How much extra revenue do you get from cutting the top tax rate – The Treasury says £4 billion a year

 

             As always the Red Book published at the time of the last budget rests unread by many MPs and commentators. In it is the following interesting figures:

Revenue from self assessment Income Tax

2011-12    £20.1 billion

2012-13    £22.3 billion

2013-14    £22.9 billion

2014-15    £28.5 billion

Self assessment tax receipts are dominated by receipts from higher rate taxpayers. 2011-13, when they average £21.2 billion a year , is in  the period of the 50%tax rate.  2013-15, when they average £25.7 billion, is a  period  of the lower 45p  rate.

The figures also include, of course, the impact of the reduced allowances on the tax revenue, which the Treasury forecasts to increase revenues by £490 million in 2014-15, but to have no impact in 2013-14. So if we exclude that effect, the average Self Assessment revenue for the second two year period comes out at £25.45  billion, still £4.25 billion higher per year than at the 50p rate.

So according to the government they will average £4.25 billion a year more at the 45p tax rate they are currently averaging at the 50p tax rate. It is of course possible that the government’s forecasts are wrong. Revenue may be lower in 2014-15 than they suggest.  It is even more likely the revenue loss from  the 50p rate in the last year of that rate will be bigger than they think, making the revenue gain from the lower rate that much larger.

It is difficult to marry these figures with the Red Book claim that they will lose £100 million of revenue from the rate change,which they say will be offset several times over by the changes to the allowances and the Stamp Duty on expensive properties.

On any normal basis you would say that cutting the rate seems to yield £4 billion more annual revenue, averaging two year figures in each case to try to deal with the shifting of income phenomenon. Presumably the official statisticians ascribe a high amount of the increase to their forecast of economic growth. It is difficult to believe tax revenues will leap as much as they suggest just from an increase in the growth rate. I suspect they underestimate the changes of behaviour these rate changes induce.

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94 Comments

  1. ian wragg
    Posted April 18, 2012 at 6:17 am | Permalink

    Wishfull thinking on behalf of the treasury. There will be another full blown recession when the Euro collapses before we can return to growth.
    The only growth at the moment is public spending.
    When interest rates rise and we are bankrupted by the debt repayment then we may see some real cuts and a return to sanity.

    • waramess
      Posted April 18, 2012 at 8:51 am | Permalink

      Whistling to keep their spirits up.

      They feel so secure in the reaffirmation of a triple A rating by Moody’s that over optimistic estimates do not matter. There is also comfort in the fact that the debt is mostly in sterling and they can print to repay should it ever be necessary.

      Neither of these should give them any comfort.

      The Moody’s rating is a credit rating and reflects the ability of the UK to repay debts when they fall due. Nothing at all to do with the state of the economy. The debt is secondary to the need for foreign exchange reserves and they could quickly disappear in the event of a run on the pound for whatever reason.

      The Government of the UK is perfectly capable of engineering a depression by its own hand without the help of a Euro collapse, and I suspect it will.

  2. lifelogic
    Posted April 18, 2012 at 6:23 am | Permalink

    It is indeed of course possible the forecasts are wrong, after all why spoil their consistent record. I remain quite sure that a 40% top rate will raise more (in all taxes overall) than 45% and 50% will and give better growth too. Indeed I suspect the optimum for tax revenue (which is clearly higher than the optimum for maximum benefit for all) is only about 30%.

    More to the point it would give the right vision to encourage the wealthy and hard working to come to the UK and not to leave.

    52% & 47% (with NI) and 40% IHT, 20% VAT and all the rest clearly says best to leave now and take your money with you before the government take it off you.

    • lifelogic
      Posted April 18, 2012 at 6:42 am | Permalink

      High inflation, 52% (or just 47%) income tax/NI and 40% IHT (and life time gift taxes) are still very effective in taking all your money gently off you over just a few years. Using what Osborne regards as “Morally Repugnant” tax avoidance is the only real way to maintain your capitals value. Thus enabling you to use it well (rather than let Osborne waste it on the usual wars & other pointless and counter productive insanities they seem so attached to).

      • lifelogic
        Posted April 18, 2012 at 6:45 am | Permalink

        And of course the 28% capital gains tax (on gains that are not even in real terms).

        • lifelogic
          Posted April 18, 2012 at 8:53 am | Permalink

          6% gain on investment with 4% inflation then tax on “gain” at 28% give a tax on actual real gain of 84%.

          4% gain 4% inflation (no real gain at all) but still 1%+ of taxes to pay.

          A great incentive to invest? Perhaps a better incentive just to leave or become “morally repugnant”.

    • lifelogic
      Posted April 18, 2012 at 6:50 am | Permalink

      Reported today “Time to reward elderly say MPs”. Why not just stop the coalition robbing and mugging them for a start? Still David Cameron has promised pensioners that is he “on your side” – with friends like that who need enemies?

      http://www.telegraph.co.uk/news/politics/9210294/Time-to-reward-elderly-say-MPs.html

      • Denis Cooper
        Posted April 18, 2012 at 8:19 am | Permalink

        The bigger picture is that the government is protecting the elderly by borrowing money on their behalf, without which borrowed money it would be necessary for the government to spend less on their medical and social care as well their state pensions and other benefits.

        I wouldn’t want to estimate how much is being borrowed per average pensioner, but for this financial year the government will borrow about £9000 per average family, cf the single person state pension of £5587.

        I certainly don’t applaud every detailed decision made by the government to try to narrow its budget deficit, but I’m afraid that to a large extent it’s back to “If it isn’t hurting then it isn’t working”.

        The worry is that it may be hurting but it isn’t working, in which case it will hurt a lot more a few years down the line.

        • lifelogic
          Posted April 18, 2012 at 4:08 pm | Permalink

          The trouble is it is hurting the private sector, reducing it and preventing it growing while at the same time expanding the state sector still further. Even above its already, hugely bloated and incompetent existing self.
          It is not therefore likely to work is it?

          • Denis Cooper
            Posted April 19, 2012 at 7:45 am | Permalink

            But whatever the government tries to do to shrink its budget deficit is bound to hurt the private sector. You can’t go from borrowing £9000 a year per family to a more sustainable level of borrowing, let’s say only £1000 a year, without that meaning families will have less money to spend on the goods and services produced by the private sector. If the process of retrenchment can be gradual then the private sector may be able to bear it and adjust to it and grow again, if it has to be an abrupt and drastic retrenchment then the damage to the private sector will be more severe and longlasting. Our local paper counts up there are now 55 empty shops in our town centre, but as a proportion of the total it’s much worse than that in Athens from what I’ve read.

          • lifelogic
            Posted April 19, 2012 at 2:12 pm | Permalink

            Dennis Cooper – you say “But whatever the government tries to do to shrink its budget deficit is bound to hurt the private sector”. This is clear nonsense – if for example the government did not spend one billion and the absurd green project (or half of the other nonsense they waste money on) and then just taxed the private sector by that £1 Billion less this helps the private sector hugely. It also releases the people working on the nonsense to do something useful instead with their lives.

            Or even if they just got RBS or other banks to lend the 1 billion to the private sector rather than as now pulling all the cash back.

            Building pointless things or paying people to dig holes and fill them in again (or worse inconvenience or diverting the private sector) helps no one but those involved in inconveniencing.

      • norman
        Posted April 18, 2012 at 8:57 am | Permalink

        In completely unrelated news I see UKIP are capturing quite a large share of the dependable pensioner vote. Unfortunately for the Conservatives wisdom does come with age and I doubt many will be won over by mealy mouthed promises.

        • BobE
          Posted April 18, 2012 at 2:34 pm | Permalink

          Last night on Newsnight they reported that UKIP will overtake the Lib Dems to become the third party. I expect UKIP will get seats in the elections to come.
          Also Paxo reported that some marginal Conservative MPs that are threatened by UKIP might switch over to UKIP and go down in flames. Slowley the people are beginning to make politicians think.

        • lifelogic
          Posted April 18, 2012 at 4:09 pm | Permalink

          They will never attract enough though.

  3. Mike Stallard
    Posted April 18, 2012 at 6:37 am | Permalink

    ” I suspect they underestimate the changes of behaviour these rate changes induce.”
    So do I.

    As you have been hinting all along, people are turning Greek – tax is beginning to be seen as a swindle by greedy, stupid, corrupt people. It ought to be a willing contribution to a trusted government just as it used to be.

    Have they never heard of stodgy old Sweden for heaven;s sake? They dared over schools and they dared over tax. Success in both. What are our wimpy little lot doing? Listening carefully to the accountants who live in their little bubble.

    • lifelogic
      Posted April 18, 2012 at 8:26 am | Permalink

      As you say “It ought to be a willing contribution to a trusted government just as it used to be”. At say 20% tops, with good efficient “real” services – provided as a safely net for the truly needy.

      • uanime5
        Posted April 18, 2012 at 5:41 pm | Permalink

        You can’t do all that with a 20% tax rate, which is why all developed countries have higher tax rates.

        • Jon Burgess
          Posted April 18, 2012 at 8:23 pm | Permalink

          All developed countries, that is, except most of Eastern Europe, the Isle of Man, Hong Kong, Monaco, Andorra, Saudi Arabia, Singapore, Switzerland and UAE.

          • uanime5
            Posted April 19, 2012 at 2:23 pm | Permalink

            Of the countries you mentioned only Switzerland is a developed country but their tax rate is higher than 20%. Also Hong Kong and the Isle of Man aren’t countries.

            I’d recommend checking the OECD regarding what constitutes a developed country.

          • Jon Burgess
            Posted April 19, 2012 at 8:26 pm | Permalink

            Not sure that any Singaporeans on the blog would thank you for regarding their country as not developed, but there you go.

            The Isle of Man and Hong Kong both have the ability to determine their own tax rates, so that’s good enough for me.

            Switzerland has very low federal tax (up to 11.5%), but residents do have to pay communal and cantonal tax also, but these vary. If you look at the tax bands, though you do have to earn an awful lot to suffer ‘high’ tax in Switzerland ( max income tax is between 24 – 42%).

            Now what this might tell an open minded observer is that high tax & spend may not be the answer for every economy.

          • lifelogic
            Posted April 20, 2012 at 8:12 pm | Permalink

            Exactly right they key seems to be a small state sector low taxes and outside the EU if possible.

          • Bazman
            Posted April 21, 2012 at 8:28 am | Permalink

            None of these countries are a model that you would want Britain to follow and some of the ones you name are intolerant dictatorships. If you want to live in free country then you would not copy their tax systems. The Isle of Man? Have you ever been there? Singapore is OK if you live their as an ex-pat not so good if you are a native and want to criticise the ruling family and you could be in for a few nasty shocks with Switzerland’s tax system. Another problem is that none of these countries have London in them with the business and leisure facilities. Do you want to bring up your children in any of these offshore Disneylands? You are either naive or just a silly man who would sell his political freedoms for a few quid? Ram it.

          • Jon Burgess
            Posted April 23, 2012 at 12:17 pm | Permalink

            Baz, uanime5’s suggestion was that:

            ‘all developed countries have higher tax rates’. – higher than 20%.

            I was merely showing that high tax does not always constitute a develop country – some developed countries have low tax rates.

            What high tax does tend to indicate, however, is a leftist giovernment.

            Now you might think that’s silly, but that’s up to you.

      • Bazman
        Posted April 21, 2012 at 8:06 am | Permalink

        This really means everyone fending for themselves. A good idea in principle, but how many actually can and what if they cannot? Charity filling in the gaps is not real and another fantasy of the middle classes and the rich who do not believe they should have to pay any taxes. “20% tops” Is how much lifelogic would voluntary give to this charity if he had a choice. 20% of what and when is not clear and if money was a bit tight for whatever reason would fall to nothing as his needs would be greater.

  4. alan jutson
    Posted April 18, 2012 at 6:53 am | Permalink

    John.

    Yes agree we have to have projections, but most of this stuff is simply guesswork, and the record to date is not good is it.

    If Governments persist in locking in spending plans (which always seem to go higher) to these guesswork figures, then we will never get out of the mess we are in.

    When Oh when are we going to live within our KNOWN means/income.

    That means keeping planned spending to a lower level than the KNOWN tax receipts of last year.

    Given a margin for error for the usual overspend, simply plan to spend 80% of last years ACTUAL tax take. then, and only then, will we start to make headway in reducing the deficit.

    Guessing on growth, and then guessing on tax receipts on that growth, is what has got us in this mess.

    Someone please change the record, and play some different music.

    Has the government never heard of “cut your coat according to the cloth you have”.

  5. Andy Man
    Posted April 18, 2012 at 7:06 am | Permalink

    Take that to it’s logical conclusion. Cut all tax. Or better still eliminate some. Singapore has very low taxation and a huge surplus that is often returned to it’s taxpayers. Less tax, less state more freedom is the answer.

    • Timaction
      Posted April 18, 2012 at 1:18 pm | Permalink

      Oh how I agree. Get Government, councils and all governing institutions off of our backs. I read a businessman on a blogg recently discussing the possible enlargement of his business. He takes all the risks and costs, whilst the Government just legally steals any profits. He decided against with all the bureacracy and costs of employing someone. I too have experienced this as a landlord. I took all the risks on buying my property on taxed income and savings and then they tax me again on any profits. Tax is far to high in this Country and stifles enterprise……then there’s the EU that exists to create regulations and law against our best national interests at a net cost of £50 million pounds a day and rising. Last year alone we had a trade deficit of over £50 billion with them!! The they are sending £11 billion abroad in foreign aid. So pleased to pay my taxes.

      • uanime5
        Posted April 18, 2012 at 5:48 pm | Permalink

        The Government bears far more costs then you give them credit for. If each business had to pay the cost of their staff’s education, their staff’s healthcare, the welfare of any staff they fired until these staff found another job, insurance to the fire department, the cost of any police investigation, and the upkeep of any roads they use they’d soon stop complaining about how much they pay in taxes.

        We have a trade deficit with the EU because we don’t make enough things that people in the EU wants to buy. It’s not the EU’s fault that our manufacturing industry has declined.

        • Jon Burgess
          Posted April 19, 2012 at 8:37 pm | Permalink

          I had to read that twice to make sure you were really saying that.

          The Government bears more costs than we give them credit for? With whose money?

          • Bazman
            Posted April 21, 2012 at 8:31 am | Permalink

            The taxpayers subsidise business in many ways is what he is saying. Should we have no tax system and invoice your business for everything? You would squeal like a stuck pig.

        • APL
          Posted April 19, 2012 at 9:41 pm | Permalink

          uanime5: “each business had to pay the cost of their staff’s education, ”

          They already pay the cost!! What do you think the taxes the company pays to the government are for?

          Now if the government could manage to educate the children it is charged with educating and educate them properly, businesses may be more inclined to recruit more employees.

          23% of the population that are ‘processed’ by the state education system are functionally illiterate or innumerate on leaving school.

  6. colliemum
    Posted April 18, 2012 at 7:34 am | Permalink

    This question is probably naive – but why is it not possible to lower income taxes (from any income) right across the board, from top to bottom, and get rid of all those extra little curlicues like tax credits, extra tax allowances for huge donations, that sort of thing?

    Since the government is borrowing money anyway, such tax simplification could be started right away as the perceived effect of revenue loss is covered by borrowing on the one hand, and revenue increase because of lower taxes which would obviate the scrabbling for tax loopholes and tax avoidance schemes.

    A lot of the grumbling from us, and a lot of party political posturing and trade union squealings could be avoided if we could see that we all pay, rather than the perception that “The Rich” have the means/accountants to reduce their taxes while the rest of us do not.

    Reply: Moving closer to flat tax is a good idea. Mr Osborne proposed a flat tax in opposition, but no longer seems to believe in it.

    • lifelogic
      Posted April 18, 2012 at 8:37 am | Permalink

      So “Mr Osborne proposed a flat tax in opposition” I missed that one but I remember his IHT “promise” perhaps there is hope yet – if he does just those two things. A flat tax is still “progressive” as the rich pay 1000+ times that the poor and use fewer services.

      What has gone wrong with him? Has he been brainwashed in the evil Whitehall machine? He even comes out with absurd ideas like GAAR, 7% stamp duty and has called laudable people with very high morals (certainly relative to his governments’) “morally repugnant”.

    • backofanenvelope
      Posted April 18, 2012 at 8:53 am | Permalink

      Why not amalgamate NI & Income Tax? Then remove ALL allowances against tax, including charitable donations. Then tax ALL income using a progressive system starting with 1% on the first £5000; each £5000 step upwards taxed at an increasing rate till you reach 40%.

      I realise that at the bottom level it would probably cost more to collect than it is worth, but there are far too many people in this country who think money grows on trees.

      I would also like to see tax printed in red on all till receipts and big signs on garage forecourts giving the pre- and post-tax prices. We need to bring home to people just what all this government is costing us.

      • uanime5
        Posted April 18, 2012 at 5:52 pm | Permalink

        Perhaps schools should include a sign showing how much it costs to educate each child so people can get an idea of what their taxes are used for.

        • Caterpillar
          Posted April 18, 2012 at 9:51 pm | Permalink

          uanime5,

          I think if an educational voucher system with a bit more flexibility than the one suggested by Michael Howard’s opposition Conservative party could achieve this. If pupils/parents had a tax funded voucher to spend at the school of their choice (but with an allowed top up) then the minimum price paied would be clear.

          To actually reach the point of a market determined price with efficiency drivers, of course the voucher level might need to be reduced below the current per pupil funding levels. [What is costs and what it is necessary to cost, will depend on the coordination mechanism.]

          • uanime5
            Posted April 19, 2012 at 2:27 pm | Permalink

            All a top-up will do is end free schooling, which will be detrimental to the poorest in society. A voucher system that only applied to state schools (if you want to go private pay the full amount yourself) and no top-up would be a much better use of tax payers money.

            A market determined price hasn’t improved universities in the USA, all it’s done is make the much more expensive.

      • David John Wilson
        Posted April 18, 2012 at 11:28 pm | Permalink

        Amalgamating income tax and NI will hit people who depend on investment income. It will hit all pensioners who pay any income tax and anyone living on an award for an industrial injury etc.

        NI is only paid on earned income.

        • lifelogic
          Posted April 20, 2012 at 8:14 pm | Permalink

          The admin could be though.

    • norman
      Posted April 18, 2012 at 8:59 am | Permalink

      Seems to be a habit Osborne has, he changes his beliefs (if indeed he has any) at the rate most of us underwear.

    • Caterpillar
      Posted April 18, 2012 at 9:41 am | Permalink

      “Moving closer to flat tax is a good idea. Mr Osborne proposed a flat tax in opposition, but no longer seems to believe in it”

      It’s still a UKIP policy though (…well someone had to say it).

      • lifelogic
        Posted April 18, 2012 at 4:11 pm | Permalink

        Alas UKIP policies are unlikely ever to see the light of day.

    • uanime5
      Posted April 18, 2012 at 5:54 pm | Permalink

      Because the amount those on the lowest incomes would get from reduced taxes, assuming they earn enough to pay taxes, would be much less than the amount they get from tax credits. The larger the salary you have the more you benefit from minor tax cuts.

  7. Susan
    Posted April 18, 2012 at 7:49 am | Permalink

    If I was going to take the flak for cutting the top rate of tax to encourage growth I would have taken it back down to 40p. As I have said before I think the most unfair part of the tax system, at the moment, is those just over the 100,000 who lose their personal allowance and are also punished by the lowering of the 40p band but are not in the 50p band. These are the skilled and professional people that Britain needs and are leaving the UK. I personally would have addresssed this issue first so these skilled people still have the aspiration to continue to do better and do not leave the UK. There is a lack of skilled people already in Britain the tax system is a further obstacle.

    I hope the fall to 45p will do what is required but I am not sure that it will.

    • lifelogic
      Posted April 18, 2012 at 8:41 am | Permalink

      If I were going to take the flak, for cutting the top rate of tax to encourage growth, I too would have taken it back down to 40% (at least). The danger is the 45% will just become the new high rate.

      • Bazman
        Posted April 21, 2012 at 8:34 am | Permalink

        To encourage growth? With companies sitting on billions already how will this work.

    • uanime5
      Posted April 18, 2012 at 5:56 pm | Permalink

      Let me assure you that the skilled professionals the UK needs are not paid anywhere near £100,000; which is why they keep leaving.

      • Susan
        Posted April 18, 2012 at 7:33 pm | Permalink

        uanime5

        I should have said professional and highly skilled workers but I thought you would understand without extra words. These people do fall in this wage area. Some of these top jobs remain unfilled until someone can be recruited from abroad because of the skill shortage.

        I know this is a lot of money but these professional and highly skilled workers are worth their weight in gold.

        I am sure you will approve of the ones working in the public sector and of course you will definitely approve of the Union leaders. But I was mainly speaking of those in the private sector which is the one I have knowledge of. It is also about aspiration for those who could be successful to continue to want to be, by not being punished by tax if they continue to rise in the pay scale. I think it is very important for people to have incentives to rise as far as they can and use their abilities as much as possible, it is in this way that the economy improves. Britian cannot afford to lose this kind of potential.

        • uanime5
          Posted April 19, 2012 at 2:34 pm | Permalink

          Can you post some examples of these private sector top jobs worth over £100,000 p.a. that remain unfilled so I may assess how valuable they are.

          Also if the taxes here are so bad why are people coming from abroad to work here?

        • Bazman
          Posted April 21, 2012 at 8:36 am | Permalink

          If anything skilled work is being paid less and has nothing to do with tax. A lot of employers want any work done for six quid an hour no matter how much skill is involved.

  8. Brian Tomkinson
    Posted April 18, 2012 at 8:26 am | Permalink

    It is helpful to look facts rather than Treasury forecasts. The following are tax receipts from self assessment for the last 3 years:
    2008/9 – £22.5 billion
    2009/10 – £21.7 billion
    2010/11 – £22.1 billion
    An average of £22.1 billion. The 50% rate of income tax was introduced on 6 April 2010. Why is this year’s forecast so low? I think the figures show that the sudden increase in 2014/15 is wishful thinking based on their daydreams of growth.

  9. oldtimer
    Posted April 18, 2012 at 8:49 am | Permalink

    People smart enough to earn very high incomes are also smart enough not to stick around to be fleeced by very high taxes. I have never understood why those who advocate very high rates of tax on income believe otherwise. The same is true of very successful businesses. The Treasury team and HMRC need to get out into the real world. Until they do, and start to amend their tax policies, this country will continue to languish and decline.

    • uanime5
      Posted April 18, 2012 at 6:00 pm | Permalink

      Those who earn very high incomes will remain here as long as no one else is willing to pay them a very high income.

      Successful businesses will remain here as long as people buy their products. Don’t expect Tesco or McDonalds to ever leave because they don’t like the tax rates.

      Businesses and individuals are far less mobile than they claim.

      • Bazman
        Posted April 21, 2012 at 8:38 am | Permalink

        And we don’t respond to threats. As any manager will tell you.

  10. norman
    Posted April 18, 2012 at 8:54 am | Permalink

    ‘ It is of course possible that the government’s forecasts are wrong.’

    Masterful use of understatement, a lesson for all of us whiners below the line.

  11. Lindsay McDougall
    Posted April 18, 2012 at 9:40 am | Permalink

    The obvious follow up question is: “What would happen if the top rate were to be reduced back down to 40%?”. I pose the question because the Chancellor seems content with 45%. Perhaps he believes that being lower than the top French and German income tax rates is all that matters.

    Reply: it was what I proposed, and it would in my view have raised more revenue.

    • Bazman
      Posted April 21, 2012 at 8:39 am | Permalink

      Would be nice if you explained how the extra revenue will be raised John, as to most it is a mystery.

      Reply: At lower rates more rich people stay here, more rich people pay themselves more income, more rich people venture their money and get better returns – just as they paid themselevs 25% less last year as they did not inetnd to pay the 50% rate on higher incomes. Truly rich people have a lot of control over how much they are paid or draw out of their companies.

  12. Richard1
    Posted April 18, 2012 at 9:49 am | Permalink

    One unsatisfactory feature of the debate on income tax rates – of which Conservative ministers and MPs are often also guilty – is talking about incomes as if they were static or guaranteed. i.e. ‘a person earning £1m gets a tax cut of £50k’ etc. But many people outside the public sector dont ‘earn £1m’. They might make £1m one year, and £50k the next. If they get clobbered in the one year they do well its a big disincentive to entrepreneurial activity. ‘Progressive’ tax rates are a block to growth but are also immoral and unfair. We need a flat tax.

    • uanime5
      Posted April 18, 2012 at 6:01 pm | Permalink

      Progressive tax rates prevent companies getting to big and ensure competition. Both of which are good for customers and the businesses themselves.

      • Richard1
        Posted April 19, 2012 at 9:14 am | Permalink

        I dont understand the logic of that. Progressive tax rates apply to individuals not companies. I agree with you that more competition is always a good thing. I hope you will support those posts which call for more of it in the public sector.

        • uanime5
          Posted April 19, 2012 at 2:36 pm | Permalink

          Lack of competition is one of the strengths of the public sector because if prevents them from cutting quality and acting in an unsafe manner. Too often companies put their customers at risk to be more competitive.

          • Richard1
            Posted April 19, 2012 at 5:20 pm | Permalink

            That would explain why life was so great in the Soviet Union where there was no customer choice or competition. Companies in a competitive market who ‘put their customers at risk’ will find their customers going to the competition. Its monopolies which put their customers at risk and provide poor service.

          • Bazman
            Posted April 21, 2012 at 8:41 am | Permalink

            That will explain why the railways and utilities are so good. Just go to the competition like you would with a takeaway meal. Ram it.

      • NJHGC
        Posted April 19, 2012 at 2:01 pm | Permalink

        @uanime5: I see absolutely no evidence of companies being prevented from becoming too large in any major industry by any mechanism. Oligopoly is the prevailing market structure.

    • Caterpillar
      Posted April 18, 2012 at 9:56 pm | Permalink

      Richard1,

      Or if not a flat tax, a shift to wealth (stock – personal balance sheet) not income (flow) taxes. I suspect taxing on wealth not income is more ‘progressive’ in that it allows for smoothing of income fluctuations, moreover I suspect it is less of deterence to generating new flows and recognises that a successful country uses some of its Govt expenditure to provide safety/security/property rights.

  13. Lindsay McDougall
    Posted April 18, 2012 at 9:50 am | Permalink

    Slightly off topic but I believe it will be the subject of Mr Redwood’s next blog – the inflation figures. The Bank of England seems to be softening us up to expect – and be content with – inflation of about 3.5% pa in perpituity. How many people are happy with that? It means that money will half in value every 20 years. It means that at some point during that 20 years I will probably become a millionaire, simply through owning a 5 bedroom detached house and having a modest pension pot. Total b_ll___s, isn’t it? Let’s get a new Governor, a new MPC and target zero inflation.

    • Denis Cooper
      Posted April 18, 2012 at 3:55 pm | Permalink

      Here are the Open Letters exchanged by the Governor and the Chancellor:

      http://www.bankofengland.co.uk/monetarypolicy/Pages/inflation.aspx

      I don’t detect any real concern about excessive inflation in Osborne’s replies to King’s regular “Dear Chancellor, sorry but we’ve missed your inflation target again” letters.

    • uanime5
      Posted April 18, 2012 at 6:03 pm | Permalink

      Don’t expect a new Governor, new MPC, or a target of zero inflation while the Government is able to inflate away their debt. As long as inflation is higher than the interest on the national debt this debt will shrink in real terms.

      • Richard1
        Posted April 19, 2012 at 9:19 am | Permalink

        Excellent post. This engineered inflation is a stealth tax. The borrow & spend ‘Keynesian’ economists and politicians who are so prominent in the media must be resisted. BTW is this the same uanime5 as generally posts from the left?!

    • Caterpillar
      Posted April 18, 2012 at 10:07 pm | Permalink

      LMcD,

      I believe you might be correct to question the competence/motivation of the MPC, but we should also recognise that neither the last, current or shadow chancellor seem to be particularly bothered by the MPC’s behaviour. Apart from being a poor sign for the LabLibCon monotony it is also a poor sign of the system. Without a ‘RonPaul-esque party’ I don’t see any major change to a broken system.

      Hopefully the agitated Treasury Select Committee might one day give alternatives e.g. price targetting not rate, starting the clock ticking on medium term, parliamentry vote for rates away from a Taylor (or other) rule etc?

    • Lindsay McDougall
      Posted April 19, 2012 at 10:05 pm | Permalink

      I have on my bookshelf a copy of “Freedom and Reality”, Enoch Powell’s second book of speeches (priced four shillings), when he was in his prime. Here is an extract from a speech he made at Halifax in December 1957 under theme 9 To Socialism through Inflation.

      “There has recently been published from a fourteenth-century manuscript the treatise of a medieval economist on the subject of currency. Opening it the other day at a venture, the first passage which I saw was this: ‘Every change in money (except in the very rare cases which I have mentioned) involves forgery and deceipt, and cannot be the right of the prince. The amount of the prince’s profit is necessarily that of the community’s loss; and if he should tell the tyrant’s usual lie, that he applies that profit to the public advantage, he must not be believed, because he might as well take my coat and say he needed it for the public service. And St. Paul says that we and not to do evil that good may come.’

      These are truths that nowadays we should we careful to wrap up in more polite and indirect language. But truths they remain no less than when Nicholas Oresme proclaimed them with such brutal directness six centuries ago.”

      There are many new things under the sun but inflation is not one of them. For ‘the prince’ read ‘HM government’ and there you have it.

  14. Bob
    Posted April 18, 2012 at 10:19 am | Permalink

    Tax is being used increasingly not for providing essential public services but for social engineering. The benefits system as a result is outgrowing our ability to support it, with the indolent multiplying and requiring more from the state in terms of housing, social services, medical care and cash handouts, while in many cases their contribution to society is negative, i.e. drug abuse, anti social behaviour and criminality.

    In the meantime economically active people are being sent the message that working, saving and investing is a mugs game, and if you want to preserve what you have and maybe improve your circumstances you had better go elsewhere, hopefully a place that isn’t teeming with government busybodies trying to determine whether your food is hot enough to be liable to a 20% tax.

    • alan jutson
      Posted April 18, 2012 at 3:09 pm | Permalink

      Bob

      I have to agree with your post.

      Mr Brown was the finest at this art (social engineering, redistribution of wealth) to date.
      Unfortunately some politicians still think it is necessary, and it continues in a more mild form by the present government.

    • uanime5
      Posted April 18, 2012 at 6:05 pm | Permalink

      Given that drug abuse, anti social behaviour, and criminality was much worse when there wasn’t a benefit system, such as during the Victorian Era, it’s clear that it has reduced these social ills.

    • Bazman
      Posted April 21, 2012 at 8:43 am | Permalink

      Doing nothing is also social engineering.

  15. David John Wilson
    Posted April 18, 2012 at 10:45 am | Permalink

    There is an urgent need to move away from high income tax towards other unavoidable forms of taxation.
    This means that any pressure to reduce VAT should be resisted in favour of income tax reductions.

    Council tax needs to be looked at very seriously.
    Tax relief on second homes needs to be removed everywhere.
    Higher council tax bands need to be introduced to cover the expensive mansions. Single person occupancy relief needs to be changed to the current band C relief being applicable to all properties.
    Government grants to councils should be reduced to allow the exchequer to recover some of the extra money that councils collect.

    • alan jutson
      Posted April 18, 2012 at 3:16 pm | Permalink

      David

      What makes you think that people who live in large houses can afford higher council tax rates ?

      Many people myself included purchased (or in my case built) homes out of taxed income years ago, now we are retired on a modest income
      Council tax is already a very high percentage of my impoverished Pension income.

      What do you suggest I do, trade down, sell some furniture, purchase a smaller home, pay solicitors, estate agents, and stamp duty to the government as well, in order to reduce my Council tax bill.

      With QE, inflation and the rest, my savings are also due to dwindle in future years, so I guess I then may have to claim Council tax relief ?

    • lifelogic
      Posted April 18, 2012 at 4:24 pm | Permalink

      “Tax relief on second homes needs to be removed everywhere.”

      It does not exist in the UK (other than perhaps for MPs sort of)!

      • David John Wilson
        Posted April 18, 2012 at 11:23 pm | Permalink

        Second or holiday homes that are not permenently occupied are entitled to a council tax discount of between 10% and 50%. Until recently it was mandatory for all councils to provide this discount although I believe it is now optional as to whether councils allow this discount. Also the 50% rate only applies to job related houses since 2004.

        While it is worrying that councils in holiday areas are hit by these discounts and places like Cornwall had around 14000 such homes what is more worrying is that Westminster and Kensington and Chelsea had around 7000 each. I am not sure which of these if any have now removed or plan to remove the discount. However it is the high earners that use these discounts to their advantage.

        • lifelogic
          Posted April 20, 2012 at 8:18 pm | Permalink

          Sorry I was thinking of tax relief on interest in terms of council tax yes but most council charge 90% and they are usually not using, bins, services, schools etc. very much as they cannot be in two places at once.

          • Bazman
            Posted April 21, 2012 at 8:49 am | Permalink

            How about the displacing of the local business supporting population and as rental/ maintenance of the nice area they have their second home in as a reason to pay council tax? Maybe they should just pay a groundsman a few quid a week to maintain their property?

  16. MajorFrustration
    Posted April 18, 2012 at 10:46 am | Permalink

    Now that you have told us what about a question in the House. Actions should speak louder than words.

  17. outsider
    Posted April 18, 2012 at 11:05 am | Permalink

    Dear Mr Redwood,
    I really cannot see your argument here. You seem to be saying that the Treasury has made two different calculations of the behavioural impact of cutting the top rate and has failed to marry the two.

    It seems more likely that there is another explanation for the rise in self-assessed income tax. Nearly nine million people fill in self-assessment forms, including several million who also pay via PAYE, either as employees or agency workers, but have to declare other income from investments, trading and work outside their main income. It may be that this income is dominated by higher rate income taxpayers (of whom there will be millions more thanks to the Budget) but only a small minority will be paying the top 45/50 per cent rate.

    If the economy expands, you would expect the income of the self-employed, profits of unincorporated traders and the marginal income of other self-assessment payers to rise faster than the average. This seems a far better explanation of the forecast rise in self-assessed income tax than assuming that the Treasury has made a simple and rather obvious error of inconsistency.

    Reply The main reason for ther collapse in self assessment income tax 2011-12 was the sharp fall in incomes for the top 1%.

  18. James Reade
    Posted April 18, 2012 at 12:48 pm | Permalink

    How interesting John. I have my hands on a copy of the Treasury’s analysis of the 50p tax band, and let me quote:

    “The conclusion that can be drawn from the Self Assessment data is therefore that the underlying yield from the additional rate is much lower than originally forecast (yielding around £1 bn or less), and that it is quite possible that it could be negative”

    So, it definitely cost £4bn then? Note the use of the phrase “quite possible” there. Not “definitely”, as you would assert. And I’d trust Treasury economists any day over a politician.

    Reply: I am pointing out the Treausry itself forecasts £4 billion a year more, as well as offering the quote you repeat.

    • James Reade
      Posted April 25, 2012 at 1:42 pm | Permalink

      I don’t see the quote anywhere in your post – but please do correct me.

      I also don’t see where this £4bn number is in the publication. Again, happy to be guided to it.

      Nonetheless, fascinating that you can’t resist in your final sentence suggesting that somehow you have a superior grasp of the behavioural responses to tax changes over the economists at the Treasury. It’s very easy as a casual observer to carp like that, isn’t it?

  19. David Langley
    Posted April 18, 2012 at 1:02 pm | Permalink

    John, Have you ever asked Osborne or indeed any chancellor why they have not implemented a flat tax for both individuals and businesses. The USA proposals looked very fair and attractive but not implemented. We would be a very attractive country to hard working people and of course capital the world over.
    The amount of double taxation and complication resulting in this penal attitude by the government is both damaging to real wealth and certainly morale. Ducking and diving is no way to live unless you are a duck!

    • uanime5
      Posted April 18, 2012 at 6:10 pm | Permalink

      Given that any flat tax would give the wealthy a large tax cut I doubt it would be popular in the UK.

      Also tax rates aren’t the only thing companies consider when they want to invest. A skilled workforce is also desirable, which is why some many manufacturing firms are located in Germany.

      • lifelogic
        Posted April 20, 2012 at 8:20 pm | Permalink

        Did anyone suggest that “tax rates aren’t the only thing companies consider when they want to invest”?

        • Bazman
          Posted April 21, 2012 at 8:50 am | Permalink

          You have never suggested anything other.

    • Bob
      Posted April 18, 2012 at 6:43 pm | Permalink

      @David Langley

      We lead the world in complicated tax legislation. How many other countries would impose a 20% tax on a food item dependent on it’s temperature? It’s pure genius!

      The tax complication provides jobs for tens of thousands of people in HMRC and the tax planning industry eternally toing and froing and arguing about marginal rates, reliefs and exemptions. If the tax rate was straightforward and simple all of these people would be thrown onto the scrap heap, or be reduced to working for the productive sector of the economy. How cruel!

      The complexity and penal nature of out tax system also makes the underachievers in our society feel better about themselves when they see that the more successful but morally repugnant individuals being punished for having the temerity to aim for independence from the state.

      • Denis Cooper
        Posted April 19, 2012 at 8:03 am | Permalink

        Eh, you’re talking about VAT, a tax introduced as a precondition for joining the EEC, and with the EU Commission and Court of Justice interfering the UK government does not have a free hand.

        http://eureferendum.blogspot.co.uk/2012/03/something-fishy.html

        “As always, though, when you are confronting VAT, you are dealing with the EU and, although our gifted media always ignores the elephant in the room, you can bet your sweet life that, somewhere in here is lurking an EU dimension. And indeed there seems to be just that.”

  20. uanime5
    Posted April 18, 2012 at 4:29 pm | Permalink

    Given that the Government’s prediction for growth figures have all been wildly optimistic I feel that revenue from self assessment Income Tax is likely to be less than predicted.

    Predicted success is not evidence of success.

  21. Jon
    Posted April 18, 2012 at 7:10 pm | Permalink

    The overall income tax and NI receipts projected show a huge increase in that period.
    That could be down to the lowering of the higher rate tax threshold and maybe capturing a lot of public sector workers.

  22. Bazman
    Posted April 21, 2012 at 8:12 am | Permalink

    What changes in behaviour will these changes induce? Large companies are holding onto their cash, so does this mean that the rich will suddenly go on a spending spree and this will somehow help the economy? Not real the money will just be stashed away with the rest. A few high end estate agents and car dealers might get a few more orders, but the idea that the rich are leaving and will stay because of the cut in taxes is not true. Its just Tory ideology that the rich should pay less taxes whilst the rest of us get hit with the pasty tax and ever higher prices.

  • About John Redwood


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

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