Demand” wheeze for a start.

    John, I hope you will be against this snooper move.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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