Tax saturation is a common European problem

 

                Yesterday I argued that 38% seems to be as high a proportion of UK GDP as possible for a democratic government to take in tax. I pointed out that no government in the last 40 years has tried to take more than 38%. I reminded readers that the Treasury itself is now forecasting declines in self assessment income tax and CGT against the backdrop of higher rates. Maybe Labour were right that the practical  limit is lower – they have never tried to raise more than 36% from  UK taxpayers. They have preferred to leave   incoming replacement governments to deal with the big borrowings they used instead of   extra taxes to allow them to spend and spend.

              I agree with those of you who said it would be safer if a government taxed at a lower rate than the current 38%, and agree that a rate around the 31% lower limit of the last 40 years expereince would generate faster growth in the economy than the current tax level. However, getting anywhere near there is difficult, and will itself need growth to help bring the figures into sustainable shape. 

                 Today I wish to draw attention to the difficulties countries like Greece and Spain are having collecting their taxes. Both countries have keen deficit cutting governments. Both governments want to close a lot of the gap by taxing more. Both realise that their economies have lost substantial revenue already, as people put their assets and cash offshore, and as locals trade more and more in cash or by barter to evade and avoid taxes.

                 Spain is trying an amnesty for people who have been evading and avoiding. It is also offering a knock down 10% single levy on any money Spaniards choose to bring onshore or to find under the mattress with no questions asked. They need the estimated E 2.5 billion this will bring in. That shows they think there is an easy E 25 billion to come home. It would also mean they could tax it and the income it generates in the future, as they will then know where it is and who owns it. Maybe tax dodging Spaniards will not regard this as such an attractive offer as their government.

                The Spanish government is encountering resistance to its latest extra property tax. Property taxes anyway are likely to be weak compared to the boom conditions prior to 2008, as Spanish property is in turmoil after the Credit Crunch.

                In Greece travellers tell me the economy functions with a lot of cash transactions. Apparently many Greeks do not see government as a good institution to trust with a share of their earnings, so they would rather shelter as much as they can. The Greek government believes this is true, and is pursuing various anti evasion campaigns to try to get them to pay.  When  a country feels it is above the tax saturation level all sorts of people decide they will no longer play by the rules. Some go in for every tax avoidance trick they can find, others break the law and go in for evasion. 

                 It is no good governments getting on their moral high horse about run of the mill avoidance. After all, they are the main proponents of it. In the UK the government encourages people to avoid tax by buying tax privileged government debt, by saving in Pension funds and ISAs, and in the past paying some of its own employees through companies.

                 Most people go in for a b it of tax avoidance. Now there are high Stamp duties on property, buyers and sellers tend to choose prices just below a Stamp Duty threshold rather than just above. Some people choose their service providers from smaller  craftsmen and women who are below the VAT threshold. Why shouldn’t they.

                 The danger as you approach tax saturation is more people, including those in professional careers and positions of trust, start moving from a bit of legal avoidance to a spot of questionable avoidance/evasion. When the doctor, teacher, lawyer or even the local accountant is happy to pay cash for his building work or even to accept a special cash quote you know your country is moving from the rule of law to the wilder south of Euroland’s non compliant culture. The informal economy may bloom from 5-10% of the total  to 20-25% as some Latin countries believe has happened to them already.  Then governments have a problem. They start offering amnesties, in a desperate bid to get some money back. The question is, will enough citizens play ball? If they think general taxes are too high and likely to go higher, they may prefer to chance their arm and keep the money hidden.

           This site is of course against all illegal actions to evade tax and does not wish to post comments from  people alleging infringements  by themselves or others without proper evidence. Good legal tax saving tips are fine, but are well covered by the  financial pages of papers and the adverts of the savings industry and the government.

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140 Comments

  1. Andy Man
    Posted April 3, 2012 at 6:23 am | Permalink

    I agree that with our current leadership moving from being grossly, eye wateringly, overtaxed to merely overtaxed at 31% is difficult, actually impossible. If there was the political will the savings could be found everywhere- EU contributions, bureaucracy, regulation, public sector over manning, HST, Afghanistan etc, etc.
    On your point about people paying cash I have to say you must be living in some sort of parallel universe. There isn’t anyone that won’t pay cash to save money. In my area I know at least 3 policemen, a doctor, an accountant, a local government finance officer and a hundred others that have done so in the last couple of years. Wake up, the whole population will evade tax whenever they think they can get away with it, including (that should be especially) the political class as we’ve seen over and over again.

    • APL
      Posted April 3, 2012 at 9:41 am | Permalink

      Andy Man: “In my area I know at least 3 policemen, a doctor, an accountant, a local government finance officer and a hundred others that have done so in the last couple of years.”

      Back in the day, the day being the ’70s or ’80s we used to laugh at Italy largely because of the size of their black economy and the graft and corruption endemic in their governmental system.

      Today, we are Italy, without the sun.

      • lifelogic
        Posted April 3, 2012 at 3:53 pm | Permalink

        I agree. It is very sad that what was once a generally law abiding and tax paying nation has been reduced to this condition by multiple taxes, high tax rates and inflation. These, combined, will eat nearly all your capital in just a few years even if you do well with it.

        Who would want to bring capital to the UK, given this position, unless they are non dom and can avoid most of the capital taxes.

        I hope, but rather doubt, that Major, Brown, Clark, Darling, Cameron and Osborne are all ashamed of this appalling and counter productive mess.

        Listening to the pompous and rather bitter (mainly of Mrs T) Dennis Healey (on an old Desert Island Discs podcast). It seems he is not at all ashamed of his mess, the IMF and his 98% tax rates. How can such clever men (Oxford double first Greats) be so stupid? Perhaps it is the very obsession with getting the double first that makes them unable to see the wood for the trees – when confronted with real people and the real world?

    • StevenL
      Posted April 3, 2012 at 4:39 pm | Permalink

      I pay cash for everything I can, I find having plastic cards make it harder to budget and save. However I certainly wouldn’t do anythng I believed was assisting a VAT fraud.

      I think the standards our professional classes keep has slipped somewhere along the line. Whether its the bankers scams, the politicans fiddles or the bureaucrats self-serving disinformation campaigns.

      I’m not sure that ‘tax’ is the single or root cause either, I think people at the top get away with too much in the UK and others just copy them. It’s getting like the Wild West with all the bent professionals around if you ask me.

    • Melvyn Line
      Posted April 4, 2012 at 12:05 pm | Permalink

      The only way out is to cut taxes lower, rents ,lower council tax build 1 million new council homes this will get us on the right track

  2. Mike Stallard
    Posted April 3, 2012 at 6:30 am | Permalink

    I reckon we are at saturation point already and have been for at least a decade.

    You see, the bossy people who told us to give up smoking, who lectured us about turning off our TVs to save the planet, who made us clear up our doggie doo doos (He He!) were then caught openly fiddling their own expenses.

    We down here at the bottom end know full well that there are a lot of bludgers living off the tax. We know, too, that we are being fleeced by inflation and QE and that our precious savings are being nicked by the denial of any return.

    Read the blog comments. We are getting very angry indeed.

    The days when we could be relied on to help the taxes have slipped away and now tax seems just like a fiddle by the haves against the used-to-haves.

    And don’t get me started on the EU…….

    PS It wouldn’t be half so bad if we could see some of the debt disappearing or even the deficit being removed. It all seems totally pointless at the moment.

    • Nick
      Posted April 3, 2012 at 11:49 am | Permalink

      Well, look after yourself. The government won’t.

  3. JimF
    Posted April 3, 2012 at 6:58 am | Permalink

    Now we read that Nottingham Council is making a charge on businesses relating to parking spaces supplied, with the proceeds going to “strengthen the road system”. It will be interesting to know how many such parking spaces, imposed by planning law in the first place, are dug up in order to avoid this tax.

  4. lifelogic
    Posted April 3, 2012 at 7:09 am | Permalink

    Indeed we should obey the tax laws but pay as little tax as possible. It might however be good if the people had rather more say in forming the laws.

    Such actions are not “morally repugnant” at all. Indeed with tax rates as high as they are it is the best way to get them reduced and to get some real growth and stop government’s “tax borrow and waste” strategy.

    The best tax breaks in the UK are the Seed EIS & Enterprise Investment Scheme (if you can find a good and honest one or set one up yourself), pensions (if you trust them not the change the rules again), being non Domicile, Entrepreneurs’ Relief and enterprise zones (why not all the UK?) or leaving.

    What is “Morally Repugnant” is Osborne’s absurdly high and complex tax laws that kill jobs and real growth. One wonders how many conservative MPs and relatives or the Chancellor have been “Morally Repugnant” by Osborne’s absurd definition. I had expected the papers to find hundreds of them.

    Simple rules and lower rates are what is needed and needed now. Release thousands of tax accountants, lawyers and civil servants to do something useful by this method and save money & raise more tax too. Only three years left.

    • lifelogic
      Posted April 3, 2012 at 7:38 am | Permalink

      It is also perhaps “Morally Repugnant” to be elected on the basis on a £1M IHT threshold, a low tax and Eurosceptic stance and other clear promises and then to abandon all this once elected.

    • lifelogic
      Posted April 3, 2012 at 12:17 pm | Permalink

      Two days after your April fool (tax on email) we have the government wanting all our emails stored – it will cost millions, someone with have to pay for it, so we are to have you April fool after all it seems.

      More to the point a huge unacceptable further attack on civil liberties too. Needless to say the non liberal non democrat Clegg is in favour.

      • Mark
        Posted April 3, 2012 at 5:31 pm | Permalink
      • Cliff. Wokingham
        Posted April 3, 2012 at 6:48 pm | Permalink

        The other problem which no one seems to have raised was the fact it was announced in the media, rather than in Parliament. I thought Mr Cameron was going to announce everything in parliament first. Another U-Turn?

        It must also be noted that, in opposition both Mr Cameron and Mr Clegg were opposed to it when Labour attempted to bring it in; what has changed? Has our real government in Brussels told its puppets that they must do it?

        DIRECTIVE 2006/24/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
        of 15 March 2006

      • BernieInPipewell
        Posted April 3, 2012 at 7:10 pm | Permalink

        Lifelogic

        It seems its all down to the elephant again, Dr North has it pinned down on Eureferendum.

        Directive 2006/24/EC .

        • lifelogic
          Posted April 4, 2012 at 8:00 am | Permalink

          Indeed they are not an elected government just obeying EU orders.

  5. David
    Posted April 3, 2012 at 7:18 am | Permalink

    John

    As a global issue, this has the been the subject of an excellent article – which has been doing the rounds. This shadow economy (called ‘System D’*) is the fastest growing and the worlds second largest at the moment.

    See http://www.freakonomics.com/2011/11/01/the-black-market-is-the-second-largest-economy-in-the-world/ (with a link to the original article).

    * ‘D’ for ‘débrouillards’. To say a man is a débrouillard is to tell people how resourceful and ingenious he is.

  6. simon
    Posted April 3, 2012 at 7:38 am | Permalink

    Cash payments are made easier by large denomination notes. The UK has £50 as its largest denomination, therefore it tends to be less easy to pay large amounts in cash. In Europe, the largest denomination note is €500. I believe that this was insisted upon by Germany when the Euro was introduced. The “black economy” is not a preserve of the Southern/Mediterranean Europeans, it also obviously thrives in the north of Europe. Avoidance and evasion will only be eliminated when people feel they are being taxed fairly – flat tax at between 20-25%. One problem with this is the armies of HMRC and tax advisors and accountants who would immediately become unemployed. A complicated tax system is only good for those armies of people.

  7. alan jutson
    Posted April 3, 2012 at 7:53 am | Permalink

    At last a politician who has not only got it (we are taxed too high), and who is not only prepared to officially admit it, but to dare to write about it and its consequenses.

    At last a politician who seems to understand the very basic reason of why people resort to the alternative economy, and realises that it will grow, if governments continue to waste money and keep taxes high.

    What you now have to do John is realise the impact that the alternative economy actually does on genuine businesses who are attemting to trade completely legally.

    Realise that when cash deals are completed, that the government lose out, not only on income tax, but some of the VAT element as well.

    Once again we have people/companies who play by the rules, paying the price, those who saved, paying the price, those who invested in pensions paying the price.

    Why do we need lower taxes, because its fairer on everyone who works and produces the wealth in the first place. SIMPLE.

    After a lifetime of working I now realise too late, that I have been taken for a mug.

    I played by the rules.

  8. Sue
    Posted April 3, 2012 at 8:01 am | Permalink

    It is not just that Britons are being overtaxed.

    The reason most of us resent the amount we are expected to contribute is that much of it is squandered and wasted eg., (millions on IT Projects that we neither WANT NOR NEED, defence wastage, the EU, idiotic energy projects, overseas aid, funding benefits and legal costs of terrorists and other undesirables….. I could go on and on……).

    I really wouldn’t mind so much if it was used to fund the running of our own country. This government seems hell-bent on giving our hard earned taxes to all and sundry, without our say so.

    The worst of which is using our money against us (the European Arrest Warrant, email spying, ID cards, the nanny banning state, dustbin police etc..). We are not even consulted on important issues like the EU but are still expected to cough up extra taxes when the EU snaps it’s fingers.

    By taxing us you have a responsibility to those who pay your wages, a responsibility to run the country as WE WANT IT RUN!

    • Bazman
      Posted April 5, 2012 at 6:16 am | Permalink

      Bearing in mind that much of this wastage goes to private companies and fat pay cheques for a few.

  9. Mazz
    Posted April 3, 2012 at 8:18 am | Permalink

    It starts at the top. Politicians have already set a very bad example, with the fiddling of their expenses. They, of all people, know all the tricks of the trade when it comes to money fiddling. That’s why they have got us into the debt crisis position we’re in now, they, along with the bankers.

    • lifelogic
      Posted April 3, 2012 at 6:18 pm | Permalink

      They MPs certainly are very good at exploiting the pension tax benefit system with the best pension scheme around, the creche, the subsidised bars and restaurants, the expenses that would be taxable of mere mortals (but due to special tax rules are not), the tax free pay offs on being kicked out, the tax free capital gains (made from property allowance payments, secretarial allwances or rents paid to them, their lovers or boy friends or relatives).

      Is that “morally repugnant” George Osborne, what are your thoughts on it? Still as we know “we are all in it together”. Except of course me as I have left. I could, no longer, face paying large amounts of taxes to people who just tip it down the drain.

      Reply: You will be pleased to know that I have just been told my pension contributions will go up by another £101.35 a month from April 2012, making my contribution rate 13.75%. Staying away from home on business is allowable for all workers as an expense.

      • lifelogic
        Posted April 3, 2012 at 9:20 pm | Permalink

        I would certainly not begrudge you your pension, you have certainly earned it, it is just a shame that you have been so ignored.

        John Bercow, John Major, Ken Clark, M Heseltine, Michael Martin or countless others however are another matter. The tax laws should be the same for everyone. Not distorted for the ruling class nor the state sector as they have so clearly been. It is rather like allowing directors of large companies to, in effect, fix their own pay.

        Subsistance can be allowed sometimes for tax but company directors, for example, cannot buy another flat as MP’s do for working at a second office and get MP type tax deductions. It is one rule for one another for MPs.

        Reply: The current MP scheme does not allow taxpayer payment of mrotgage interest, as the old scheme did. Taxpayers never contributed to the capital cost of a second home, and now do not pay loan interest. This means most MPs now rent instead, which is often dearer for taxpayers than mortgage interest.MPs get no special tax breaks on owning a second home – they have to be bought out of fully taxed income, and MPs pay capital gains tax should they sell them for a profit. They also attract Stamp duty llike anyone else.

        • lifelogic
          Posted April 4, 2012 at 8:16 am | Permalink

          I assume it will be only a matter of time before we discover a few renting off a close friend, lover, a company (they or a relative have an interest in) but we shall see.

        • Bazman
          Posted April 5, 2012 at 6:19 am | Permalink

          Subsistence payments for tradesman are at an all time low. This with expectations of companies to supply your own safety and trade test certificates. In essence putting the costs on the worker are another reason for the so called skill’s shortage.

      • Jim
        Posted April 4, 2012 at 5:51 am | Permalink

        John

        But with all respect its a final salary scheme, none of this money purchase crap for MPs. Anybody in their right mind would never object to increased contributions for something like that as realistically it’s never going to have solvency problem

        By the way why has your part time Chancellor/”election strategist” not scrapped NEST? That’s another vote loser when people realise 5 per cent of their wages will be going into something that provides no guarantees whatsoever and with the 3 per cent compulsory employer contribution it’s just another tax on jobs. The only job growth will be for TATA in India who will administering it all.

  10. John B
    Posted April 3, 2012 at 8:26 am | Permalink

    The problem will exist whilst politicians believe that services people can now afford to pay for themselves as individuals must be provided out of public subscription. And of course until the People wake up to that.

    Why must all health care be assured rather than just expensive, and rare, incidents being insured. In any case why must the State be the assurer or insurer?

    Is it really so difficult to imagine a situation in which people buy their own health insurance or pay out of their own pockets for visits to the doctor, drugs and minor health interventions?

    Is it really beyond the wit of society to take a small levy from insurance premiums and general taxation to pay for those who cannot afford health insurance premiums or to pay for doctor visits?

    Does the State really have to provide the hospitals, doctors, etc?

    Do local authorities have to collect money for refuse collection then cut the frequency of collections so they can spend the money instead on PR departments, Gay outreach specialists, equal employment officers, climate change lunacy officers and the like?

    Could individuals not arrange directly with a private company to get their rubbish collected, or organise this among their neighbours?

    Imagine if the State still provided the telecoms service what that would be like.

    I could write a long list.

    Times have changed. People spend lots of money on getting their hair cut/styled, hundreds of Pounds on mobile phones, Tablets, satellite subscriptions, Internet, etc.

    When I was a child, it was uncommon for a family to have a car, now it is uncommon for a family to have less than two or three. Few families had a TV, now there seems to be one in every room.

    There was an argument, maybe, for taxation to pay for all public services for all because the majority did not have the disposable incomes to pay for these themselves, but that has not been the case for decades.

    It is true some may still be in that condition, but the majority certainly are not.

    Taxation now is in effect paying peoples’ luxuries and leisure, by replacing their need to pay for essentials. This seems to be cock-eyed.

    It has become little more than a means for politicians to bribe one group with the money confiscated from another, just to get and stay “in power” (aka nose in trough), and even to bribe people with their own money – so stupid has the population become.

    The NHS is constrained by a limited budget as to what treatment it can give and how many people. In a free market would hospitals, doctors want to ration treatment or do more of it, if income was directly connected?

    If there are long waiting lists would new services open up to meet the demand and thus employ more people and serve patient needs faster and better?

    Why must the People have a vast amount of their capital fossilised in the NHS, when it could be released back tot hem and replaced by private investment?

    It is time to carry on the process Baroness Thatcher started, that is the de-nationalisation of our lives. Put choice back into the hands of the People, let them determine how much they will pay for services and what they need and want.

    Provision for those who really need help can easily enough be made, and more cheaply, without having to provide it for the majority who do not by default.

    Too bad we don’t have a Conservative Party any more for whom we could vote in to finish the job Mrs T started.

  11. Duyfken
    Posted April 3, 2012 at 8:31 am | Permalink

    My having (expensively) moved house within the last year, I found the Stamp Duty trap irritating, depressing property prices around the level of the change from one rate to the next. OK if you are buying but not if you are the seller. It seems such a straightforward matter to replace the present system of flat rates within price bands with a graduated scale using a simple formula and eliminating the abrupt steps.

    • Mark
      Posted April 3, 2012 at 1:16 pm | Permalink

      I often thin that SDLT is constructed in such an illogical manner because it is an illogical tax. Really, all there should be is a charge from the Land Registry for providing good title with sufficient insurance built in to cover cases of fraud (clearly there would be an element related to value, but perhaps also to other factors that signalled increased risk).

      It might help if the Land Registry were required to satisfy themselves that the recorded transaction price was genuine as a part of the service, instead of being manipulated by side payments in cash or kind (inflate: buy our new house and get a free BMW on the drive/deflate: curtains and carpets for £50,000 etc.)

    • lifelogic
      Posted April 3, 2012 at 2:19 pm | Permalink

      Eliminating the abrupt steps in stamp duty would be good but turnover taxes of the order of 5% + are totally absurd just get rid. Many moving house will pay more than 100% of their income in any year they actually move.

    • StevenL
      Posted April 3, 2012 at 4:52 pm | Permalink

      I’m moving soon for a new job in a different council. I found that because I don’t own a house, and am happy enough to rent, that the dire state of the housing market makes life easier for me as a local government professional that needs to move on in order to move up.

      So despite a lot of people who do what I do being made redundant in ‘da kutz’ or struggling to find enough work, I am better able to move up the career ladder, as there was no competition for a good job 🙂

      You stick with your ‘property ladder’ though ‘you can’t go wrong with bricks and mortar’.

      • Martyn
        Posted April 3, 2012 at 11:50 pm | Permalink

        I cannot but help think that you are one of, sadly, sane people in this benighted nation. Why is it? What is it that the drives people and the government to insist that only by buying into ‘owning’ the house one lives in is an essential element to quality of life? Let’s face it, if one does own a house and falls off their perch, the dreaded and grossly unfait ITH kicks in and those left lose out and the government profits from death.

        I think I am correct in saying that in no other country in the world is there this incessant message that unless one owns one’s house one is living in a state of deprevation. Madness, all is madness and I congratulate you and wish you well in your sensible approach to living in this modern lunatic asylum!

        Reply: The advantage of living in your own house is that you do not have to pay rent or mortgage in your old age.

        • Bazman
          Posted April 5, 2012 at 6:25 am | Permalink

          Or in your middle years. You also will feel less threatened by your employer which will either get you promoted, no job or the sack. Either way better to be a lion for a day. The house will not be needed when you are gone and your offspring should have already bought one using their own cunning. Bleating about house prices? Have they ever been cheap?

  12. Electro-Kevin
    Posted April 3, 2012 at 8:40 am | Permalink

    Our undemocratic political and economic policies require a lot of tax.

    When a system is forced upon them (whichever party is voted for) people cannot be blamed for being underhanded.

    Change the policies first and the need for high taxes will diminish thereafter.

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

      Indeed taxation without any real and meaningful representation, is surely “morally repugnant” what does George think on this important matter?

      • Bazman
        Posted April 5, 2012 at 6:26 am | Permalink

        You will find you are very well represented by all parties if you are very wealthy. All evidence points to this.

  13. Brian Tomkinson
    Posted April 3, 2012 at 8:47 am | Permalink

    Your audience here needs no convincing that taxes are too high, it is your colleagues in government who, just like Labour, want “to spend and spend”. They may not want to borrow quite so much but they certainly want to tax and tax. Can you get it through to them that it is not their money and most of us think we know how to spend our money better than they do?
    I read today that whilst Osborne was reneging on the 2011 Budget “Red Book” promise that the age-related personal allowances would be increased in line with the retail price index, Maude has pushed through an increase in cabinet ministers’ pensions. Increase tax, spend more and look after themselves, that is the philosophy but not the one for which we voted.

  14. Jim
    Posted April 3, 2012 at 9:07 am | Permalink

    Taxation is by consent at the end of the day. The situation in Greece etc show what happens when the people withdraw their consent to be taxed at high levels. The State can pass whatever laws it likes, but if enough people ignore them they are meaningless. It is the ultimate exercise in democracy.

  15. frank salmon
    Posted April 3, 2012 at 9:20 am | Permalink

    Liberty often wins in the end, even if our rulers would rather lead us along at the point of a gun. When governments stop making our decisions for us, stop borrowing for us, stop imposing their own warped ideals on us, stop going to war for us, then we will be free.

  16. Nick
    Posted April 3, 2012 at 9:22 am | Permalink

    That’s the problem with politicians like you.

    You’re evaluating everything on the basis of how much you can milk the public.

    What the public cares about is

    1. What services get provided
    2. The cost of those services – taxes.

    Tax is just the price of services.

    The problem is that government services have too high a price.

    You’re just acting as a monopolist trying to work out how to screw the customer.

    • Mark
      Posted April 3, 2012 at 4:36 pm | Permalink

      No, it’s worse than that. It’s more like paying in tokens that can be redeemed only at the company store.

    • lifelogic
      Posted April 3, 2012 at 6:26 pm | Permalink

      As you say “The problem is that government services have too high a price.” and too low a quality.

      They are indeed just acting as a monopolist trying to work out how to screw the taxpayer and without any real democratic redress, a sort of partial 50%+ slavery but rather more efficient at raising money from the worker bees.

  17. David John Wilson
    Posted April 3, 2012 at 9:37 am | Permalink

    The government needs to take a serious look at how frequently it takes money via a tax only to give that money back in the form of a grant or benefit to the same people. Every time this happens a cost is imposed in processing the tax and the grant.
    Take for example the recent government announcement of grants to compnaies that take on long term unemployed youngsters. Surely the companies would be better served if this had simply been a reduction in the corresponding employers’ NI contributions. Less bureacracy, less form filling, less moving around of the money and a reduction in the percentage tax take.
    Every proposed new grant should be measured against whether it could not better be acheived by the reduction in a corresponding tax.

  18. English Pensioner
    Posted April 3, 2012 at 9:47 am | Permalink

    As far as I am aware, paying cash is not yet illegal. So when I have a job done, if the builder or gardener or plumber wants cash, I see no reason not to pay them that way. I am under no obligation to act as a spy for the Inland Revenue, and if the tradesman gets caught, that’s his problem not mine.
    But I have noticed in the 15 years since I retired, that number of people who want to be paid in cash has increased; I just wish my pension could be paid the same way!

    • David John Wilson
      Posted April 3, 2012 at 10:12 pm | Permalink

      It is your problem when the tradesmen don’t get caught. You finish up paying extra tax to cover what they don’t pay. By all means pay by cash but ask for a VAT receipt.

  19. Neil Craig
    Posted April 3, 2012 at 10:10 am | Permalink

    By definition if a government can never sustainably take more tham 36-38% of GNP in tax it is simply impossible, over the long term, to spend 50% without borrowing 12% or inflating the currency. Borrowing forever without paying back is also impossible.

    Therefore any politician saying they want to spend over 38% without a credible cut off date is saying they want to inflate the currency away to, ultimately, nothing.

    I suspect that, just as various African countries are seeing mobile phone credits becoming a de facto currency we will start seeing such non-state high tech currencies appearing here. At which point government stealing by inflating will cease to be practical.

    • Mike Stallard
      Posted April 3, 2012 at 3:52 pm | Permalink

      This is one of the most heartening comments I have heard in a long time.

  20. ian wragg
    Posted April 3, 2012 at 10:13 am | Permalink

    What sickens me is when the Blairs and Cameroons chastise people for avoiding tax and starving ” skoolsanospitals”. Everyone knows theres plenty of money for essential services, its the payments to Brussels and overseas aid which annoys folks.
    If governments made some genuine reductions and efficiency savings people may be a bit more inclined to pay their dues.

    • Mike Stallard
      Posted April 3, 2012 at 3:55 pm | Permalink

      Brussels only costs about £11,000,000,000 a year (Dan Hannan). The military costs just about three times that. Apparently the government intends to save just about £8,000,000,000 on its budget reforms.
      Welfare, Education and NHS cost in the hundreds of billions. And nobody is touching that, so it seems. Hence the drift towards national bankruptcy.
      Our host is outstanding at working through figures like this.

      • Bazman
        Posted April 5, 2012 at 6:28 am | Permalink

        Nobody is touching this and rightly so when wages are at rock bottom. What else is worth having?

    • APL
      Posted April 7, 2012 at 8:43 am | Permalink

      Ian Wragg.: “its the payments to Brussels and overseas aid which annoys folks.”

      It would annoy folks a lot more if it wasn’t deliberately played down by the professional politicians!

      Perhaps if politicians more often made the case that annual EU membership fee = two fully staffed new hospitals, we’d hear less of the ‘the EU doesn’t figure in British domestic politics’, nonsense.

      If the EU doesn’t figure with the average man in the street, it’s because the professional politicians want it that way. Else, the average fellow would quickly figure that we are paying for very expensive middlemen who do absolutely nothing for their salary.

  21. Simon
    Posted April 3, 2012 at 10:15 am | Permalink

    Taxes probably are too high, but I think you need to look closely at the reason they are high.

    Tax, at it’s most fundamental level, is the government’s only sustainable means of redistributing wealth from rich to poor.

    Growth in wealth inequality requires either that we accept growth in the taxation of the better off (everyone with a household income of more than £45k – the top 10%), or we accept slums and squalor.

    • Mark
      Posted April 3, 2012 at 1:24 pm | Permalink

      I do not accept that slums and squalor are inevitable unless taxation is increased on the rich. Slums and squalor are much more inevitable when there are strong disincentives to work at the lower ends of the income scale, and when “social housing” is inadequate by design, etc etc

    • norman
      Posted April 3, 2012 at 1:53 pm | Permalink

      How about not being so patronising and instead of thinking of us as pitiful wrecks needing government hand outs we instead give people the opportunities inherent in a capatilist system (a pipe dream, I realise) to lift ourselves out of slums and squalor?

      I guess we’re just too thick, eh? Possibly bone idle lazy and drunkards, or a mix of all three. Or I guess even if we’re not and we do put in a fair shift the dastardly factory owners will screw us to keep us poor and downtrodden, reliant on the crusts that fall from their tables and touching our forelocks in gratitude.

      Believe it or not that last paragraph, heavy with sarcasm, is how many in the elite actually see us proles judging by their actions. What’s worse is we encourage it and scream blue murder whenever any benefit is threatened.

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

      Simon

      Slums and squalor as you put it, will be what you will get if tax is not lowered because the rich, who pay the most tax, will not be here to take the money from to redistribute.

      • Ralph Musgrave
        Posted April 3, 2012 at 4:50 pm | Permalink

        Simon,

        Is the proportion of government spending devoted to re-distribution really all that large? Tens of billions a year of poverty alleviation money comes from people who pay tax. That’s just moving money from peoples’ left hand pockets to their right hand pockets (minus administration costs).

        And there are two very large items that appear to involve poverty alleviation, but to a large extent don’t: free education and the NHS. It a simple mathematical fact that if free education and the NHS were abolished, the average household would be able to afford exactly the same level of health and educational services assuming that privatisation did not lead to a rise in health or educational costs per unit of output. That is, abolishing those two would lead to a VAST increase in peoples’ take home pay, out of which the average household would be able to afford private health and educational services.

        I wouldn’t argue for the abolition of the NHS or free education for children. I’m just saying that the redistributive element there is small.

        • Ralph Musgrave
          Posted April 3, 2012 at 4:52 pm | Permalink

          Sorry: First para should have read “Tens of billions a year of poverty alleviation money is distributed to people who themselves pay tax.”

      • uanime5
        Posted April 3, 2012 at 6:47 pm | Permalink

        Given that a tax rate of over 85% didn’t get rid of all the rich I doubt the current tax rate will have any effect on them. If seems that when the rich leave they can’t take their high paying job with them.

        reply: Why then did top incomes fall 25% this year? Why did revenues from the rich soar after Lawson cut the rate?

        • lifelogic
          Posted April 3, 2012 at 9:26 pm | Permalink

          They may take the job with them (as I did) or they may just give up one job and take another often taking other jobs with they too.

          Either way the UK government loses the tax. Also the government make a huge profit on the rich and makes very little on the average worker.

          • Bazman
            Posted April 5, 2012 at 6:30 am | Permalink

            The rich make a huge profit on our infrastructure. A point lost on many.

          • lifelogic
            Posted April 6, 2012 at 7:01 pm | Permalink

            No they just get a few services police road law and order and their bins emptied – worth perhaps 10k PA maximum and pay perhaps £1M PA for it.

        • London Rob
          Posted April 3, 2012 at 10:14 pm | Permalink

          That 85%+ rate was when, the late 70’s early 80’s? Whenever it was it was before ipads, internet etc. Trust me, the very very wealthy can move and do move. Money of that level knows no boundaries and a highly paid exec etc can just as easily work from a laptop in Zurich as Hertfordshire.

          Reply: The rate was 83% in the 1970s, and there was a well known phenomenon called the brain drain as high earners left the country.

          • Bazman
            Posted April 7, 2012 at 7:46 pm | Permalink

            A stable state, education system, communication systems to name but a few Lifelogic. All of which have helped to make them rich. The foreigners are here for the stable regime. Why are so many rich here then? They could get their bin emptied anywhere. You believe their lies that they are hard done by to much.
            Like you believe all ‘green’ issues are not true. How about pollution of living environments is that all just green propaganda?

    • libertarian
      Posted April 3, 2012 at 4:19 pm | Permalink

      Really?

      You really expended a lot of brain power thinking that through didn’t you? Not.

      It’s that kind of lame thinking which politicians adopt normally. I can’t believe any even partially sensible person can’t see the flaws in that argument

    • lifelogic
      Posted April 3, 2012 at 6:31 pm | Permalink

      Much is redistributed from the poor to the rich – say 15p per day tax back on their lunch vouchers or old people personal allowances (abolished in the budget) to say MPs subsidised bars and restaurants about £100 a day per MP in attendance.

    • Simon
      Posted April 4, 2012 at 10:05 am | Permalink

      I think most of you have missed my point by a country mile – possibly so upset by the thought of your taxes going up that you can’t see past the red mist…

      I’d like to remind you that the last proper slums in the UK were bulldozed in the 1950s, only 60 years ago. Then, the government build huge swathes of social housing, with electricity, and internal hot and cold plumbing. And they provided that housing to the poor at cheap rental rates.

      It takes very little time for poverty to turn in to ghettoization (already happened in some places), to then become deprivation, and finally slums. You only have to visit some of the more interesting places in the US to see how it works.

      But yes, make working more attractive than being on the dole, eminently sensible idea.

      And no, I do not think that taxation should be increased, I think that income inequality should be reduced. You could do that by flattening the wage curve of UK companies – but that’s just not going to happen.

      The only thing we can do is tax the overpaid, and give that money to the underpaid (not unemployed) in whatever way (health services, child care, etc) we can.

      • Susan
        Posted April 4, 2012 at 2:41 pm | Permalink

        Simon,

        No red mist on my part.

        I am slightly confused by your post, it is at odds with your first post which was about tax redistribution. Who decides who is overpaid and underpaid?

        I really do not understand what you are suggesting here, as the UK already provides healthcare etc for its people. Do you want a form of communism, that seems to be what is behind your post. If that is the case there will definitely be slums.

        • Simon
          Posted April 5, 2012 at 11:10 am | Permalink

          I’ll try and be as clear as I can.

          John’s article was about the overall taxation rate – this is too high, probably. If the working poor were better off (i.e. if wage structures within corporations were more linear), and taxation were more progressive, tax rates could be lower overall.

          Obviously, if we could magically, cloud cuckoo land, create 10% growth for a decade, that would reduce the tax bill.

          Or we could cut government services. Unfortunately, this reduces the income of the working poor, though I guess you might not care about that.

          • Susan
            Posted April 5, 2012 at 3:46 pm | Permalink

            Simon,

            You are making big assumptions about someone you do not know, that is never wise on a blog. You have no way of knowing what I care about.

            If your idea is to lower wages within companies etc in order to make society more equal, this is a form of communism and certainly will not work. The reason is that no one has an incentive to do better. Taxation which is too high has much the same effect. Those with skills and want more money for their efforts will just go somewhere else. The economy becomes flat and less tax is collected. Don’t forget that it is the high earners in the UK who pay the most tax which in turn pays for all the public services.

            Why Britain needs lower taxation is to encourage growth in the private sector. This in turn makes all people better off as it increases the sector that actually makes money for the Country. At the moment what we have is an economy out of balance where spending exceeds what is earned. Cuts have to be made in Government spending, otherwise a debt spiral begins where it becomes impossible for the Country to pay its debts. In this instance the less well off will most certainly suffer.

            The real poverty in the UK is not in money terms for the less well off, successive Governments have made sure of that, it is in the aspiration to do better. It is actually the benefits culture which has brought this about. What improves your life chances if you are less well off is good education and parenting this in recent times seems to be the real failure in the UK.

  22. oldtimer
    Posted April 3, 2012 at 10:22 am | Permalink

    Indeed cash is king, as the old saying goes. In some communities, where it is feasible, barter is not far behind. It was commonplace in rural communities in the 1970s.

    Beyond that it is evident that many control their earnings to remain close to, but below, the thresholds where higher rates of tax apply. Many businesses are, in effect, coasting. The tax system is defeating itself. Capital gains tax at 28% with no allowance for inflation is another example. Simple arithmetic and a calculation of the net present values of potential but uncertain future gains demonstrates that this regime is an invitation to short termism (condemned by politicians in the past).

  23. stred
    Posted April 3, 2012 at 10:33 am | Permalink

    I have visited the bank to pay in two cheques, for which I must account to HMRC, and noticed that the council has decided to spend some spare borrowed money on new thick landscaped surfaces to replace the tarmac and paviours between the footpath and shops. There seems to be no surface that does not require upgrading.

    On the motorways the steel barriers on the central reservation are being upgraded with continental style conrete barriers.Work on another stretch started last week.

    Do you know why this sort of work is prioritised when services which taxpayers value are being removed? Is there any sort of system for grading the value of government spending?

    • lifelogic
      Posted April 3, 2012 at 6:34 pm | Permalink

      You ask “Is there any sort of system for grading the value of government spending?” Corruption or inducements perhaps, hard to see much other real justification in general perhaps fools, fashion or the green religion to be more generous?

      • Bazman
        Posted April 5, 2012 at 8:33 pm | Permalink

        Or the religion of big business distributing wealth via the trickle down effect and low taxes will somehow solve all economic problems as many large corporations sit on billions unable and unwilling to invest in anything other than their own share price.

  24. Graham
    Posted April 3, 2012 at 10:39 am | Permalink

    John,

    As you rightly say a lot of people are getting very angry at paying increasing taxes at every turn and your observations about becoming proactive to avoid tax are also true and some people are more up front now about asking for a cash cost for services.

  25. outsider
    Posted April 3, 2012 at 11:27 am | Permalink

    Dear Mr Redwood, your argument is very attractive, so long as this is achieved by cutting the ratio of non-cyclical public spending to gdp substantially. This would require a cut of about £100 billion in today’s money, which implies ditching some big functions and programmes.
    Even if the OBR forecasts come out exactly right, the tax ratio would be above 36 per cent in 2016-17, yet current spending and revenue would only be in balance then and the output gap would have disappeared (0.4 per cent). This is the time when a responsible Government should be building up a healthy surplus unless, unlike Mr Brown, the Coalition manages to end boom and bust.
    On those figures, no responsible political party could go into the next election hinting at (let alone promising) tax cuts without big changes in the structure of public spending. Otherwise it would just be repeating what Mr Brown did after 2005 (on spending rather than taxes) or what Lord Lawson did in 1987.

  26. Denis Cooper
    Posted April 3, 2012 at 11:32 am | Permalink

    The Labour government got itself into the position where it was spending close to 40% of GDP, but it was having to borrow a quarter of all the money it was spending.

    Self-evidently that wasn’t sustainable – its lenders would have become increasingly reluctant to lend it more money, and eventually they would have stopped altogether – and the obvious quick solution would have been to chop 25% off all its spending, across the board.

    That would have included chopping 25% off the state pension, with immediate effect, and then all old age pensioners, including the poorest, would really have had something substantial to complain about, rather having irresponsible and unpatriotic national newspapers pandering to their readers by launching hysterical campaigns about a minor erosion of income tax allowances which only affects some pensioners, and not the poorest or for that matter the wealthiest.

    Unfortunately the drastic step of immediately chopping 25% off all government spending would not have closed its budget deficit, because it would have caused such widespread economic damage that tax revenues would have dropped and the government would still have been left spending more than it was getting in, making it necessary to further reduce its spending.

    So then the pensioners, having already suffered a 25% drop in state pensions, would have to endure another 10% cut, along with all the other recipients of state spending; and that in turn would lead to further closures of businesses and shops, further unemployment, further drops in tax revenues and further demands on the social security budget.

    Eventually the private sector would have taken up the slack, but only after perhaps a decade of utter misery.

    With a general election due in just over a year, Brown and Darling chose not to take the country down that destructive path, but instead turned to borrowing from the captive Bank of England rather than from free private investors – the primary purpose of the first £200 billion programme of “quantitative easing”.

    Probably they were right to do that, and probably Osborne is right to have started up a second programme, but because it has never been properly explained to the public – both Darling and Osborne preferring to get the mass media to mislead the public about what was being done – there is still too public little understanding of the knife-edge precariousness of our present economic and financial position.

    Osborne is trying to engineer a kind of soft landing, not very competently; but as far as I can see the Daily Telegraph and the Daily Mail are intent on bringing down the coalition government, and with it bringing down the whole country in an almighty crash.

    Forget about “Keep calm and carry on”; now it’s “What’s the next thing we can do to make it more difficult for the government to get us out of this mess?”

    In some other countries those newspapers would have been shut down and their editors imprisoned or shot, and part of me says that maybe they would have deserved it.

    Reply:Yes – but Labour ended up spending 47.7% of GDP in 2009-10, and Labour/the Coalition 47.1% in 2010-11

  27. Nick
    Posted April 3, 2012 at 11:48 am | Permalink

    The informal economy may bloom from 5-10% of the total to 20-25% as some Latin countries believe has happened to them already.

    ============

    Or Greece where its officially 50%, and in all probability much higher.

    My view, its sensible. The Greek citizen has worked out that tax payments aren’t going on services, they are going on debts. [The UK will end up the same way, because of all those off balance sheet debts that the government and politicians won’t admit to].

    The Greeks have cut out the middle man, the government. That government isn’t democratic, it has been imposed by Brussels. It makes for an interesting set up. The government is now going to have to prosecute and threaten, with violence, the majority to extract money. It’s the same with any shake down, pay up or violence, just like the Mafia.

    Some how I expect the Greeks to say no. What you will get is the suspension of trial by jury, and more of what the UK is doing, making the law up as it fits the government, and retrospective too.

    Now why can’t we have a retrospective law making it a crime to submit a false expenses claim?

    Reply: Because it is already a crime and some were prosecuted for doing just that

    • nicol sinclair
      Posted April 3, 2012 at 3:00 pm | Permalink

      “Reply: …some were prosecuted for doing just that”

      They should ALL have been prosecuted. Had I done the same in the Army, there would have been no excuse, no redress of my perceived grievance. Disciplinary action would have been immediate, swift and final.

      That is another problem, only a few were made scapegoats whilst the others got off and many may still be ‘serving’ the public as MPs.

      Reply: Where the authorities had evidence they prosecuted.

      • Martyn
        Posted April 4, 2012 at 12:08 am | Permalink

        Hear here!. 38 years served in the RAF and bound by the strict rules of acountability with which I had no problems whatsoever. No evidence of having been tasket to do something, no evidence of expense incurred, no recompense. Fulls stop. End of story.

        I believe that those rulse still apply, other than to those governement, central and locally equipped with HMG credit cards who can, seemingly, live high on the hog without question and spend pretty much what they want on all sorts of spurious expenses to benefit their lives.

        Disgusting – none of them have the slightest right to have such a credit card paid for by the taxpayer and it is something that needs to be stopped by the immediate withdrawal of all such cards.

        Reply: I thought the taxpayer paid for service personnel accommodation when away from home on duty, and rightly so. I also thought the taxpayer paid for your asistants/junior staff if an officer, and for the paper, pens, and computers you used in your office. That’s what the rules also allow for MPs. MPs do of course have to produce claim forms and receipts to show the expenditure was properly inucurred for an approved purpose.

        • backofanenvelope
          Posted April 4, 2012 at 6:44 am | Permalink

          I also spent my lifetime in the RAF. Everything I needed to carry out my duties was provided, as you say, by the taxpayers. However, generally, I wasn’t allowed to buy aircraft and then claim the money back later. And that is where the corruption in the HoC crept in.

    • lifelogic
      Posted April 3, 2012 at 6:38 pm | Permalink

      And many were not – indeed it seems David Laws is set for a return.

    • uanime5
      Posted April 3, 2012 at 6:50 pm | Permalink

      Only the Prime Minister has been replaced, the rest of the Greek Government was democratically elected.

      Also the Government has the legal right to demand that people pay their taxes.

      • lifelogic
        Posted April 3, 2012 at 9:32 pm | Permalink

        Just the PM then – so that is OK then.

        Perhaps the Greek government should now pass a law to say people are not allowed to breath oxygen unless they pay 50,000 Euros then the Greek government will have a legal right to kill them all by your logic.

        • uanime5
          Posted April 4, 2012 at 4:03 pm | Permalink

          I’m fairly sure that even if the Greek Government passed this law it would violate human rights so it could challenged in the courts. Also it would only apply to Greek oxygen as the Greek Government does not have the ability to levy taxes on non-Greek oxygen.

        • Bazman
          Posted April 5, 2012 at 6:32 am | Permalink

          Maybe not oxygen to breathe, but by the use of oxygen to burn fuel in the form of profiteering and tax.

          • APL
            Posted April 7, 2012 at 9:00 am | Permalink

            bazman: “but by the use of oxygen to burn fuel in the form of profiteering and tax.”

            You drive an HGV?

  28. Phil Richmond
    Posted April 3, 2012 at 12:34 pm | Permalink

    John you are correct in what you say but nothing is going to fundamentally change for the better until we leave the EU.
    Where are the politicians who have conviction? Where are the polticians who have a spine? What would Churchill say?
    80-100 Conservative MPs launching a leadership bid is what is needed. It is just getting so pointless discussing relatively minor points whilst Cameron is No.10 and is devoted to the EU.
    So John if we continue like we are for three more years we as a country will continue to sink into the mire and then we will have 5 more years of more Cameron and/or Clegg or Labour. This country is finished unless someone does something. I have joined UKIP and signed the Peoples Pledge. You Mr Redwood are in a position to do a lot more than me.

    • john w
      Posted April 3, 2012 at 1:14 pm | Permalink

      Me too

  29. James Reade
    Posted April 3, 2012 at 1:10 pm | Permalink

    Yet another wonderful butchering of history John. I should have commented yesterday but didn’t.

    “They have preferred to leave incoming replacement governments to deal with the big borrowings they used”

    I assume that’s somehow a reference to 1979 and 2010?

    Why is it that you never refer to the very fiscally expansionary Heath governments of the early 1970s since you clearly think based on 2010 that prolonged deficits and hence build-up of debt is a bad thing?

    Then on to 2010, can you tell me how much as a proportion of the debt the Coalition inherited was due to the recession, that 6%+ fall in GDP which would have blown a hole in any government’s finances?

    The answer, if you’ll recall from the analysis I posted on here quite a while ago (with a link to my blog and a graph no less), is a heck of a lot. Sure, you can go on about the 2/3% deficits before the recession, but since the economy was also growing at at least that rate if not faster, the debt-to-GDP ratio wasn’t increasing, so that bit really didn’t matter for the current levels of deficits and debts we see.

    However, I’m used to this kind of hand waving and politically prejudiced interpreting of past events passing for “empirical analysis” on here.

    Reply: Try looking at the facts. Public sector net borrowing was 1.1% of GDP in 1971-2 and 2.8% in 1972-3. (Cyclically adjusted figure not supplied by Treasury)
    Labour was elected early 1974.Their public sector borrowing was 1974-5 6.5% GDP, 1975-6 7.0% and 1976-7 5.5% (with an IMF programme coming in to cut the borrowing) Cyclically adjusted it was a stunning 8.1% of GDP in 1974-5 and 7.2% in 1975-6.

    In 2004-5 cyclically adjusted public sector borrowing was 3.3% of GDP, rising to 6.3% cyclically adjusted in 2008-9.
    Looks to me as if Labour did a lot of borrowing on your basis as well.

    • Richard1
      Posted April 4, 2012 at 7:16 am | Permalink

      It would be correct to view you, James Reade, as a ‘Keynesian’ I think? A couple of questions if so: 1) wouldnt Keynes have said the Labour govt should have run surpluses not deficits during the 2000s? 2) why arnt we in a boom since we have a record level of deficit (about the same as the US’s incidently – the Left have jumped on slightly higher growth in the US as evidence for the benefits of ‘stimulus’); 3) Didn’t Keynes say the maximum level of tax/GDP was c 25% before disincentives kick in? On that basis Keynes, were he alive today, would be a strong supporter of the policies put forward on this site.

  30. Richard1
    Posted April 3, 2012 at 1:32 pm | Permalink

    Here are a few other countries’ tax/GDP ratios (Source Heritage Foundation – it has the UK at 39%): US – 27%; Switzerland – 29%; Japan – 28%; Korea – 27%; Singapore – 14%; Australia – 31%; Canada – 32%; BUT…Germany – 41%; France – 45%; Zimbabwe – 49% (the highest). Apart from the odd basket case, high taxes seem to be a European disease. It appears that prosperity is negatively correlated with high taxes.

    Mr Osborne should note the comment about politicians on high horses – he mounted one himself in his budget speech – against tax avoidance. Then he announced a new Brown-style tax avoidance device for investing in a favoured industry. Mr Brown’s ‘winners’ were film companies and small breweries, and Mr Osborne is going to favour the video games industry (as well of course as wind farms).

  31. Acorn
    Posted April 3, 2012 at 1:32 pm | Permalink

    Nice tax avoidance trick. “Standard APD [Air Passenger Duty] rates are twice reduced rates. From 1 November 2011, the direct long-haul rates of APD for departures from Northern Ireland (bands B, C and D) were reduced to the short-haul rate (band A). From 1 April 2013, APD will apply to all flights aboard aircraft 5.7 tonnes and above. The rate for flights aboard aircraft 20 tonnes and above with fewer than 19 seats will be double the standard rate.” http://www.hmrc.gov.uk/budget2012/ootlar-rates.pdf .

    So, if you are doing a trip to Australia, go from Northern Island. Why pay £92 from England, when you can pay £12. The English will be subsidising this naturally, like always. It’s an even better deal if you fly business class.

    What’s the betting that someone on the front bench has been lobbied by a guy from the “1%”, who has a business jet that weighs slightly less than 5.7 tonnes and/or, one that weighs more than 20 tonnes with slightly more than 19 seats.

    • London Rob
      Posted April 3, 2012 at 10:21 pm | Permalink

      Why go from England? Well, are you seriously going to try to travel to Northern Ireland with luggage suitable for a long haul trip to Australia, and then face the 14hr flight itself just to save £80 quid? – minus costs to travel from England to NI – come on, think it through.

    • Acorn
      Posted April 4, 2012 at 8:20 am | Permalink

      The point of the paragraph is why does NI get the discount. You are going to have to get up to speed quick Rob if you are to survive on this site and become a proper cynical hyperbolator.

  32. Barbara Stevens
    Posted April 3, 2012 at 1:45 pm | Permalink

    Tax is an awful thing, when you’ve worked and saved money, so who can blame anyone for paying cash for jobs and paying less in the long run. Its been like that for years and won’t change because government says so. Workmen prefer cash in hand as they pay less VAT, who can blame them for that. I’ll keep paying cash if it means less totally to pay, can’t afford to be any different. I’m not wealthy at all but what we do have we intend to take care of. We don’t waste money, don’t have holidays we can’t afford them, the name of the game is survival. If we need a job doing we barter to get it done its a fact of life if you want to protect what you have; that means paying cash and getting the best deal for us, not the government.

  33. TomTom
    Posted April 3, 2012 at 2:04 pm | Permalink

    VAT was a Cascade Turnover Tax developed in France to counter reluctance to pay Income Tax. The British get PAYE + VAT and then pay Road Fund Licence which the French abolished and priced into petrol. Seems the stupid British get completely sewn up BECAUSE they are not Tax Evaders.

    There is no merit in being decent or law-abiding in this society and severe punishment is meted out to anyone who fails to act in a criminal or negligent manner. This is a veritable Dystopia

    • David John Wilson
      Posted April 3, 2012 at 10:20 pm | Permalink

      If the road fund licence was abolished and priced into petrol duty there would be a considerable saving in the overheads involved and shorter queues in our post offices.

    • Martyn
      Posted April 4, 2012 at 12:16 am | Permalink

      Perhaps someone more intelligent than I could explain why ‘value added tax’ exists at all? What is added value? If I do someone a service because that is what I do, and charge them accordingly, why should they and I have to get involved with paying the government for doing so?

      I first came across VAT in Kenya in the 1960’s, but back then it was called ‘ad valorem’ tax. It didn’t make sense then, and still doesn’t now….

      Reply: It was an EEC requirement to join and remains an EU requirement, so it does not matter what any of us think about it.

  34. Cathleen Mainds
    Posted April 3, 2012 at 2:13 pm | Permalink

    Yet another excellent article.

    Doubtless you and your readers have long since read Alexander McCall Smith’s “The No.1 Ladies’ Detective Agency”. I have only now, belatedly, started reading it and I thought the following words put into the mouth of Precious Ramotswe’s father (P.18) most apt and should be remembered by all involved in governments at every level:

    “So for many years, nothing at all happened. It was a good system of government, because most people want nothing to happen. That is the problem with governments these days. They want to do things all the time; they are always very busy thinking of what things they can do next. That is not what people want. People want to be left alone ….”

  35. Susan
    Posted April 3, 2012 at 3:12 pm | Permalink

    Perhaps to a certain extent it is HMRC itself which should change. They chase the wrong people for all the wrong reasons. My goodness if you cannot afford a tax advisor and you make a genuine mistake on your tax form because of its complexities your life is made a misery. No matter whether it is your fault or not, no amount of appeal will get you out of those penalities and interest charged. From then onwards they are constantly on your back. Maybe they should turn their attention to those who are getting away with cash in hand etc where I understand a great deal of tax is being lost.

    In Britain it is the honest taxpayer who has no way of avoiding or evading tax, who are being chased and punished for small mistakes. It is a pity the same amount of effort is not put into finding benefit cheats instead.

    I have to say that if I were an investor, although Britain has lowered its taxation slightly, I would still be very unsure whether to put my money in the UK long term. After all the UK has recently proved itself to be very unstable with regard to its tax regime. Who knows when tax will be put up again when the Politicians decide they need a little more cash. After all George Osborne has not always been reliable in this way. Did the oil industry see his extra taxation coming for instance. With Britains lack of a skilled work force, poor services and infrastructure, I think I would still go elsewhere. Tax would have to go down a heck of a lot before I would even be interested.

    • Gordon
      Posted April 3, 2012 at 11:19 pm | Permalink

      (Raises a question as to whether a named company has paid its tax bill)

      Has it turned up yet?

  36. Bernard Otway
    Posted April 3, 2012 at 3:59 pm | Permalink

    I think this is the beginning of the end,and there won,t be enough prison places to put all the
    naughty little miscreants who want to keep more of their hard earned money.
    In the Bible it says ‘AS ye sow so shall ye reap’, the ruling class has SOWN now it will REAP
    I say SERVES IT RIGHTand if it was in my power through some kind of Psycho kinetic energy to send an excruciating pain lasting at least 10 minutes through the entire political class,s
    bodies to MAKE them change,I would. Rather like THE OVERLORDS do in Arthur C Clarke,s
    science fiction novel “CHILDHOODS END” to stop ALL cruelty

  37. Credible
    Posted April 3, 2012 at 5:12 pm | Permalink

    John,

    Many people wil pay cash in hand if they think they won’t be caught. The practise in endemic in our country.

    The same people will also moan if they do not get perfect treatment by the NHS, or their children are not taught properly at school or the police don’t arrive immediately.

    Our local school doesn’t have enough money. It may come to removing staff. Perhaps the teacher you mentioned in the same breath as doctor, lawyer or accountant will have to pay cash in hand for things after losing their job – the job they don’t have because other people have avoided tax (particularly the very wealthy who don’t care).

    It also not helpful to have all this anti-tax rhetoric. It fuels the view that it is a good thing to avoid tax (despite your closing paragraph). It may well be that tax is too high, but we should remember why it is collected- it is to fund the infrastructure that people want. Choices have to be made, we can’t have ur cake and eat it too.

    Reply: But we do want our cake and eat it. The way to do that is to spend more wisely in the public sector, do more for less, and have a tax cut. it also makes sense to set tax rates that maximise rather than lose you revenue.

    • Credible
      Posted April 4, 2012 at 5:06 pm | Permalink

      Indeed, we do want our cake and eat it. It’s human nature.
      My experience is that those people who, for example, buy a computer for personal use on their company to save tax, or pay the gardener cash in hand – or run a small company and take cash for many jobs to avoid tax will be the first to complain if their NHS treatment isn’t up to scratch or the police don’t respond immediately to an incident.
      If tax cuts arrive they will continue to behave the same way and moan even more about the quality of their services.

  38. Almost Ex Tory
    Posted April 3, 2012 at 5:37 pm | Permalink

    As I have often seen posted;- we need a limit on Government spending as a % of GDP and a limit on Government debt/ borrowing as a % of GDP.
    Most taxes and laws need a sunset clause. Were they ever really necessary.

    Savers should be able to offset any interest earned by inflation on the capital before any tax is paid. This would stop the Government inflating its way out of economic problems.

    I agree that we need less government with less of a free hand to spend our money as largesse on hair brained schemes.

    The feckless should receive survival benefits in vouchers, no actual cash! Any rent or rate allowances would be paid directly so that the feckless could not appropriate them.

    We are currently debating what to do with the aged. Why are we penalising those who paid their taxes and managed/ decided to save? whilst giving the same benefits free to those that spent every penny they had. The reinstitution of the workhouse (in a more humane form) would not seem an unreasonable solution for the undeserving poor.

    • London Rob
      Posted April 3, 2012 at 10:25 pm | Permalink

      Here here.

      • backofanenvelope
        Posted April 4, 2012 at 6:48 am | Permalink

        With a treadmill!

    • uanime5
      Posted April 4, 2012 at 3:40 pm | Permalink

      Rent is already paid to the landlord, not the people in or out of work who receive housing benefit.

      They tried paying people in vouchers in the USA and found that people just sold them in exchange for real money. It’s cheaper to pay people in real money than vouchers.

      The workhouse was abolished because it gave more benefits to those in the workhouse than those outside it. The workhouse is also unlikely to be viable because you’d need work for these people to do, which pays minimum wage, and conforms to all employment laws.

    • Credible
      Posted April 4, 2012 at 5:12 pm | Permalink

      Undeserving poor!!
      We never hear the phrase ‘undeserving rich’ or is everyone who is rich deserving?

      Of course there are poor people who take advantage of the state and they shouldn’t be allowed to. There are also the rich who take advantage of the system and that seems to me to be a whole lot worse.

    • Bazman
      Posted April 5, 2012 at 6:35 am | Permalink

      Real Tory stuff. Except when it applies to him as all Tories believe.

  39. uanime5
    Posted April 3, 2012 at 6:42 pm | Permalink

    Perhaps the Government should set a maximum amount of tax people and companies can avoid paying. This would discourage people from trying to avoid as much tax as possible.

    Ultimately the Government cannot remedy tax avoidance or evasion by hoping the problem will fix itself. They have to be prepared to clamp down on tax loopholes, introduce more effective taxes, and aggressively pursing those who who breach the law. In other word they have to do things that are difficult. Begging people to pay their taxes is the action of a failed Government.

    Also if you pay someone in cash they’re evading taxes by not declaring this revenue, you however are not evading paying taxes as it’s not your responsibility to ensure others pay their taxes.

    Reply: An even sillier idea than usual. How many assets would you want people to sell each year, so you could claim they had been avoiding CGT? How would you penalise people for not taking up more paid employment? How would you assess what was the right price for Stamp duty purposes if you don’t like the price they paid? How would you determine how much work people should have to pay VAT on instead of using craftsmen below the VAT threshold?

    • uanime5
      Posted April 4, 2012 at 3:34 pm | Permalink

      John I have no idea what you’re talking about. My suggest was that there would be a maximum amount of tax you could avoid paying, say £10,000 per year, and everything over this amount would be considered tax evasion. This would be a very simple way to prevent wealthy people hiring armies of accountants to try to reduce their taxes to rate to 0%.

      I have no idea why you’d think people would need to sell their assets, take up more paid employment, reassess stamp duty, or calculate the VAT of craftsmen. However I will do my best to respond to your tantrum.

      No one is obliged to sell their assets, nor are they obliged to do so in a way that avoids paying CGT. Thus people can sell as many assets as they like as long as they pay their taxes.

      No one is obliged to work or work more hours. As long as you pay your income tax and NI, and your employer pays their NI then there’s no problem.

      As long as you pay the correct stamp duty on your purchase there is no problem. I see no reasons why the price should be questioned unless their was fraud, misrepresentation, or some other unethical action.

      If a craftsmen refuses to pay VAT then they are evading taxes, not the person who pays them. Thus the craftsmen are the ones who should be punished for tax evasion. If the craftsman avoids paying taxes through legal means then this amount will count towards how much they are allowed to avoid each year.

      Reply: No tantrum, just pointing out you do not understand how people avoid tax. If you are making a narrower point that you wish to limit tax allowances for savings/investment etc then you need to be clearer and define how you would do it.Does the charitable relief come into your limit? Does pension contributions? What about the employer contribution – do you ascribe a v alue to that? Etc

      • uanime5
        Posted April 4, 2012 at 11:36 pm | Permalink

        In that case I’ll modify my idea; a person can only avoid paying £5,000 per tax avoidance scheme unless a statute allows a higher amount to be avoided. Thus existing methods of tax avoidance such as charitable relief, pension contributions, employer contribution, etc can have a higher maximum limit; while accountants will have to find a large number of new ways to avoid paying tax if they want to significantly reduce their client’s tax bill.

        The main difficult will be how to define what contributes a single tax avoidance scheme. However this is best left to lexiconers and the courts.

        • Bazman
          Posted April 6, 2012 at 2:41 pm | Permalink

          Here’s a better idea. They pay the tax they should or they are prosecuted and assets confiscated. It’s like the channel islands saying they are not within the jurisdiction of Britain in regards to tax. If parliament decides they are, then they are and now they are. If the company or individual wants to continue to benefit from living and trading in Britain then they must follow our rules. No if, no buts.
          Hmmm? Pay your tax and in the procrastinating methods of middle managers. We’ll get back to you with a rebate. (Some time in the next ten years.) I’m sorry you feel that way but the government sets the rules. (Fingers together. Lean back in chair) We if you must leave then leave, but on returning you will find higher levels of tax and we will be less sympathetic. A new contract no less. Goose/Gander. Good day. Ahh! Tea thank you Mavis. Ram it.

          • APL
            Posted April 7, 2012 at 10:01 am | Permalink

            Bazman: “It’s like the channel islands saying they are not within the jurisdiction of Britain in regards to tax. If parliament decides they are … ”

            Thus do the socialist warmongers start wars.

            Look what happened when King George thought he had the right to tax the American colonies.

          • Bazman
            Posted April 7, 2012 at 7:53 pm | Permalink

            The channel islands are not foreign colonies and are part of the UK. The British parliament does not decide if they are within their the jurisdiction. They are and if the same parliament decides they should pay more tax they will.

  40. Jon
    Posted April 3, 2012 at 6:48 pm | Permalink

    I thought blimey whats happened only 38%?
    Even if you just take receipts and exclude the deficit its over 40%. I think we are paying just short of 50% in tax as a nation aren’t we?

    The point of the blog is right, get say the smokers (20% ish of the adult population) start looking at the black market and they may well also see other black market opportunities. At 5% above inflation increases on what is around £6 in tax already will turn a high percentage of people to the “criminal” side (depends who’s the criminal here, the extortionist or the victim).

    Our tax system worked really well because it was reasonable, take that away and people will be forced, yes forced not decide, to look at how they can avoid it. If smoking, for example, is to shortly cost £10 a day then it gets into the realms of the crack head having a career in robbing for cash.

    I wish it was 38% tax though think it might be 48% with an ageing population set to rise further unless we start cutting.

    Reply: Tax is 38% of GDP – the borrowing is on top, and that will require future taxes to pay it back.

    • Electro-Kevin
      Posted April 3, 2012 at 11:46 pm | Permalink

      Cut tax on smoking and get rid of those silly kiosk covers. Abolish the ban in pubs.

      More smoking, more social drinking, fewer pub closures MORE TAX REVENUE and a reduction pension liabilities (lower average life expenctancy.)

      It’s all very well working towards an ever ageing population – but how on earth do we pay for it ?

      • uanime5
        Posted April 4, 2012 at 3:19 pm | Permalink

        Give how little revenue is raised from smoking and pubs, especially when compared to amount of medical treatment that smokers and drinkers need, I doubt your suggesting will have a positive impact on tax revenues.

        • libertarian
          Posted April 4, 2012 at 9:15 pm | Permalink

          uanime5

          What no link showing where you got the data showing “very little revenue is raised from smokers and pubs”.

          You just make stuff up. What is the point, have you never thought about actually engaging with reality?

          • uanime5
            Posted April 4, 2012 at 11:26 pm | Permalink

            Well since you asked here is a link showing how much money is raised from the various taxes in 2011:

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

            Tobacco raised £9.4 billion while VAT raised £98 billion, so tobacco is not a major contributor to tax revenue. Sadly in 2010 smoking cost the tax payer £13.74 billion, so it’s a revenue loser.

            http://www.telegraph.co.uk/health/healthnews/7463690/Every-cigarette-smoked-costs-taxpayer-6.5p-think-tank-warns.html

            Regarding pubs if they were profitable most publicans would be millionaires. Given that they’re not we can assume that pubs have lower profit margins. While up to date figures on the total pub turnovers are hard to come by I was able to find that in 2007 it was £15.9 billion. Given that the UK GDP is £1.4 trillion and both finance and manufacturing each contribute £140 billion it’s clear that pubs only contributes a small amount.

            http://www.caterersearch.com/Articles/06/10/2008/53060/turnover-of-uk-pub-industry-industry-data.htm

          • Bazman
            Posted April 5, 2012 at 6:38 am | Permalink

            Smoking need to be penalised and if you are in favour of smoking as a smoker. Then do tell us why. You cannot. I rest my case. The lack of replies being conclusive pro0f of guilt.

          • APL
            Posted April 7, 2012 at 9:25 am | Permalink

            Bazman: “The lack of replies being conclusive pro0f of guilt.”

            That sentence there, illustrates why not many people bother to engage in dialogue with you.

          • Bazman
            Posted April 7, 2012 at 7:54 pm | Permalink

            I am still waiting for someone to defend the habit of smoking. This is the issue.

          • APL
            Posted April 7, 2012 at 10:09 pm | Permalink

            Bazman: “I am still waiting for someone to defend the habit of smoking. ”

            I defend the inclination of an individual to choose to put any intoxicating substance into his or her own body.

            One would have thought that a raving socialist like you appear to be, would be happy that in addition to paying income tax, VAT, fuel tax and all the panoply of parasitical taxes non smokers are obliged to pay, smokers voluntarily elect to pay more tax to the rapacious government, by electing to buy at exorbitant rates of tax, cigarettes.

      • Bazman
        Posted April 8, 2012 at 1:23 pm | Permalink

        Laughably interesting that the defence of smoking always comes from non smokers. Smokers rights… yada yada.. Do you smoke? No. I rest my case your Honour…

        • APL
          Posted April 9, 2012 at 9:45 am | Permalink

          Bazman: “Do you smoke? No. I rest my case your Honour…”

          No one will be surprised to hear you are wrong on your first assumption. Any honest judge would throw your evidence out of court.;

          I choose to smoke.

          Largely because I am sick and tried of being lectured via the television and at work.

          National NO Smoking day six years ago, I took up the glorious habit and funds permitting will continue to smoke until my untimely death.

  41. Monty
    Posted April 3, 2012 at 8:02 pm | Permalink

    John you have already hinted at a significant aspect of the problem here-
    ” Maybe Labour were right that the practical limit is lower – they have never tried to raise more than 36% from UK taxpayers. They have preferred to leave incoming replacement governments to deal with the big borrowings they used instead of extra taxes to allow them to spend and spend.”

    It is no use allowing that cycle to continue. We will just see a continuous sequence of Labour governments living high on the hog by maxing out the national credit card, followed by Tories coming in to clear up the mess and take all the flak for the austerity, and your voters in the country getting the invoice again. We need some kind of safeguard against this. Some kind of constitutional restriction on government borrowing so they can’t turn that tap on and leave it running again.

    There are quite a lot of us who could be paying rather more tax, but we aren’t because we are coasting. Doing enough to tick over, break even. No more. If we went into maximum stride, we could earn a lot more, but too much of it would be taken from us. If we opt for more free time, more leisure, you can’t take any of that away from us, we get to enjoy all of it.

    Get your party sorted out, then make us an offer….

    • alan jutson
      Posted April 3, 2012 at 10:01 pm | Permalink

      Monty

      The simple answer is a law which only allows government to spend a maximum of 80% of the total tax received in the previous tax year. Other than perhaps to fund a War to defend our liberty

      The 20 % balance goes to paying off debt, or when all debt is paid, to create a surplus fund which when large enough, could mean taxes can be reduced.

      This has the major advantage of spending being controlled by a cash fact limit (last years tax receipts).
      We then do not have the absolute nonesense, as at present, of pie in the sky growth figures being projected forward, and spending being based on that guestimate figure.

      It is such a simple solution, but the fact that it is simple, means it will never happen, as politicians love to complicate things so they can hide their mistakes/errors.

  42. Caterpillar
    Posted April 3, 2012 at 9:26 pm | Permalink

    The current ConLibLab cartel is not going to reduce taxation to around 30% (or less).

    For some progress then;

    (i) Dump distorting thresholds. Even if the cartel maintain increasing rates, make it a smooth curve. It is not necessary to look numbers up in printed tables anymore – there are plenty of S-shaped functions around if an insistence on escalating percentages continues.

    (ii) Simplify (not all cash jobs will be motivated by avoidance).

    (iii) Make politics competitive (sorry but this does mean recognising that FPP is an anti-competitive structure)

    (iv) At this time the argument for lower tax will not be won solely rationally. Supporting approaches will be needed, I have no strong idead but would guess:-

    (a) free market economics in the core school curriculum,

    (b) enhance debate on the size of Govt in the economy (rather than the size of taxation) and its ability to coordinate resource allocation c.f. other mechanisms, and hence (c),

    (c) enhance debate on what Govt should and shouldn’t do to identify the policy margins to gradually erode,

    (d) when the public debate turns to redistribution ensure comparisons of international longitudinal data, not just cross-sectional are used. Specifically what percentage of population remain in relative poverty throughout their life, not solely the cross-sectional data of what percentage are in it at an instant of time. (Obviously IDS understands this, but often media seems to focus on what percentage the left hand tail is at anyone time, rather than how quickly people move in/out of it)

    (e) introduce a bill that penalises Govt parties that run a deficit of > max[inherited deficit, 3%]. Surely all MPs would have to support this, they couldn’t vote for making things worse than a predecessor and the flexibility given by a 3% deficit seems generally accepted.

    • alan jutson
      Posted April 4, 2012 at 7:14 am | Permalink

      Caterpiller

      Why allow a deficit at all ?

      I live within my means, millions of us do, why not Government.

      See my thoughts just above yours.

      • Caterpillar
        Posted April 4, 2012 at 10:36 am | Permalink

        AJ,

        I have to admit I picked 3% by purely following the EU. Thus I thought such a bill could actually get passed.

        On the basis that pragmatism is no defence:-

        Deficit defences usually given are; (1) countercyclic policy, (2) ‘creation’ of ‘low-risk’ government bonds for saving diversification, and (3) funding of investment that promotes GDP growth greater than interest rate payments.

        Not everyone agrees on (1).
        (2) With a central bank a country doesn’t go bust but risk-free may not really exists given the potential associated inflation. Perhaps gilts aren’t needed for diversification.
        (3) In some countries there is evidnece that government investment crowds-in private investment, in the UK there is some (unclear and limited) evidence that government spending crowds out private spending. I would agree with ex-Chancellor/PM Brown (!!!!) and think some borrowing that funds investment (and only investment) is OK, the benefit is inter-temporal so why not the funding. Nonetheless given the state of evidence in the UK for effectiveness of Govt investment I (amateurishly) lean towards investment that may break monopolies – hence my pro-HS2 position – I am not generally convinced about Govt’s ability to invest appropriately in education, health etc.

        But you could be right, follow Norway run a surplus, build up a sovereign wealth fund and be able to pay your pensions.

  43. nemesis
    Posted April 3, 2012 at 9:32 pm | Permalink

    “All tax is theft”

    • Bazman
      Posted April 5, 2012 at 8:35 pm | Permalink

      All property is.

      • APL
        Posted April 7, 2012 at 9:35 am | Permalink

        Bazman: “All property is.”

        You won’t mind if I come around and repossess anything that you may own then?

        Just a service, you understand to assist you to live a life more consistent with your ideological philosophy.

        Unless of course, like most socialists, viz the (rich people-ed) A. Blair, P. Mandleson, P. Toynbe and the ‘Lord’ of the realme J. Prescott it’s just other peoples property that represents theft?

        • Bazman
          Posted April 7, 2012 at 7:55 pm | Permalink

          You think property is not theft?

          • APL
            Posted April 7, 2012 at 10:04 pm | Permalink

            Bazman: “You think property is not theft?”

            I am simply asking you if you have any property, if so, when can I come to collect it?

  44. Rebecca Hanson
    Posted April 5, 2012 at 11:22 pm | Permalink

    This is flying around Facebook:

    “I am a 21 year-old student from Finland.
    It makes me sad to hear how Americans are suffering.
    Here, our taxes are high but we all benefit from them.
    I grew up in the countryside and always had access to the same services that people in the city did.
    My university is known around the world in my field and my education is not only free, but my government pays ME to go to university. Everyone has a right to this.
    Everyone has a right to the best healthcare, there is no such thing as health insurance.
    I am young now and able to take risks and pursue my passion because I will never have to worry about starving if I loose my job or my business fails.
    I know that when I am old my state pension will be there for me so that I can enjoy my retirement.
    We call this the Nordic Model, and under it we live well and our businesses are among the most competitive in the world. I am grateful to have been born a citizen of a country that cares for its people, and I hope that one day the USA will take example from us.
    I am the 99%. — with Crystal Hunter and Katherina Weston Leners.”

    Reply: People also need to remember how the Swedish state and banking system promised too much and then had to undergo painful retrenchment. It used to be the Swedish model they praised.

    • APL
      Posted April 7, 2012 at 10:07 am | Permalink

      JR: “It used to be the Swedish model they praised.

      I too praise the Swedish Model.

  45. Lindsay McDougall
    Posted April 6, 2012 at 2:16 am | Permalink

    A quote from the Sunday Times MONEY pages of 25th March:

    “Parents who earn more than £50,000 and have two children will pay a marginal tax of almost 60% from next year thanks to child benefit reforms in the budget. A family with four children will pay an eye-watering rate of 74%.”

    The quote refers to parents whose earnings arise from one income rather than two. With equal incomes, you will be much better off. The paper publishes tables of gross and net income for a couple with two children for the years 2011-12, 2012-13 and 2013-14.
    Net income is gross income minus income tax minus NI plus tax credits (if any) and child benefit (if any). Sample numbers for 2013-14 are:

    Gross income £60,000, earned equally by two parents:
    Net income £48,094

    Gross income £60,000, earned by one parent:
    Net income £41,711, i.e £6,383 less – more than 10.6% of gross income

    The reason is that the single earner family is hit by a double whammy (a) the loss of child benefit and (b) the lowering of the 40% threshold. If the single earner family has three children (and remember that with 3+ children it is difficult for the woman to work), then the difference rises to about £7,000 per annum, 11.7% of gross income. Welcome to the world of financial castration. And it will actually be worse; by 2013-14 there will have been another year of inflation and fiscal drag.

    My four children are now grown up and I am semi-retired so this doesn’t affect me any more. But if I were 20 years younger it would.

    So what would be better? Reinstate child benefit for all and go for a £10,000 income tax threshold and have a flat tax of about 35% (is this the right level?) that rolls up NI into income tax.

  • 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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