Tax saturation and Mr Osborne’s welcome changes

I have argued for some time that the UK has gone above the tax saturation level. A country which does this finds that increased taxes become very unpopular, and may collect less not more revenue.

Mr Osborne wisely cut oil company taxes in his latest budget, realising that the tax increases of 2011 on this sector had depressed exploration and development.

He has now wisely changed the pasty and caravan taxes, and offered some compensation to churches for the VAT on historic building repairs.

The changes to Income Tax and National Insurance made by the outgoing government were wrecking amendments which are reducing the revenues. Mr Osborne has promised some changes in 2013 but will lose output and tax revenue in the meantime.


  1. Richard1
    May 29, 2012

    William Hague should be Chancellor (assuming you are either unavailable or wont be offered it) & Mr Osborne made party chairman, which he would be very good at. David Cameron needs to get a sense of urgency about implementing Conservative policies which will achieve real growth & about getting this message over before the next election. Too much of the running in public debate on the economy is made by the tax-borrow-spend (& regulate) Left and their allies in the BBC.

  2. lifelogic
    May 29, 2012

    Indeed 30% government expenditure is the upper end for max benefit for max no of people and Osbourne is nearly at 50% in addition it is absurdly complex and time wasting on the tax payers too.

    Stop all the daft things like Mary Portas, Ent Zones, welfare to work, green banks, feed in tariffs and all the rest of the drivel and cut taxes and regulation now.

    Delingpole’s blog has some good points on this today too. It is obvious that tax borrow and waste will not work.

    1. lifelogic
      May 29, 2012

      Not only is there the 50% government expenditure & also the time burden of the absurd tax complexity (placed on businesses and individuals) – but in addition we have the huge areas of the private sector, diverted from sensible activities. People such as lawyers, accountants, tax advisers, wind farm and PV installers, no win no fee people, enterprise zone other contrived businesses, welfare to work and the like. All diverting time and money thanks to government diktat and absurd regulations to pointless activities.

      Get then all back to productive activity.

  3. Peter Richmond
    May 29, 2012

    It really is quite astonishing watching this government deal with taxation and public spending. Mr Osborne needs to go back to basics and think a little more strategically about the route to bringing our books into balance. He gives the impression of not being on top of the job. Whatever happened to his support for flat taxes? These surely offer a much simpler and more transparent approach to taxation than footling about with details like pasty and granny taxes.

    1. lifelogic
      May 29, 2012

      Perhaps Osborne has decided that the Tories (socialist light wing) have already lost the next election and he is just trying to leave a big a mess as possible for Labour?
      This so a real Tory party may return to clean the Augean stables in 8 years time.

      He certainly seems to be acting that way.

    2. Gewyne
      May 30, 2012

      The next budget needs to start with.

      As of this moment, all income taxes, leverages, National Insurance, Sales taxes, levies will cease to exists and replaced with;

      Then give us a simple easy system made to raise whatever is needed.

  4. Sue
    May 29, 2012

    You need to lower tax on energy and fuel if you want the private sector to grow. Germany has just started to realise that expensive “green energy” is the main cause of de-industrialisation.

    1. lifelogic
      May 29, 2012

      Of course you do but for 15 years the BBC, all three parties, the education systems, the Guardian, many charities, all the state sector, the EU, most educational establishments and many religions have been convincing every one of the “settled science”.

      This despite the fact that any fool can see that predicting the weather in 100 days time is hard enough let alone 100 years. That UK carbon output is irrelevant anyway in world terms. Also the “solutions” proposed – electric cars, wind, renewables, pv, bikes, buses and trains – do not anyway work, not even just in carbon terms.

    2. RB
      May 30, 2012

      Just started to realise? That was the intention from the beginning.

  5. Derek Emery
    May 29, 2012

    The Daily Telegraph reports that Aveva, a big engineering software company is actively looking to moving it’s Cambridge world HQ to overseas, probably Hong Kong because of silly red tape and taxation see
    “We’re very good corporate citizens but it will get to the point that the barriers to doing business in Britain get so high, we’ll look elsewhere…”
    Whatever policies the government has cannot be working well. In many cases policies originate from the EU but this is not admitted as it makes government look less in control. The other problem is our civil service applies every EU rule assiduously and gold plates it whereas some other EU countries only apply the rules that have little or no effect on their economies and never gold plate rules to make them even more deleterious.

    It would be better if there was a department that calculated the downside effects on the private sector of all rules and put in the slow lane (delayed towards infinity) those rules that kill growth or investment.

    1. forthurst
      May 29, 2012

      Utterly disgraceful. One of the very few highly successful international businesses in information technology and the government wants to drive it abroad with penal taxation and red tape.

      Perhaps JR would wish to comment on the general case.
      We are really all getting fed up with the rank amateurism and bovine stupidity of policies which are utterly unsustainable in a globally competitive marketplace. The other day a senior surgeon complained about how the working time directive is preventing juniors from getting enough experience before taking on more onerous responsibilities; we cannot continue to be run by people who believe the same rules applying to Spanish lorry drivers should apply everwhere else. We are being governed by idiots.

      1. lifelogic
        May 29, 2012

        Indeed we are. Leaders who think PR, spin, a few silly but high publicity trial area schemes and a few TV personalities scattered about on the news are all that matters.

        What actually matters is real actions to cut the state, easy hire and fire, cuts to regulation, cuts to energy costs, cuts to taxation, fewer transfers to the feckless/Pigis and give some and real uplifting vision for once. Not just more pathetic empty words in direct conflict to Cameron’s actual actions.

      2. uanime5
        May 30, 2012

        There’s little the Government can do to stop a company moving to somewhere cheaper short of driving down the living conditions of Cambridge to be equal with Hong Kong so the employees can work for the same amount of money.

        The working time directive isn’t preventing junior doctors from getting enough experience in other countries. Maybe the senior doctors just expect too much too soon.

        1. Winston Smith
          May 31, 2012

          I don’t why I’m replying to a serial ignoranius, but HK has a minimum wage and average GDP per capita of £47k, compared to £36k in the UK. HK is 13th on the UN’s Human Development Index – which they regard as a measure of standard of living – and the UK is 28th. On all recognised mesures the UK continues to slip down the scale and the likes of HK, Singapore, Australia, canada, etc continue to rise. Corporate Socialism is not working.

          1. lifelogic
            June 2, 2012


    2. Acorn
      May 29, 2012
    3. lifelogic
      May 29, 2012

      Well the more such companies and individual that leave the more chance that Cameron and Osborne will finally wake up.

    4. Bazman
      May 30, 2012

      He has now decided he is going to stay which was quite obvious from his number of contradictions in his speech. I would call these companies bluff and tell them to go to Hong Kong, Switzerland etc. If it was so good good business in these countries you can be sure they would already be there.

      1. lifelogic
        June 2, 2012

        Many are and other will go or perhaps just put any new expansions overseas.

        1. Bazman
          June 2, 2012

          We’ll base our economic policies around the whining of company bosses and the requirements of non doms and any other anti democratic forces then? Good for everyone.

  6. peter
    May 29, 2012

    Having seen a glimpse of the figures for revenue from static caravans and pasties with projected income they just seemed too low for the backlash they have caused

    – and the damage to the caravan industry in particular would have made it counter productive so the question is why did they bother?

    As you have said many times the UK is at tax saturation levels – we had stealth taxes under Brown for years so lets forget about raising more tax and turn the focus on stopping waste cos there’s tonnes of it.

    Why not start with legal aid so certain people cannot fleece the taxpayers with human rights lawyers etc.

    Send people home that should not be in the UK and are a threat to UK security (don’t wait for the European court to decide – put national security first like the French do)

    2 things above would be more than enough to stop taxing caravans and pasties.

    Stop ‘lending’ billions to PIGGIS/IMF who are never going to pay it back

    Tear up the Common Fisheries Policy agreement that the Tories signed – get UK fishermen in control of their own fish stocks and keep out foreign trawlers so we can start exporting our own fish in a sustainable way.

    Stop wasting money on wind turbines – focus on safe nuclear options

    I’m sure there are much much more….

    1. Gewyne
      May 30, 2012

      It has been rumoured that the Treasury has a wish list. They apparently kept giving it to the Labour party, but they were wise enough to keep batting some suggestions back.

      To make up for raised personal allowances etc the Treasury were asked for ideas, the old laminated wish list was produce but the Conservatives “this won’t wash” antena was not working and they fell for the trap.

      1. Winston Smith
        May 31, 2012

        This is a fact and show the folly of having a Tory party run by ‘posh wallies’.

    2. uanime5
      May 30, 2012

      For most people legal aid was gotten rid of a long time ago. Now all they have is ‘no win, no fee’ lawyers.

  7. norman
    May 29, 2012

    As welcome as these reverses are I imagine it would be better to have a strategy and follow it rather than raising taxes up and down from year to year and hoping that it will all somehow work itself out.

    I’m sure many businesses would prefer a degree of certainty and the knowledge that this government intends to lower the overall tax burden rather than the current situation of no one knows what the next budget will bring, nor whether or not the measures announced in it will see the light of day. Some taxes go up, some go down, personal allowances up, tax thresholds lowered to ensure people aren’t better off, and so on for 94 more pages.

    It’s a complete shambles, if we’re being honest about it.

  8. Denis Cooper
    May 29, 2012

    MPs shouldn’t be too hard on George Osborne over VAT; in 1972 Parliament decided that henceforth Chancellors must comply with EEC/EU/EU law, including that on VAT.

  9. Mick Anderson
    May 29, 2012

    Tax saturation and the Laffer curve are different for each individual, but JR is right that the Country as a whole has gone beyond the tipping point.

    I’m not sure that Mr Osborne deserves credit for reducing tax on the Oil companies at the most recent budget. Didn’t he increase their taxes the previous year in order to pay for not increasing the rate of fuel duty? All he has done is correct a previous tax-rise mistake.

    Until he accepts that the pips have gone beyond squeaking and does something radical about reducing expenditure, he will continue to fail to do his job properly. What happened to the promise that solving the deficit and paying down debt would be 80% spending cuts and 20% tax rises? All I can remember is tax rises, borrowing rises, and wasting the relatively small amount of money saved in cuts.

    He has now wisely changed the pasty and caravan taxes

    If Mr Osborne was wise, he would not have made such ridiculous mistakes in the first place.

    1. norman
      May 29, 2012

      Any oil company exec planning ahead (and most projects are planned in terms of years) must have very little confidence given the erratic behaviour of this government. A lot of projects have already been cancelled and spending priorities shifted to other areas after last years debacle. That money isn’t coming back any time soon.

      With oil & gas companies paying around a fifth of total UK corporation tax it doesn’t take a crystal ball to realise Osborne’s greedy little eyes are going to alight on this sector again as soon as there is any sign of increased returns on investment. People aren’t reckless when it comes to spending with their own money.

      A lesson few of todays oxbridge / PPE / bag carrier politicians seem to have grasped.

      1. Mick Anderson
        May 30, 2012

        With the oil/gas sector being so important, you would have though that there would be an incentive to encourage exploration and extraction of shale gas….

        Not this shower, though!

    2. Jon burgess
      May 29, 2012

      Wisely said. Some bad press and suddenly a U-turn on something that was sacred. If only it was that easy to get a rethink on something important…

  10. waramess
    May 29, 2012

    Faint praise (very), and justifiably so.

  11. Winston Smith
    May 29, 2012

    As ex-Labour spin doctors revealed all those unpopular tax changes were repeatedly proposed by the civil service, during the Labour Govt years. Whatever you think about the lying, (ministers ed)s in the last Govt, they at least were good at managing the media. Not so with the present bunch of incompetents. The Mandarins see the’ posh boys’ as pushovers.

  12. Anthony
    May 29, 2012

    How’s it feel being called an extremist by your fellow conservatives John ? by the (words left out) past his sell buy datell Ken Clarke in the telegraph today ?

    “Ken Clarke: only extreme nationalists want ‘silly’ European referendum
    A referendum on Britain’s relationship with the European Union would be “silly” and is only of interest to “a few extreme nationalist politicians,” Kenneth Clarke has said. ”

    The Conservatives sounding more like the Lib dems everyday. Bunch of sell outs that hold utter contempt for Democracy and the will of the people , No longer shall i vote Conservative. UKIP all the way from now on.

    1. norman
      May 29, 2012

      Look at all the talent on the backbenches. Not just the household names but a lot of the new intake, a few of whom I can name but there are doubtless many more I can’t so won’t do them the injustice, none of whom have a chance of even a junior position, let alone a seat in cabinet.

      Like all of Cameron’s fine speeches that come to nowt, actions talk louder and the complete lack of any right of centre figure in government tells us all we need to know about the leadership’s views of the right.

      Warsi after the last elections more or less called conservatives racists, saying the rise in UKIP votes was the same as the fall in BNP. That’s how they see you – (etc ed)

  13. uanime5
    May 29, 2012

    Today the Telegraph had a full list of Government U-turns. Interesting to see how policies can change when met with public opposition:

    1. norman
      May 29, 2012

      Nah, just this government hasn’t a clue what it’s doing or what it’s aims are so lurches randomly around from policy to policy in the hope something will come out smelling of roses instead of …..

      Don’t fool yourself, they value your opinion less than the price of a hot sausage roll.

  14. uanime5
    May 29, 2012

    Just a few questions regarding tax cuts:

    1) How much will the oil industry have to grow to produce the same level of tax revenue as before they had a tax cut?

    2) How much will employment/salaries have to increase to produce the same level of tax revenue as before Income Tax and National Insurance were reduced?

    1. PayDirt
      May 30, 2012

      News from recent Licensing Awards:
      “the highest total of applications ever received for an offshore licensing round since the process began in 1964”
      “ensure the UK remains an attractive place to invest”
      “The industry supports nearly 500,000 jobs and today’s announcement will ensure a wealth of outstanding long-term career opportunities for people of all ages from north-east Scotland right across the UK”

      1. uanime5
        May 30, 2012

        You forgot this quote:
        “The applications cover 418 blocks, a far cry from the 2800 which had been put up for consideration earlier this year.”

        Though without being able to compare the loss of tax revenue from lower taxes to the additional tax revenue from more block receiving bids it’s impossible to know whether this is will lead to a loss or gain for the treasury.

  15. Duyfken
    May 29, 2012

    JR, you suggest that on two cited occasions Mr Osborne has acted “wisely”. That sounds a touch sycophantic, doubtless unmeant. My impression is that GO and his Treasury advisers/mentors have through poor judgment needed to back-track on measures, or in the case of the oil company taxes have acted belatedly. This seems to be a characteristic of this government and it will need increasingly to have cheer-leaders to explain, excuse and exonerate the Cameroons for their repeated false steps. Soon, I expect it will be to no avail.

  16. oldtimer
    May 29, 2012

    I fear that tax reform and tax reduction are and will be too little too late. These latest changes are just nibbling around the edges of the problem. It is difficult to see much changing while the coalition remains in place. Point scoring and differentiation between the two parties for political advantage seem to be the principle objectives. No wonder businesses show reluctance to stay, reluctance to invest or a reluctance to come here. I do wonder if the politicians in charge have any conception of the damage they are doing to the economy.

  17. Matthew
    May 29, 2012

    Not at all sure that the changes are welcome, more irrelevant in the scheme of things.

    The “Pasty tax” u turn – on what grounds? Ever since Mr Lawson decided that hot takeaways were subject to VAT then hot pasties should have fallen into this category.

    With all the problems going on – this sort of thing grabs the headlines. Makes the government look dim.

    The priority should be to reduce employers NI

    1. Old Albion
      May 29, 2012

      The priority should be to get out of the EU……………

  18. Mike Stallard
    May 29, 2012

    It is 2025. I am sitting in my cold little room snuggled into my sheepskin blanket. There is no fire and the radiators are stone cold. I would welcome a cuppa, but the water has gone off again. Anyway, the electric does’t come on for another hour. That is why I am sitting in the dark staring at a blank TV screen. I still have my mobile phone and laptop to go at, but I want to save the batteries. Reading, of course, is out of the question by the light of a candle (£35.00 now).
    I am glad to hear that my OA Pension has gone up by £5.00 a week thanks to the Labour government’s “Wage for Age”. However, my Council Tax Bill is much higher now and my personal pension has remained the same. I hear terrible tales about the local hospital where the electricity and water supplies are intermittent. Since my children have all moved abroad, I am alone.
    Ah – the TV is flickering into life! Phew! On comes the EU Commissioner for Agriculture and Fisheries to tell us that the tractor production in the Ukraine…….

    You see, that is why I am not that bothered about pasties really.

    1. norman
      May 29, 2012

      Could be worse, I won’t be an OAP by that time and for your sake I hope I’m not being given rations of soylent green!

  19. Acorn
    May 29, 2012

    JR, I am not sure if the combining of NI and Income tax is still on the agenda. Looking at the last Q1 GDP update and the OBR data, it appears that gross wages for employees is running at about £820 billion and about £180 billion for the self employed and other non-corporates. Market Price GDP (headline) just over £1500 billion.

    NI at £102 billion and Income Tax at £152 billion means on an aggregate basis the nations citizens are paying, on average, 10% NI and 15% income Tax; 25% total tax. If the personal allowance goes to £10,000, £280 billion aggregate, that means the ultimate goal of a “flat tax” rate would be around 35% which seams very high by global standards. There must be a hell of a lot of reliefs, allowances, credits etc etc in the present system? (The above calculations were done under the influence of alcohol).

  20. Local Tory
    May 29, 2012

    John, you have certainly hit some big subjects in the last few days and I have enjoyed very much reading your posts.

    There were of course very good reasons for the beginning of financial deregulation in the 1980s and I certainly do not support the economic lunacy of the Left. But after the events of the last few years I think that Thatcherism has got to be re-worked to take account of behavioural economics.

    On tax saturation I agree. Post the credit bubble bursting and the contraction in credit supply, a problem is the money supply to the real economy. QE is helping, but a few focused tax cuts to put some money in peoples’ pockets makes good sense. But don’t over do it, we still have to service the national debt.

    On the subject of 2005 – I admire your faith in both monetary policy and human nature. My view is that after 20 years of financial deregulation the credit cycle beast had been unleashed well before then. On the subject of the LOLR and liquidity provision, I also don’t agree. Unrestricted liquidity provision, in the context of 20 years of financial deregulation, at that point in time would likely have propped up an even bigger expansion in the oversupply of credit.

    All the best and keep up the good work.

  21. Brian Tomkinson
    May 29, 2012

    JR: “He has now wisely changed the pasty and caravan taxes, and offered some compensation to churches for the VAT on historic building repairs.”
    Taxes which he announced in his March budget this year! He “wisely cut oil company taxes in his latest budget, realising that the tax increases of 2011 on this sector had depressed exploration and development”. Another one of his mistakes! Please don’t try and make it appear that Osborne is rectifying someone else’s tax botch up. These were his taxes and he said in his budget statement “We will also address some of the loopholes and anomalies in our VAT system.” Pity he didn’t think them through before announcing them, but of course he was busily gallivanting in the USA with Cameron instead of doing the job for which we pay him. Who would have thought that your government would be so shambolic and incompetent after 2 years in office?

  22. Old Albion
    May 29, 2012

    John. Whilst we have a Government and indeed opposition, chock full of millionaires. Why should Mr Public give a flying fig about what you or Westminster thinks.
    It’s tough out here. I pay around £2000/year in energy bills. On a pension of £10,000, that’s a lot. To you and Westminser it’s peanuts.
    Why not put more tax on energy………OH! you are.
    You know nothing. you care nothing, you are all beneath contempt.

  23. JimF
    May 29, 2012

    He’s still spending more than ever.
    Shuffling the deckchairs didn’t give the Titanic survivors any great cause for celebration, and neither should this for you. Most folk neither eat pasty regularly nor purchase caravans. Long may that remain the case!

  24. Adam5x5
    May 29, 2012

    Too little.

    What is needed is a major shift in the tax code to low rates and a simpler code.

    Although we’re not going to get that while the majority of politicians are running about pointing fingers at each other saying “She paid her employee to stay in his house!! Has this been taxed properly?? She should resign!”
    (Quite how that is her fault if it’s not declared is unclear… Last time I paid a bill I didn’t check they were paying the right amount of tax on it – that’s their business)

    This is why people are fed up of politicians and engagement is at an all time low – the majority of you (you in plural term to indicate politicians in general, not you in particular) spend your time fiddling and point scoring while rome is burning.

    We want and need lower income tax, lower fuel duty, lower government expenditure on vanity projects, less government in general. If you want growth, cut fuel duty by 50% – this will ease pressure on individual budgets as everything becomes cheaper and filling the car doesn’t inspire fear that it’ll break the bank.

    It won’t solve all the problems, but it’d be a damn good start.

    Stopping pasty tax seems to me to be like pissing on a forest fire. Knack all good and just being done so it can be said that something is being done.

    “Mr Osborne wisely cut oil company taxes in his latest budget, realising that the tax increases of 2011 on this sector had depressed exploration and development.”
    the golden goose story springs to mind.

  25. Gewyne
    May 30, 2012

    Just out of interest John, do you think that the Labour Party introduced policies/spending in their last months as a form of scorched earth to damage both the country and Conservative government.

    If so do you think it was just poor decision making or a deliberate tactic ?

    Reply I think Labour did introduce taxes and spending plans designed to pose a political challenge to their successors

    1. Gewyne
      May 30, 2012

      Thank you for the reply, I have seen it suggested but was unsure if it was also viewed as such by the Government.

  26. lojolondon
    May 30, 2012

    Hooray to Osborne for listening. Boo to anyone in the Cabinet who makes decisions like that which require rescinding.

    And a double boo to the Tory government which allows the taxpayer funded BBC to produce one sided ‘news’ like the BBC’s lead story – the Labour assertion that the Coalition “u-turn” on hot pasties and caravan tax proves what a “shambles” Government policy is. And where will the contagion end? Multiple interviews on Radio 4 with Labour politicians and an interview with someone from the charity sector saying that raising the cap on donations is where the pressure must go next.

    I will say it again, allow the BBC to operate as they do, as the propaganda wing of the Labour party, and you forfeit the next election. UKIP will take all the solid ‘conservative’ votes, Labour and LibDems will form the next coalition, and you better believe they want to!!

  27. Lindsay McDougall
    May 30, 2012

    Reducing NI, particularly employers’ NI, to former levels would be a good move when we can afford. Can we have some insight into what NI funds? Many people say that the contributory principle has already been totally undermined. Should be fight for its reinstatement or simply roll personal NI into income tax.

  28. Bazman
    May 30, 2012

    ‘Wisely’ is not a word you with associate with these taxes or their changes. Giving the average Joe a few pence off a pasty whilst stuffing wads of notes into the mouths of the rich for no provable reason is not wise. The oil companies however need to be told that unless they do the work expected of them. They will be fired and other companies brought in to do the work for them we decide the tax rates and if they do not like the margins then tough.

  29. Lindsay McDougall
    May 31, 2012

    Regarding these tax cuts – or reversals of increases – I haven’t heard yet heard details of the additional spending cuts to restore the planned fiscal position.

  30. David Langley
    June 1, 2012

    We do pay taxes up north John, we might need a bit more proportionally than the overly dense southeast. We are not beggars and of course neither are the Euro countries who are sovereign countries and not states of Brussels or Strasburg, or even Germany.

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