Fair shares?


              We spend much of our time on this site discussing policies that could promote more growth, more jobs and greater prosperity.  Most agree that a growing economy can offer more opportunities, and can lift propsects and living standards for many.

               There is a considerable effort put into the alternative debate, the discussion of how you should distribute all the income and wealth we do have, whatever the growth rate.  The politics of fair shares is especially popular at times of low growth or no growth. All elected MPs in the UK accept that there should be  a progressive tax system, which takes more tax from the rich and less tax from the poor. All accept there should be a benefit system to give more state money to those who are ill, disabled, elderly, or unable to find a job.

             I wish to explore this issue a bit more this week. I will be commenting on the degree of progression in our tax system, and the state of our benefit system. We need to look at Mr Duncan Smith’s proposed welfare reforms to make work more worthwhile. We need to ask if it was right to raise out of work benefits by inflation, when wages are rising by less.

                 I would be interested today in  hearing from you about how progressive a system you think we should have in place. How much more tax should someone on £100,000 a year pay compared with someone on £30,000? Should benefits only be paid to people on lower incomes? If so what should the cut off levels be? Or should some benefits go to all taxpayers as of right?  Is mean testing the fairest way of limiting taxpayer bills, or should the prudent on moderate incomes also be able to receive money from the state? Do means tested benefits send perverse incentives? Does it make any sense to pay universal benefits, so millionaires end up with payments? Should bankers pay more tax on their bonuses than footballers pay on their incomes?


  1. norman
    December 13, 2011

    One of the problems is that our tax system is so complex that no one has any idea about how much tax they are actually paying, I certainly have no idea whatsoever. With NI (employees & employers), VAT, taxes on fuel, alcohol, cigarettes, road tax, income tax, TV licence, council tax – it goes on and on. I doubt anyone could make sense of what they’re paying without a spreadsheet.

    Throw benefits into the mix and it becomes worse especially if you are getting tax credits.

    Think of all the cost (and no doubt errors, one way or the other) in managing and running all these systems. It’s like something out of a Kafka novel.

    Fully realise the tax system is far too complex for any Chancellor to want to try and change it but it really is screaming out for it.

    1. lifelogic
      December 13, 2011

      The tax system is designed so you do not realise how much you are paying hence the pointless complexity. But you can be sure they are spending/wasting about 50% of GDP. They do not want you to know or you might not let them keep taking it.

      I would encourage companies to put on their bills this item costs £5 – without any tax it would only cost 90p, the £4.10 is due to tax and over regulation.

      1. Nick
        December 13, 2011

        Quite. The whole point of a Tobin tax is for the same reason. People being taxed won’t realise they are being taxed.

        However, if you have a Tobin tax on ATM transactions, then watch the stink.

        The only difference is that people will see the money going.

      2. Disaffected
        December 13, 2011

        Gibraltar altered its tax system so there are more incremental rates with a top rate of 40%. They found that it increased their tax collection not reduced it. Tax has to be decreased for everyone. It will boost growth, allow people choice what to spend their money on and make it pay to work. It is not right that anyone, no matter how rich, gets less of their earnings than the government.
        Welfare is so generous it actively encourages immigration from around the world which is a burden to those who pay tax. Government spending should be a necessary evil, not seen or viewed how much money can be squeezed from people.
        We recently learnt how the previous Labour government used a company to survey people so it could select the right words to con people that an increase in NI was necessary to improve the health service when in fact it was a pure tax rise and preferred to an income tax rise that people would object to I fail to see how this was not fraud.
        The government always wastes vast sums of money. The people in charge need to to start to act as if it were their money they were spending, the tax paying public would rather the money was in their own pocket to spend as they choose.

        It does not pay to work if you are on low income. That is why there are 370,000 households where no one since the age of 16 yrs has ever worked- they chose not to work. I hear about the jobseekers allowance, but this does not portray the whole picture of benefits available.

        Once again, John, MPs think they are different and a special case. Look at yesterdays select committee report on expenses. it is scandalous MPs should even think like this. And MPs still exempt themselves from tax legislation imposed on the rest of society. It discredits what MPs say, the debates about the subject and the institution created to run the country. The lack of standards and double standards in Westminster is a disgrace. Some of these people are not fit to hold public office and should be rooted out by their supposed leaders.

        1. Tim
          December 13, 2011

          ……….so when are MP’s having their pensions reformed and CPI NOT RPI rises, reductions in its annual acruel benefits, more years of contributions for less value at the end?
          The other issue about taxation is the public sector and what Government does is too much. Instead of raising taxes it should review what it does on a must, should and could basis. Stop doing all the coulds and review the shoulds and how they are delivered. The bonfire of Quangos hasn’t happened. The “Equality” Commission should be the first to go. There is no difference on the ground except higher taxes since the formation of the Coalition Government.

          Reply: Mps have already had two cuts in pension terms and another is expected

        2. uanime5
          December 13, 2011

          Given that there are 2.6 million people who are unemployed and only 0.5 million jobs available it’s no surprise that there are so many households where no one works.

          Also it doesn’t pay to work low paid jobs because minimum wage isn’t a living wage. That’s why people require tax credits.

      3. uanime5
        December 13, 2011

        Better yet they could tell you how much it would cost if you bought it from their supplier, rather than them. Store overheads are a large part of the price of most goods.

    2. Mazz
      December 13, 2011

      The TPA have a tax buster but I don’t know how useful it is, not having tried it:


  2. Julian
    December 13, 2011

    Child Benefit should be scrapped. It was introduced in the days when fathers worked and mothers mostly didn’t. It was meant to help mothers whose husbands could not be trusted to give them enough money – the state would take the money from the father and give it to the mother.

    This original intent has of course now disappeared but the idea of giving money to people with children has become part of the benefit culture. It is (correct me if I’m wrong) the only remaining universal benefit and an argument for keeping it is that it gives the middle class a stake in the benefit system. Perhaps if would be a good thing if fewer people had a stake in the benefit system.

    The more important thing for me is how much it must cost to administer and pay child benefit. i.e. How much extra tax are we paying so that working middle class parents (like me) can have child benefit paid into joint bank accounts to help with buying extra luxuries.

    There is nothing wrong with having the tax system include an allowance for children, but that would be a simple adjustment to a tax code, with virtually no extra administration.

    1. Duyfken
      December 13, 2011

      I would go further. Every child adds to the cost of the government = taxpayer. So to compensate for the increased facilities that parents may draw upon for their offspring, the coding should be altered to increase the tax rate. And I am only half-joking.

    2. scottspeig
      December 13, 2011

      Although trying to remove child benefit will cause a huge unpopular reaction! The way to do it is to announce 1 yr in advance that you will stop giving it to new children.

  3. Andrew Perers
    December 13, 2011

    The process of distributing tax money to people who are in work is wasteful and complex. Why not let them keep more of their income in the first place by reducing tax rates? Why even tax public sector workers? Why not pay public officials tax free wages adjusted to make them no better off? Then we could get rid of half of the Inland Revenue.

    1. Tom William
      December 13, 2011

      Good idea in principle but it wouldn’t, for example, deal with income from other sources or capital gains.

    2. uanime5
      December 13, 2011

      The problem with your idea is that there are 2.6 million people who are unemployed so reducing tax rates won’t benefit them.

  4. Mick Anderson
    December 13, 2011

    I’d start with “Occam’s Razor” , and assume that the whole tax and benefit system requires replacement.

    The replacement is a relatively simple set of rules.

    1: No income tax on earnings below £10,000. A flat tax on earning above this, somewhere between 20% and 30%. This includes payments of share dividends and bonuses. Calling punitive taxation “progressive” doesn’t make it right.
    2: Capital gains tax at the same rate as income tax, but with taper relief running from one year down to a 0% rate at ten years
    3: If you insist on paying people to have children (and I’m not convinced), pay the full rate for the first born, half for the second, and none for any subsequent. Payment still to the Mother, because it’s easier to keep track of how many children count.
    4: No stamp duty or inheritance tax. Tobin can whistle, too!
    5: No household to have total benefits higher than the average wage for that area. Remove tax credits, because the level of taxation is sufficiently low. If there are steps in the rate at the edge of an area, that’s tough.
    6: Unemployment benefit to only run for a maximum of a year, unless you have been in full-time employment for ten years in which case you have paid enough into the system and can have an extra week available for each year accrued. It should be a living allowance only – Large TVs, iGadgets and holidays are not a “human right”
    7: Pensions to rise at the rate of the average wage. No Public Sector pension to be higher than that of the equivalent worker in the Private Sector unless they have made corresponding contributions, and a cap in payments of the average salary (the same as for other benefits). Retirement age to be the same for both sectors and both genders. If your plans for retirement involve spending lots of money, start saving early….
    8: Tax relief on pensions should be limited to a quarter of the average salary per year, and there should be no tax on accumulation of profits or when the pension is paid out. Buying an annuity should neither be compulsary or a one-time event. This is all to encourage people to make their own provision.
    9: No benefits for anyone without a UK passport. Loss of corresponding family benefits for anyone serving more than a year in prison.
    10: A cap on Government spending of 30% GDP. Exceeding this for more than three months within twelve results in a General Election being called, funded by the governing party/parties.

    It’s time the pendulum swung back towards those who contribute to the system. Balancing the books should be more about reducing spending than increasing taxation.

    1. Nick
      December 13, 2011

      Pensions to rise at the rate of the average wage


      The state needs to get out of pensions. It has an unfunded – no assets – pension debt of 5,500 bn. 10 times income [taxes]

      Now if you do the sums, and I updated it last week, a median worker would be on around 21K a year (inflation linked) if their NI had gone into the FTSE. OK, they are down from 26K because of the lower stock market.

      So its risky. 21k, or 5K from the state. Which do you want? 5K a year, or 21K a year, with a chance of 26K?

      The reason is no compound interest.

      So the question to ask you, when you say it should go up with wages, who is paying the money and what do they get for their hard earned cash? It’s not services is it?

      1. Mick Anderson
        December 13, 2011

        The problem with pensions is that it is a very long term commitment. A large portion of the population have been paying money in, and it’s only fair to return some of that.

        Why rise in line with wages? That’s because the money that is taken off us is effectively tax (even if you call it NI) which also increases in line with wages.

        I appreciate that it’s an unfunded system, and thus there is no interest to help the repayment. There’s not much I can see that can be done about this, other than put a system in place that will encourage people to make their own provision.

        The cap I suggest of average salary is to put a limit on the massive pensions awarded to senior civil servants (including MPs: sorry JR!)

        However, most people would not achieve that amount. If a helper in a care home would only receive a £4k pension, then so should the corresponding State equivalent. None of the expanded final salary scheme that the Unions are trying to keep. All in the interests of encouraging people to make their own provision.

        However, no matter how you reduce the cost to the state of providing pensions, the cure has to be long-term. That’s a problem for Governments that are only looking as far ahead as the next General Election.

    2. stred
      December 13, 2011

      If only! The public sector and benefit recipients would squeel like stuck pigs. The change to an income tax exemption of 10k is welcome and should simplify the benefit claims at the lower end.

      1. James Clover
        December 13, 2011

        The difficulty with raising the personal allowance to £10000 or some similar figure is that every taxpayer, even the richest, benefits by the same amount. The differential stays the same. In fact, if you earn around the £9000 mark, you would gain less than someone on say £30000.Remember the desperate efforts that Darling made to repair the damage caused by Brown’s removal of the 10p rate. The big beneficiaries were those on higher incomes.

    3. Disaffected
      December 13, 2011

      Spot on.++1

      1. stred
        December 15, 2011

        As a proportion of income tax to total salary, the low earner gains more.
        The French start income tax at higher levels- around 18kE if I remember correctly.

    4. libertarian
      December 13, 2011

      Agree with Mick Anderson

      Pension solution may need a little more work though

      I’d go further on the rate at which income tax starts believing that upto the minimum wage ( currently £6.08 per hour or just under £12k per year) should be exempt from tax

    5. uanime5
      December 13, 2011

      1) Flat tax doesn’t work when there’s a high level of income disparity. progressive taxes are much fairer.

      2) What is the benefit of this? Other than losing money from companies that can’t outsource.

      3) If you want to end child poverty you have to continue to pay for children. I do favour a cut off point to prevent mother from having children for the sake of welfare.

      4) Tax cuts that mainly benefit the rich won’t be popular with regular people.

      5) This will be a nightmare to determine, as the income of everyone in this area will be constantly fluctuating. Also the levels of tax you’re proposing are too high for people on low incomes, so if they can’t get tax credits they won’t be able to afford to work.

      6) Unless you can magically create enough jobs for everyone this won’t work. All it will do is increase homelessness and crime.

      7) What’s the private sector equivalent of a police officer, judge, social worker, or MP? If there isn’t one then this idea won’t work.

      8) What happens if people can’t make their own provisions because of the lack of jobs available?

      9) Illegal under European law. Also if you don’t give criminals benefits they’ll just go back into crime (a criminal record bars you from most jobs).

      10) No chance of this every being approved.

      Those who contribute to the system should be thankful they have a job and should stop bullying those who are unable to find work.

      1. sjb
        December 14, 2011

        I think there is a good case to make social workers independent contractors.

    6. Reaguns
      December 15, 2011

      Good ideas, number 10 in particular would solve many problems in one fell swoop.
      I would also suggest that the party in government not be allowed to stand for the election.

  5. Mike Stallard
    December 13, 2011

    OK, so I am one of the Venerable aged 72.

    Allow me to make some points.

    We are broke. So it is not a matter of how much but of how little I can get by on.

    Every time a hand out is decided upon by the open handed (with our taxes) government, a small army of ignorant, lazy and callous bureaucrats is employed with ridiculous salaries and even more ridiculous titles to “adminitser” it.

    A lot – and I mean a lot – of people pretend to be Venerable when they aren’t.

    We are spending a very great deal of the tax money on the Venerable at the moment and it is time that we got less and stopped being jealous of people who have spent their lives amassing much more than they, or their several wives, need.

    I could say more, but leave that to the others.

  6. Pete the Bike
    December 13, 2011

    A flat rate tax is best, always. 20% would be just about reasonable. It would have the advantage of increasing overall revenue and also of limiting the governments intrusion into our lives. Together with a withdrawal from the EU and a reduction in all other taxes especially corporation tax it would draw business investment from both the EU and every other continent.

    1. Mike Stallard
      December 13, 2011

      I really would like to underline the sentiments expressed in this post.

      I am not R2D2, by the way!

    2. uanime5
      December 13, 2011

      A 20% flat tax rate would cause a massive reduction in tax revenues.

      Unless corporate tax is reduced to 0% or less the UK won’t be able to draw in investment.

    3. David Price
      December 14, 2011

      Agree with this – I favour a low flat tax with a reduction in special cases and increased enforcement. Aim for 20% or less and to reduce it whenever possible alongside a reduction in public sector and benefits costs.

  7. lifelogic
    December 13, 2011

    If we want growth the UK needs to stop worshipping the forced equality god and stop distributing money from the hard working to the feckless.

    The basic problem in the UK tax/benefit system is that with benefits, assistance with rent, council tax or with tax credits for the working then people (certainly with young children at least) are hardly any better of at all. Even those earning up to £60,000 joint income are not. The working also have addition costs of child care, travel, lunches, clothes, and less time to shop efficiently.

    Employers can also not give much incentive to encourage over time or encourage working harder due to the fact that the money they offer nearly all goes in tax or loss of benefits. People do not mind loosing their jobs as it often cost them little so they often do not try to keep them.

    You need a real incentive for people to work over and above the many costs incurred in working (which are usually not even tax allowable). If you can only get a low paid job even £30,000+ it often is far better to have the extra time than perhaps have just an extra £20 per week after your travel & work cost.

    After all you can probably save £20 by for example doing a bit of DIY, selling something on ebay, fixing your own bike/car, shopping more efficiently, growing your own veg or cooking better with your extra 40+ hours , helping a friend with a bit of barter or practising your guitar for you band performance at the weekend.

    So far there has been no movement at all to increase this “incentive to work” that I have noticed. Why not after 18+ month?

    I do not blame the unemployed much I blame the system. The people are just behaving logically, given the absurd system G Brown put in place.

    1. lifelogic
      December 13, 2011

      Clearly in the south east, if you are paying say £25,000 pa in rent or mortgage interest for a small house you are not going to be very rich even earning £100,000. After losing perhaps £48,000 in NI, tax, council tax and pension contributions it just leaves £27,000 to run a car pay V.E. Duty, fuel, get to work, heat, light, food, drink, water, prescriptions, repairs, insurance for you, your wife and say three children.

      I would reduce taxes and shift to consumption rather than income at low income levels. At the upper earnings a 35% marginal rate is quite enough with the 20% VAT in force too. It is government waste that needs cutting, everywhere. Fire one in two now they will be happier doing something more constructive anyway. Start with those compiling the absurd happiness index,
      working on HS2, the jumped up sports day in 2005, the green deal, half the politicians (at all levels), the Equality and Human Rights Commission and all the rest of the nonsense.

      1. Bazman
        December 13, 2011

        Happier doing something more constructive anyway? Like being on the dole and losing their house whilst increasing the taxes on consumption of that person with no earned income? I presume this would be in tandem with a cut in benefits to ‘incentivise” them to get a job to look after their four children. You really are in wonderland aren’t you?

      2. uanime5
        December 13, 2011

        Do you also want half the teachers, doctors, nurses, social workers, police officers, judges, and fire fighters to be fired? If not then reducing the public sector by half will be difficult.

      3. Bazman
        December 14, 2011

        In the last three months, another 128,000 people have lost their jobs or been unable to find work. It’s the highest jobless rate since current records began in 1992. As a result of austerity measures, the public sector has been among the hardest hit with 67,000 job losses. The private sector hasn’t been picking up the slack either, creating just 5,000 new jobs over the same period. If this wasn’t alarming enough, youth unemployment just keeps on climbing. In the last three months to November, the number of 16-24-year-olds out of work hit 22%, up from 20.8% in the preceding quarter.
        That will be to do with over regulation and taxation? What in the last few months?
        Dream on.

    2. Bazman
      December 13, 2011

      You see 30k as a low paid job?

    3. James Clover
      December 13, 2011

      There is also a belief that someone on benefits of say £10000 will go to work for £11000.Remember, the jobs they are likely to do will be boring or unpleasant, may require working at night, may be tiring or even dangerous. Who in their right minds is going to haul themselves out of bed on a cold winter’s morning for a few pounds extra a week? Only self-sacrificing heroes.

      1. Winston Smith
        December 14, 2011

        This is the crunch. People who work on the various State back to work programmes are told to tell the unemployed “working is good for you” in response to the familiar, ” if I work I lose my benefits and the wages on offer are not much higher than I get from the State”.

    4. uanime5
      December 13, 2011

      “If we want growth the UK needs to stop worshipping the forced equality god and stop distributing money from the hard working to the feckless. ”

      If you stop giving money to the 2.6 million unemployed people expect a major increase in crime. These people won’t suddenly disappear just because you don’t like them.

      “The working also have addition costs of child care, travel, lunches, clothes, and less time to shop efficiently.”

      Those who aren’t working also have to pay for travel and clothes. Thanks to lunch breaks, weekends, and internet shopping you can shop efficiently even if you work.

      “Employers can also not give much incentive to encourage over time or encourage working harder due to the fact that the money they offer nearly all goes in tax or loss of benefits.”

      Well the employer could always hire more people, rather than expect their existing staff to work overtime. That would reduce unemployment.

      “People do not mind loosing their jobs as it often cost them little so they often do not try to keep them.”

      That’s because minimum wage is too low.

      “If you can only get a low paid job even £30,000+ it often is far better to have the extra time than perhaps have just an extra £20 per week after your travel & work cost. ”

      £30,000+ isn’t low paid. The median salary is only £26,000.

      “So far there has been no movement at all to increase this “incentive to work” that I have noticed. ”

      There’s the Work Programme which is officially meant to help people into work, but all it does is remove people from the unemployment register for 2 year. It doesn’t work because there aren’t enough jobs available and sending people on a pointless course doesn’t magically make them more employable.

      “I do not blame the unemployed much I blame the system.”

      The lack of opportunities also plays a part. If there aren’t enough jobs available then some people are always going to remain unemployed.

      1. Winston Smith
        December 14, 2011

        How do you explain the 4m jobs taken by recent immigrants?

        1. Bazman
          December 14, 2011

          I have explained this many times. They are often the young desperate middle classes of that country here for adventure. Or just desperate..

        2. sjb
          December 14, 2011

          Foreign workers may be more willing to be underhoused than a Brit – e.g. if they are used to living in cramped conditions such as exist in former Iron Curtain countries. The higher the price of property the greater the foreign worker’s advantage in the labour market, hence why London and the South-East are such attractive destinations.

          As I understand it, most young foreign workers are not immigrants because they have no intention to reside here permanently – they just want to make enough money to get a good start in life when they return home.

          Assuming your 4m figure is correct, is it fair to say but for foreign workers these jobs would all have been taken by Brits? For example, the woman professional may be prepared to entrust her child to a Czech nanny but not a young British girl from the ‘Waynetta’ class.

          1. Bazman
            December 16, 2011

            Five to car. Five to room. Living on communal food. Ram it. And quite rightly say British unemployed adults!

  8. JimF
    December 13, 2011

    How much more tax should someone on £100,000 a year pay compared with someone on £30,000?
    Total income tax around 20% in each case at over 30 years old. Below that age, no income tax until £40’000 then 20% to give young people a start.

    Should benefits only be paid to people on lower incomes?
    Yes, then people paid more can choose whether to insure themselves or not.

  9. Fraser a
    December 13, 2011

    A progressive tax system Is necessarily discriminatory. This creates a virtue out of certain levels I income and penalises others. For example a couple who each earn 45k will clear more than a single income family where the breadwinner earns 100k. Furthermore each additional pound they warn will be taxed at 42 percent and 62 percent respectively. Similarly the gulf between basic rate taxpayers who face a marginal rate of 32 percent is not as pronounced from higher rate at 42 percent as the headline rates make out. Fairness in a tax system is unachievable unless all have the same rates of tax. As soon as you tinker through the use of graduated tax bands you differentiate between groups and intorduce a contrived version of fairness.

    With that as the starting point politicians are able to doctor the gradation to favour their focus groups. It always amazes me how little politicians focus on net monthly income as fr the electorate this is the key reference point for how wealthy someone is. For most employed people this has been falling in nominal and real terms yet for the recipients of welfare have been protected. No attempt should be made to disguise this as fair. It is reallocation according to politicians whim.

  10. CMLloyd
    December 13, 2011

    – 25% flat rate of tax above £15000
    – VAT at 10%
    – Scrap child benefit
    – Benefits to be paid in vouchers (no cash) to UK passport holders only
    – No stamp duty
    – No inheritance tax
    – Get rid of half of local government / tax office / Quangos / Whitehall / MPs to fund it

    1. Mike Stallard
      December 13, 2011

      Here in Wisbech, Cambs, we are being treated (Conservative Council) to a brand new, state of the art Council Offices which will provide a mass of Officials to bring the economy back to life!!!! (Hooray???)

    2. uanime5
      December 13, 2011

      They tried paying people in vouchers in the USA. They found that people would sell these voucher for money.

  11. Javelin
    December 13, 2011

    I would like to see more use of ratios between front line jobs (ie delivering the public service) and non jobs and management. This should be done by looking at

    Total head count / (management grades+non service management jobs)

    *where non service means – in the NHS count doctors, nurses, care helpers and cleaners. If a matron becomes a ward manager then she moves into the non-jobs group.

    If each branch of Government agreed what their service was then we could have a simple measure of how efficient each part of Government as as a simple number.

    1. StevenL
      December 13, 2011

      I’m sorry Javelin, this just wouldn’t work. Either sir Humphrey or the directors of your local council / quango would be the ones classifying everything and calculating it. They would just cook the books.

  12. alan jutson
    December 13, 2011

    Can I come at this from a different angle.

    If you are going to stick with a minimum wage level, then this should be the starting rate for income tax. No one on the minimum wage should be paying income tax.

    I have no problem with a stepped income tax rate say 10% for the first tranch, and increasing by set amounts up to a maximum of 40% which should include the National Insurance element (so you always keep the majority of your earnings).

    The alternative is a more simple sensible flat rate tax system.

    All Benefits should be added to any income to form a real gross personal income, and this amount should be taxed accordingly.

    All individuals should have the same initial tax free allowance.

    Child benefit if retained, should be for the first two children only.

    The total sum of all Benefits should be capped to the net average national wage.

    The Government should be legally bound not to spend more than the previous years tax take on anything, other than a war to defend our Country. In order to avoid going into year on year debt/deficit.

    I do believe there is a case for scrapping means tested benefits, if you are going to include any Benefit amount within gross earnings which would then be taxed accordingly.

    The State National Pension should be set (as a minimum) at the minimum wage level, providing you have a full contribution/work record (allowance made for women bringing up children)

    Time excludes me from giving urther examples, but our present tax system is far, far too complicated and needs to be simplified, there are hundreds of examples where savings could be made.

  13. Steve Cox
    December 13, 2011

    I object to the Left once again having corrupted our language by associating useful words with their pet Socialist projects. Whenever I read an article discussing the ‘progressive’ and ‘regressive’ aspects of a particular policy I often fail to follow their logic because my understanding of those two words does not accord with the way that the left-wing media uses them. Some years back, I realised that there is a simple way around this. Whenever I read an article thumping the Socialist tub about progressive measures, you do the following:

    1) Wherever you see the word ‘progressive’, replace it with the word ‘destructive’.
    2) Wherever you see the word ‘regressive’, replace it with the word ‘progressive’.

    Now read the article again, and in most cases all will become clear.

    1. Onus Probandy
      December 13, 2011

      “Progressive” I think is reasonable in the sense it is used with a tax system. If the marginal taxation rate increases with income, then it is indeed progressive; and having a word to describe such a system is very useful. There is no moral judgement in this sense, it is simply descriptive. I don’t think anyone has ever done it, but a “regressive” tax system would therefore be one that reduces marginal rates with income. Again, entirely without judgement, simply using these words in their mathematical senses.

      The problems you highlight came about when the left made a value judgement: progressive taxation is good; therefore progressive is good, the opposite of progressive is regressive. Regressive is bad. The original, valid, use of progressive is thus utterly corrupt.

      1. Steve Cox
        December 13, 2011

        I think you are oversimplifying matters. Truly progressive (i.e. destructive) tax systems result in wealth creators either dodging the system to else leaving it altogether. Many economists and not just a few politicians believe that a ‘flat’ income tax system would serve an economy best. As far as your definition of a regressive tax system goes, well presumably you are familiar with the famous statement from Warren Buffet? Perhaps a regressive tax system (i.e. a progressive one) has some virtues, even if like many rich elderly folk Buffet has become a left-leaner? I’ve never seen any analysis of the possibility, but it would be one hell of an incentive to succeed!

    2. lifelogic
      December 13, 2011

      I agree fully control of the language destroys logic that is what the BBC and similar have done. It used to be a complement to be discriminating now it is a term of abuse for anyone who has not been infected by “BBC think”. Progressive and regressive now absurd expressions rather like “falling pregnant”. Squatters as some sort of folk hero to the BBC.

      Progressive, equitable, equality, discrimination, rights, sustainable, integrated, regressive, green have all been distorted and abused. As an example “Environmental” now seems to mean thousands of pointless bird/bat killing, noisy, expensive and often non working wind farms all over the British countryside.

    3. uanime5
      December 14, 2011

      So you don’t want to process into the 22nd century but want to regress to the 19th century?

  14. Brian Tomkinson
    December 13, 2011

    Will we ever see any real change whilst we have politicians who want to “buy” votes via the tax and benefits system? Start with a clean sheet of paper and list those activities that it is essential that the government provide from taxation. It should be a very short list. Stop thinking that government can spend other people’s money better than they can themselves – it isn’t your money. Encourage enterprise and discourage envy. Stop pretending that the government can solve all problems – it cannot nor should it.

    1. lifelogic
      December 13, 2011

      I think, beyond the essentials of law and order and defence, governments spend money no better than half as well as the people would directly. With gov. exp. of 50% of GDP sorting that alone might make every one about 20% better off and industry 20% more competitive in world terms.

    2. uanime5
      December 13, 2011

      We will never ever see any real change whilst we have politicians who want the rich to ‘donate’ money to them in exchange for favourable regulations.

  15. Bob
    December 13, 2011

    The answers to all your questions are available on-line at the UKIP website.
    It boils down to a simplified flat tax at around 3o%, NI phased out, £11,500 tax free allowance, and less tax breaks for top earners on their pension funds to offset their tax savings on the marginal rates.

    No need to re-invent the wheel, just cut and paste in into the Tory manifesto – job done.

    1. David Price
      December 13, 2011

      So UKIP want someone drawing a pension to pay 50% more in tax?

      1. Bob
        December 13, 2011

        Just read it. Then comment.

        1. David Price
          December 14, 2011

          Bear in mind you can be drawing a pension before reaching state retirement age. There are probably quite a few in that situation now given the extent of redundancies over the last 10 years in the private sector.

          It doesn’t say what it would do about taxes on pensions which is no confidence booster whatsoever considering how politicians just love to play games with the small print (Cameron/Hague & the referendum issue for example)

          It does say it would get rid of the PPF but doesn’t say what it will replace it with, if anything at all. Considering the utter lack of control the government has had over companies bending and breaking the rules I would vote against UKIP for that policy alone.

          1. Bob
            December 14, 2011

            @David P
            Why do you think that the tax liability on early draw down would be worse that it currently is?

            The collapse of private pensions can be attributed to a combination of the plundering by Brown, contribution holidays, and FRS17. As companies are forced to top up their funds it reduces their value, and as their share prices reduce so the pension funds holding their shares need more topping up, a vicious circle. The PPF was a hastily cobbled together sticking plaster solution when what was really needed was a firewall to stop the government dipping their fingers in whenever they feel like it, because all of the actuarial projections were based on the dividend tax credits being in place.

            The pension rules are far too complex, and unnecessarily so. We need a bonfire of the legislation and give people the freedom to save for their old age in a IPA (Individual Pension Account), instead of having new pensions each time you move jobs.

  16. Javelin
    December 13, 2011

    Its all about respinsibility. I think those on benefits ought to be paid depending on where they live. Costs around the country vary. It should be somewhere between survival and uncomfortable for those who can work. Their children should just about not be uncomfortable. The Government has a responsibility to tax payers not to pay to much. The unemployed have a responsibility to get a job.

    The Government also need to take responsibilty to their subjects not to flood the country with cheap labour. The statistics are hugely damning on both Labour and Conservatives that they have let so many immigrants take jobs from young workers. Truly damning.

    1. uanime5
      December 13, 2011

      If the unemployed have a responsibility to get a job do employers have a responsibility to provide jobs?

      I agree with you about immigrants. 140,000 per year is too many. The Conservatives should fulfil their promise of reducing it to a few thousand.

    2. zorro
      December 13, 2011

      Indeed, very damning…..Continuing intake of 500,000+ long term migrants is unsustainable, particularly when emigrant numbers are falling. The social costs in benefits and extra infrastructure are massive and not properly taken into account st a strategic level.


  17. AVI
    December 13, 2011

    Universal benefits are far, far cheaper to administer than means-tested ones.

    Simplest benefits / taxation level solution is to:
    – have a tax threshold of zero
    – pay a “Citizen’s Income” (or call it what you will) of whatever we think is a minimum living amount – let’s say £10k per year (£192/week) – to anyone over the age of 16 (or your choice)

    For those with full jobs, this is in effect their tax-free allowance. It doesn’t make any difference to these folk whether you give them no benefits but have a tax-free allowance as currently, and as many above propose; but it is administratively far simpler to tax everyone from their first pound, and give everyone this “Living Allowance”. Of course, you needn’t actually give this payment to those with jobs, but merely make an adjustment via their tax code if you preferred.

    The tax rate from the first pound upwards I would suggest should be a ‘flat tax’ (or a maximum of two bands, if we have to give some concession to the Guardian screaming about higher earners in order to get these measures through).
    There should be no other income tax, or NI.
    VAT is pointless, as is the licence fee.
    And no corporation tax, either – since the effects of this are lately borne by the workers in the form of lower wages, and the customers in the form of higher prices anyway.

    Of course, we really should go the whole hog and scrap income tax too, replacing it with a “Land Value Tax” (pick your name to suit, again); but I can’t see that getting through just yet, so the above would suffice.

    Whatever the system, provided it is clear and simple, there are fewer chances to evade, fewer loopholes to play, and it requires far, far fewer people and resources to administer.

    1. sm
      December 13, 2011

      Some excellent ideas – It would really simplify the bureaucratic machine somewhat. The one problem would be housing costs being so large in relation to an income.

      I think a flat tax at 30-35% in conjunction with a general anti avoidance rule (GARR) would work well. The flat tax could be ratcheted up or down in a counter cyclical fashion.

      How to get there.

      Tax differentials should be reduced to complement a GARR
      1) tax rates for employees & self employment should be the same.
      2)Make capital gains taxation similar to income tax rates with only one personal allowance used against either gain or income.

      Council Tax should be abolished and replaced by hypothecation of central taxation to Council on a per capita basis/needs basis. This would end massive disparities in council tax levels.It would save administration and probably court time and form filling at local levels. It would also encourage low paid work.

  18. HackneyHal
    December 13, 2011

    Means-testing benefits seems an obvious and fair think to do but it is open to abuse. One obvious example is those who have passed their wealth on to their children via trusts and so on while they are still alive (or just spent it all) and so qualify for government assisatnce in funding care costs, whereas those potentiall less “wealthy” people who have reatined a small amount of savings have to pay for care entirely themselves. In this instance a universal benefit might be better, but of course vastly more expensive. A comprehensive review of inheritance tax might be the answer.

    I think you need to define what you mean by “progressive” – a flat tax is still “progressive” in that the rich pay more than the poor.

  19. David in Kent
    December 13, 2011

    What I notice, now I’m 67 and thinking of retiring, is that the after tax income I had while I was working full time is not enough to allow me to put away money for my retirement.
    I know I can shelter retirement funds from tax but then both the government and the Life companies have some control over them.
    The Life companies have already demonstrated their rapaciousness. Now times are tough the government is inflating away my wealth and will not hesitate to take it openly.
    It is only my tax-paid money I can depend upon.

  20. Nick
    December 13, 2011

    1. When the government talks about needing growth, it means growth in taxes. It needs more money from you to pay its debts. Primarily the Enron debts it has Bernie Maddoffed off the books. Straight fraud. Pure and simple

    2. To get growth, you need investment that generates a positive return. More cash or savings than the debt payments on the upfront money.

    So HS2 doesn’t work. The debt payments are more than the ticket sales. It has a negative return.

    So I would abolish CGT on investments in companies.

    Stop the state pension system. No more accruals. You have to save. That generates lots of money for investment. Given that people will get more in the end, its unlikely that safety nets are needed. So we can have a simple safety net. If and when the fund runs out in retirement, then everyone will help. At that point we buy an annuity for you for the minimum income guarantee. Give you are older, its cheaper. If we buy the annuity, its a done deal. No admin from the government.

  21. waramess
    December 13, 2011

    This is just about as loaded as any question gets. Who should suffer the greatest pain? Why should there be any pain?

    Forget the tax structure and push the government to do it’s job and slim down. There is so much waste in government and money spent wastefully there should be no talk of who should suffer the greatest burden.

    Why should we suggest new tax structures when all the governments will do is to waste the proceeds.

    If all elected MP’s are indeed all thinking in the same way then god help us all.

    Tax the rich and reward the indolent. Great. The rich are the people who create employment in one way or another and the indolent are the people who destroy it.

    Let’s get a bit of sense over-riding the socialist mush and allow the poor no more than a subsistence handout from the public purse in order that they may be goaded into bettering their lives and allow the government to shrink to a size more becoming a bunch of administrators.

    Then we may achieve growth, more jobs and less poverty.

    1. uanime5
      December 13, 2011

      Many people who create employment aren’t rich, such as those who run SME.

      Also fewer government jobs means more unemployment and poverty.

  22. Rebecca Hanson
    December 13, 2011

    Being originally from Longbenton, I’ve had the benefit of many long conversations on this subject over the years with the people who actually run and direct the benefits systems.

    I remember one in particular, from about 1997, with a recently retired direct of ICT there about why people shouldn’t just have a single account for income and tax – along the lines of the sytem proposed by this government. It was my view that at that time ICT had become sufficiently well advanced to create an infrastructure for this.

    He explained in detail that the problem was not ICT infrastructure, it was the complexity of the way society constructs itself. Who is an individual, who is part of a family and who is part of a household? Why can one person cope on a particular income while another cannot in very similar circumstances? What should be the consequences when people do not cope?

    To assume a rational and fully objective system is to make the kind of mistakes Matthew Hancock & Nadhim Zahawi warn so strongly against in ‘Masters of Nothing’.

    Personally I’m in favour of a flatter society (I support the measures taken by this government to raise the tax threshold and to provide nursery places for the 2 year olds in families which can’t afford them) and greater taxation of the rich within Warren Buffet style thinking.

    I’m also (as you may have noticed) a strong supporter of using communication technology to ensure that all have a greater connection with and input into the society they are part of. In society we try to internalise the wisdom we have acquired into our laws and taxation structures. Protection against poverty and the reality that connection and engagement with society and personal philanthropy (related to the personal giving of time and skills) are more fulfilling that excessive materialistic consumption are learnings which should be part of the system.

    Once we have enough money there are much, much more important drivers of happiness than money. It makes me sad that there are people who waste a lot of their lives not realising this

    But whatever you decide please make sure you chat to the people who understand and run the systems.

    1. Rebecca Hanson
      December 13, 2011

      Director not direct….

      Perhaps it might be useful to say that the benefits system is currently a collection of benefits which address different situations people find themselves in.

      It’s plausible but not correct to think that the whole individual can be rationally constructed from the parts these benefits/situations represent.

      If you want to swap to a system constructed around individuals you need to assess individuals instead of testing individuals against pre-specified criteria and that would be very different and costly process compared to the current system. It’s not unthinkable but, among other problems, it requires a degree of judgment from the assessor and this is notoriously difficult to deliver efficiently as people are swayed by the plights of those in front of them.

    2. Reaguns
      December 15, 2011

      Longbenton eh? I can assure you I’m one of the people who “understand the systems.”
      I think there are, what, 15,000 people working there on various IT and benefit systems? There are projects there with 600 people working on them, that could be handled by approx 30-40 people in the private sector, therefore about 750 to 1000 private sector workers could do this work, even at its current level of complexity with all its different rates and rules.

      If you had simpler rules, ie flat tax, then you would only need about 1 tenth of that. The place was packed with admin staff, project management staff, and legions of middle managers. Of course you need some of these staff, but not that many.

      You sound like you have sipped too much Kool-aid to recognise this and discuss it rationally therefore I’m going to stop doing so and end with:

      If the government had paid contractors to build an equivalent sized hole beside longbenton, use JCBs to shovel taxpayer money into that hole and burn it as quick as they could, I think they would have wasted less money than the civil servants and american IT contractors at Longbenton.

  23. A different Simon
    December 13, 2011

    It’s a myth that this money is being transferred from median earners to the poor .

    It almost all boils down to corporate welfarism and indirectly transfering money from median earners to the rich via the poor :-

    – Housing benefit was an example of helping the BTL’ers .

    – Restricting planning permission to benefit the banks through interest on oversize loans , land owners and BTL’ers .

    – Lack of regulation of energy retailing to enable the cartel to generate an excessive amount of money for doing virtually nothing .

    – Absence of a pension scheme for private sector workers in order to force them into the clutches of the financial services industry .

    – ICT visa scheme to subsidise transnational corporations for bringing over cheap foreign labour and making Brits redundant .

    1. A different Simon
      December 13, 2011

      – ZIRP to dig the banks out

      The list of corporate welfarism and favouring the haves at the expense of those just starting out with nothing is almost endless .

      If measures were taken to stop profiteering on the essentials (accomodation , food , energy) then modest wages would be adequate .

  24. Mazz
    December 13, 2011

    It is not the beneficiaries’ fault that they are given money by the State, it is the Government’s system that is all to cock. Without knowing the in’s and out’s of their complicated tax system, all I can say to the Government is, KISS. … If only …

  25. Electro-Kevin
    December 13, 2011

    Of course it wasn’t right to raise benefits faster than pay. It’s caused a lot of dismay among workers – especially those on low pay who are mocked for being stupid enough to go to work.

    Here is my suggestion (before we consider the application of universal benefits):

    There are plenty of jobs that British workers should be doing but aren’t. Regardless of the rights or wrongs of it, each immigrant worker is being subsidised by the UK taxpayer to the tune of all of the costs of one unemployed person.

    The taxpayer also has to fund the costs of extra social, educational, housing, medical and infrastructure provision.

    Immigrant labour is NOT cheap. It may be cost efficient at the point of employment but certainly not by the time the total costs reach the taxpayer.

    There is no need as yet to be considering the redistribution wealth through the re-jigging of taxes – especially when this most basic problem of UK unemployment lingers. Progressive taxation is easily averted by clever accounting or worse: by relocation to outside of the UK whereby all of that person’s tax is lost to the Treasury.

    We need to get our own people working again. They need to be better disciplined and motivated.

    This will be good for rebuilding our society and remotivating our people. It will also be good for our deficit.

    Don’t subsidise welfare. Subsidise minimum wage instead. Pass the savings in welfare on to businesses to reinvigorate them. (Get rid of high street parking charges while you’re at it too btw)

    One thing is for certain: We simply cannot afford to go on as we are.

    1. zorro
      December 13, 2011

      Agreed as above….


  26. NickW
    December 13, 2011

    The left deliberately confuses tax rates with tax amounts, with the statement, “The rich should pay more tax”. This usually means that everybody thinks that it is right for the rich to pay tax at a higher rate than the poor.

    20% of £100,000 is more than 20% of £20,000, without having to change the rates.

    I can’t help feeling that a reasonable flat rate tax system would actually raise more money than the horrible system we already have, with huge savings on Government manpower.

    As tax rates become higher avoidance becomes more and more worthwhile, whereas with a fair flat rate system, far more people would simply just pay up. The ultimate avoidance is to emigrate, which loses the Country both revenue and high level professional skills.

    One of the reasons behind obscene bonus payments is a confiscatory tax rate, which the employer takes into account when the bonus is calculated. As taxation goes up the gross amount of bonus rises too, thereby increasing the calls for “More taxation”.

    Governments are no different to most people; if they have money in their pocket, they will spend it; usually unwisely.

    1. Electro-Kevin
      December 13, 2011

      Nicely put, Nick.

    2. uanime5
      December 13, 2011

      The problems with bonuses can be resolved by restricting bonuses to 25% of income, along with high rates of tax for higher incomes.

  27. Single Acts
    December 13, 2011

    Why not introduce freedom for a change and do away with the violent compulsion?

    Simply allow people to pay the tax they choose? If government is so great and valuable you should have no trouble with voluntary subscription.

    1. Onus Probandy
      December 13, 2011

      I’m no fan of large government, but this idea wouldn’t work.

      The parable, “the tragedy of the commons” will tell you why.

  28. David John Wilson
    December 13, 2011

    A lot of the universal benefits which are currently being criticized could quite easily be controlled without introducing means testing. For example the free television licences and winter fuel allowances that are given to those who don’t need them should be subject to income tax. Although in my view the fuel allowances should be completely dropped and replaced by a higher old age pension of about ten pounds extra a week during the winter months. This would have the adantage that they would be much more likely to be used for the purpose intended rather than blown on Christmas presents.

    1. Tom William
      December 13, 2011

      As a pensioner, I entirely agree.

  29. George Stewart
    December 13, 2011

    Fair share? Good topic….

    First, the tax system at the starter end should take into consideration all household income with an effective exemption multiplied by number of people in the household.

    So if an individual allowance is £8,105 and we have a couple with two children, the household should be able to have £32,420 of annual income without income tax. This action would reduce the need for child benefit and would allow its elimination.

    The base allowance should be large enough so that it effectively covers whats needed for a basic existence.

    Money should only be taxed once, ergo the dividend tax credit is right and proper yet it should be refundable. Or in the alternative eliminate corporate rate of tax.

    Benefits of any sort, should only be payable to British nationals.

    It is absurd that the 50% tax rate applies equally to £150,000 or £15,000,000 of income! The tax rate tables need to be shaken up with lowering at the £150,000 end and increasing at some higher end.

    Petrol prices at the pump need to be based without tax and then the tax should be added in at point of sale.

    VAT should not be embedded but should be paid separately at point of sale.

    Payment of benefits should not be means tested rather they should have a lifetime limit on either amount or total time received.

  30. Antisthenes
    December 13, 2011

    The first thing to do is to legalise drugs and prostitution and bring them into the tax system. That would have a cost benefit need less policing and a revenue benefit from a large taxable market. I can already hear the howls of moral indignation but I say if you can’t beat the problem which we can’t then join it and screw benefit out of it. Next to rely less on taxes from earned and productive income and perhaps introduce LVT as a means of reducing these taxes. Most importantly us and the rest of the West have been running two economic systems in parallel since the end of WWII which are diametrically opposed capitalism and socialism. The result has been erosion of competitiveness and misaligned investment reduce socialism and increase capitalism and the competitive field in trade will start to level out.

    1. sjb
      December 13, 2011

      Profits from prostitution are already liable to income tax: see CIR v Aken [1990] 63TC395

    2. norman
      December 13, 2011

      Can I be the first to howl indignantly?

      Please do not legalise drugs. (sentence missed out-ed)

      I can just imagine it ‘No, you’ve had your quota for this week’ or ‘we’ve decided that this certain strand hasn’t passed enough lab tests so are withdrawing it’ or ‘I’m announcing an increase of inflation plus 5% on all cannabanoids from 2014 until at least 2020’.

  31. Onus Probandy
    December 13, 2011

    I would favour this system: take all tax revenue subtract the minimum we want the state to do; divide by the number of citizens. Pay each citizen that sum as a citizen’s income. Remove all other benefits. In particular: the tax free allowance on pay, as we have effectively moved that to the citizen’s income payment.

    Having a tax free component automatically creates a progressive system, since the overall rate paid is different from the marginal rate because of the tax free part (plot the graph, it’s a curve tending asymptotically toward the marginal rate). The citizen’s income payment therefore automatically sorts out progressive tax, so you can safely set the marginal rate to be a single flat tax number. Suddenly taxation is simple.

    Given that every citizen receives that income, you now have a lot of scope to raise the actual tax rate. That would in turn raise the citizen’s income and in turn make the curve more progressive.

    There would then be no need to hand out any job seeker’s allowance, pensions, housing benefit (or even supply an NHS if you were brave enough to slaughter that sacred cow); and you would simplify government significantly (the DWP could be shut instantly and HMRC could be replaced with a web page). Every pound earned would be worth the same regardless of individual circumstances, since there would be no means testing; and hence no disincentive to work for the unemployed.

    There would be no need for a minimum wage, since the citizen’s income takes on that role, and so no disincentive for employers to create jobs.

    Obviously in my grand simplification I’d roll national insurance, income tax, and employers national insurance together to get that one flat rate.

    The politicians can tinker with the exact details of citizen’s income distribution (say by age), and the flat tax rate, and the income amount… so you’d all still have jobs ;-).

    If I were getting all my wishes, then I’d move to land value tax; but that’s a considerably harder sell to the average “home is my castle” brit.

  32. De Recardo
    December 13, 2011

    t is a common misconception that welfare spending soared under New Labour. In fact, the Brown government left office with overall spending at 7.26 per cent of GDP, down from the 11.3 per cent average of the Thatcher-Major years.

    One notable trend that continued under Labour was the decline in value of unemployment benefit relative to earnings. In 1970, unemployment benefit rates (£5) represented 19.2 per cent of average weekly earnings (£26.10). But the Conservative Party chose to raise benefits in line solely with prices from 1980 onwards, with the result that the replacement rate (the percentage of an old wage that a new benefit replaces) fell to 16.6 per cent in 1985. First John Major, and then Tony Blair, stuck with the policy change and benefit rates fell to 13.8 per cent in 1995 and to 12.2 per cent in 2000.

    Today, Jobseeker’s Allowance (currently £65.45 a week for a single person aged 25 or over) is worth just 10.9 per cent of average weekly earnings (£600.90).

    1. Winston Smith
      December 14, 2011

      Usual Leftist manipulationof statistics. Labour introduced a host of other benefits in addition to the basic unemployment benefit. Cumulatively, the burden on the taxpayer is much higher. Additionally, Labour encouraged the unemployed and workshy to move to Disability benefit, where the payments are higher. Its the same con as keeping income tax low, whilst ranking up NI and introducing 70+ stealth taxes. Then there is the hidden cost of providing free services to benefit claimants such as free bus travel in London.

  33. Tedgo
    December 13, 2011

    My tax approach would be,

    1) Do away with employee national insurance, this would get rid of the “I have paid my NI all my life so I am entitled to ….”.

    2) Have a flat rate income tax, probably about 32%.

    3) Do away with the tax free allowance and replace it with a tax free sum, say about £5000. In effect you would not have to pay any income tax until the tax due is greater than £5000.

    This means everyone has the same tax free allowance. Currently people with capital gains have an additional income allowance whereas the little old pensioner with meager saving does not. Although I advocate a flat tax, the current tax free allowance is also more valuable to people on the higher rates of tax.

    4) Everyone has the tax free allowance, so if you don’t work you still get the £5000. This is fair to people who look after their children or elderly parents, do charity work or cannot find a job.

    It works like this, add up your total income and multiply by 32%. They deduct £5000. If the result is positive that goes to the tax man, if its negative then the taxman pays it to you.

    5) There would be no other unemployment benefit, nor any universal child benefit. Having children is a lifestyle decision in an over populated country/world.

    6) Any other benefits would be means tested, and limited on a household basis, to 80% of the national average wage.

    7) Pensioners would have a tax free sum of £7000.

    1. Tedgo
      December 13, 2011

      ps This scheme has the advantage that you always get to keep 68% of what you earn in the way of work or additional pension. That is it always pays to work and save for a pension.

    2. Tedgo
      December 13, 2011

      pps Additionally,

      8 ) As to VAT I would do away with it and replace it with sales tax at the point of sale to the public. This does away with VAT thrashing which effects business cash flow.

      9) While the tax free sum would apply to everyone’s income, the negative aspect, that is to people who don’t work etc, would only be available to British citizens.

  34. Brian A
    December 13, 2011

    In economic terms the notion that higher earners should pay a higher tax rate on some of their income is based largely on a Keynesian myth regarding the propensity of higher earner to save, although, of course, big government and class war play their part in the political desire for tax maximisation and income redistribution. The myth was comprehensively debunked by Friedman who analysed the available data and deduced that it was untrue. However, there is a more fundamental objection to higher rate tax bands articulated by Hayek, namely, that for the majority to impose on higher earners a tax rate that they themselves are exempted from is undemocratic and undermines democracy itself as the majority will usually be happy to see the rich minority squeezed harder at no apparent cost to themselves. The fairest approach is therefore a flat tax that applies to all.

    1. uanime5
      December 13, 2011

      It goes against the principles of a democracy for the minority of the rich to oppose the will of the majority. It’s not undemocratic for the majority to want the rich to pay more taxes.

  35. Richard1
    December 13, 2011

    Suggestion: Set a guaranteed minimum income for every citizen – e.g. £10,000 pa for each adult, £2,000 pa for each child. Abolish all benefits, state pension housing allowances etc. For each £1 you earn you lose 50p in state income. So no state income when you get to £20,000. Anyone who needs extra help (eg disabled) gets direct help as needed (assisted living eg). That way everyone has an incentive to work, even for low pay or part time. Work will always make you better off. Tax should then be set at a simple rate – eg 20% – which should apply to all income, all gains, inheritance tax and VAT. Abolish all tax schemes and deductibles. There is a strong correlation between low and simple to understand taxes and sustainable economic growth. Lets recognise it.

    1. Reaguns
      December 15, 2011

      This would be Milton Friedmans negative income tax plus flat rate system?

  36. Robbie
    December 13, 2011

    Sorry to be such a pessimist but, given Britain’s dire financial condition, I don’t think the existing tax and spend arrangements will be valid within five years.

    Politicians of all parties are guilty of overspending, taxing individuals and businesses far too much. In return, we receive inferior education, an inefficient – and sometimes dangerous – health service, draconian legislation (I pity the poor smokers forced to have a puff outside in the freezing cold), and a lax criminal justice system which lets murderers get away with, er, murder.

    Once the markets turn on us, it’ll be ugly. If interest rates have to rise sharply, people will be losing their homes in droves. Just about everyone I know is up to their eyeballs in both secured and unsecured debt.

    Let’s face it, Britain has been stupid for a long time. It’s time to wake up and face reality. It’ll be very painful but there is the hope that eventually governments will become a lot more careful with voters’ money and we can enjoy a low tax but compassionate country.

  37. Bryan
    December 13, 2011

    The concept of the higher rate tax payer continuing to be hit harder is bad economics because of the dependence of local artisans on the ‘better off’ using their services. It certainly is not just the High Street shops that rely on local spending power. As craftsmen etc lose their jobs as our manufacturing base declines then this ability for self employment should be recognised much more than it is!

    An earlier post discussed Child Benefit. I understand why a caring society would wish to help a couple with their first child but I have never understood why this support is now given to all the children? If I remember correctly, support for a subsequent child was only given in the past when the first child left school and then at a lower level.

  38. outsider
    December 13, 2011

    Three points;
    1) There is an inherent conflict between and economic system designed to maximise output, employment and growth, namely a completely free market, and a system designed to achieve a tolerable distribution of pre-tax incomes, particularly for the lowest third. The freer the market, the higher the taxes needed to make post-tax income distribution tolerable in a democracy.
    2) All taxes distort incentives, output and economic activity. So it is better to tax lots of things at a low rate than a few things, such as income and employment, at a high rate.
    3) There is a vicous circle between benefits and taxes. The more tax that relatively poor people pay, the more benefits they “need”. The more benefits are paid, the higher taxes must be.

    I think point (3) is what you are focusing on.
    a)The most obvious reform is to raise the basic income allowance as fast and as far as possible. Up to half average earnings would be ideal. Obviously, in the absence of public spending reforms, that means higher basic and higher rates up to a top effective marginal rate of no more that 50 per cent.
    b)Merge employees national insurance with income tax OR, if that is not practical (effect on retired folk), raise the starting level to the same as income tax.
    c) Bring in Mr Duncan-Smith’s welfare reforms as fast a possible, instead of delaying them, if necessary at the cost of some under-indexation.
    d) Tax all universal cash benefits fully, including winter fuel and child benefit. If the other reforms work all except the basic state pension can be allowed to wither away. Doing away with the basic state pension is incredibly hard because two generations would have to pay double and that is just not socially feasible.

    1. outsider
      December 13, 2011

      Sorry, In answer to your direct questions on tax “progressivity”:
      1) No-one SHOULD pay more taxes, or indeed any taxes. It is just a question of what is the most efficient and tolerable way of raising all the money the state insists on spending.
      2) The maximum tax and withdrawal rate should be the same at the bottom end of the scale and the top, since presumably someone on benefits faces similar work incentives to a highly paid banker, sportsman or entertainer.
      3) The one case for more progressive taxation than we have now is Employers National Insurance Contributions. The rate should be zero up to the equivalent of the adult minimum wage but might usefully rise to 100 per cent on pay and benefits above, say, £4,000 a week. That would introduce a useful market incentive at both ends to make pre-tax incomes less unequal.

  39. A.Sedgwick
    December 13, 2011

    In a recent preliminary review by George Osborne he rejected out of hand the combining of income tax and n.i. as being too difficult, that is politically difficult I suggest. As an adminstrative exercise this seems straightforward to me but there would be job losses in both collection and avoidance spheres in any streamling and simplifying of the tax system. Consequently I do not see any realistic prospect of our ridiculously complex tax structure being reformed. But, of course, making the tax system fairer, simpler and understandable and lower would encourage growth and business employment and inward investment would also benefit. The state taking with one hand and giving back with the other to the same person culture has to stop.

    The combining of income tax and n.i. would mean some retired people would pay for n.i., a concession I have never understood.

    After 18 months of this coalition I cannot detect any fundamental change in the benefit system, a personal tax free income of at least £12k p.a. would do more eliminating those trapped on benefits than any change that is likely. The reforming of the benefit system has to be real carrots for the needy and real stick for the layabouts.

    The basic state pension be increased to a living figure and be paid in full to anyone who has lived in this country for say 25 years. Remove all the ancillary token benefits.

    A flat combined income tax with no allowances and that includes pensions. The vast majority of young people working in the private sector today will be better off saving and investing outside a pension scheme. After the free income level say a 30% rate to £50k and 40% rate beyond.

    Family allowances to be frozen, restricted,wound down and discontinued over time. The population is rising fast enough without encouraging more.

    Council tax to be abolished with local government directly financed by sales tax – obviously this means the death of VAT and our exit from the EU.

    Inheritance tax, largely a property tax, to be replaced with a revised, progressive stamp duty on property sales (not purchases – in reality it is the seller who finances the duty), again with no loopholes e.g. exchanges.

    As regards corporate taxation the emphasis has to be on taxing profit, not staff. The 2010 election argument that an increase in employers n.i. was a tax on job creation but the whole tax wasn’t defies my logic. Again a main objective
    has to be to get people off benefits and into work in a simple and uncomplicated way.

    CGT to be abolished.

  40. Robert K
    December 13, 2011

    Leaving aside the morality of income tax (which is a big thing to leave aside), the key should be to offer a tax system that is massively more attractive than anywhere else in Europe. Business taxes should be abolished and I suggest the following income tax rates: zero below £15,000, 12.5% from £15,000 to £30,000, 25% over £30,000. Scrap National Insurance. Currently, someone on GBP 100,000 is already paying a massive amount more in absolute terms than someone on an average wage so how is it fair to impose a punitive rate as well? As for your other questions, a fairer and less onerous tax system would make universal benefits unnecessary. If lower paid people need income support then it’s hard to see how means testing can be avoided. I would always favour supporting the income of someone who was in work than incentivising idleness. It is reprehensible that one segment of the community should be taxed at a higher rate because of their type of employment (not that this bothers the Eurocrats, who all pay a special income tax rate of 15%).

    1. uanime5
      December 13, 2011

      How are low taxes on salaries going to attract businesses? Germany had a large number of manufacturing companies because they have highly trained employees, not because they’re the cheapest in the EU.

      It’s impossible to compete with India and China for employers who are looking for low cost employees. Instead we should focus on employer who are looking for a highly skilled workforce.

  41. rose
    December 13, 2011

    I am very unhappy at how the whole society has got out of balance. Difficult to fix fiscally, but state spending can easily make things worse.

    Too much of the boom wealth has gone on drink, junk food, and big polluting cars; and not enough on lifting people up through real education, training, and the arts. Our young people, indeed much of the country, have coarsened, as well as become more ignorant. Loud, vulgar, drunk, oppressed by the noise and pollution from traffic, and the squalor of too much rubbish kept in the streets, young people now don’t even notice the degradation of modern city life. They have known nothing else. This does not feel like wealth to me, but it all arises from a great deal of expenditure, much of it on credit, that was unknown before when cities were more pleasant places and the national GDP and population both a great deal smaller.

    State creches are not the way to “lift children out of poverty”. This wish to nationalise our children is soviet in mentality, and women aren’t liberated by having to drag their tiny children through the streets early in the mornings to dump them with state paid minders. I know the Nordic nations and the French do it, but they have higher standards of “care” than we do, and their diet is better on the whole too.

    If our tax system could re-invent the family, and return us to a more responsible, healthy, and balanced way of life, with less emphasis on big cars, vulgar media entertainment, and eating and drinking out, that would be worth doing. Austerity as it is called, may just be the answer here, as people will have to think of more economical and less wasteful ways of living and enjoying themselves.

    I would like to see a return to manning of public services and proper maintenance. More manual labour and less bureaucracy. Investment in infrastructure to a Victorian standard, and the training of apprentices in all of this public work would be worth doing. People sneer at Japan and her lost decade in which she has greatly improved the public space, and perfected her engineering skills, but we could do with a bit of that forward looking spirit, and using our own human resources instead of importing them.

    1. rose
      December 13, 2011

      PS on universal benefits, I would like the bus pass to be extended to include more people not less, so as to reduce the traffic. Buses need to be cleaner, quieter, and smaller, running more often and where people need them to go. One merit is that they don’t need parking space.

      I think Mary P is quite wrong to want even more traffic in our cities. That is what makes them so unpleasant and why people prefer to go to cleaner quieter and safer shopping malls which haven’t been degraded by traffic. They will walk for miles round those if they feel they are salubrious enough. We should make our city centres pleasant once again, and then people would want to shop in them as they do on the continent and in cities like Leeds which have pedestrianised. More of London seems to be going that way now. Once the traffic is got rid of, the environment is then improved in other ways too, as people start to look around them and notice the architecture they have inherited etc.

  42. Winston Smith
    December 13, 2011

    I believe we should approach the wealth gap in a different manner. The socialists see people with lots of money and think its best to tax them heavily and then redistribute it through the tax system and through State employment. Ultimately, this policy strangles the economy and wealth creation. I think many Conservative have fallen into this trap to a certain extent. We need to open up markets and industries to entrepreneurial minded people to share in the wealth. We need to deconstruct the Socialist Corporatism created by Labour, the EU and now the Cameroons. Much of the profits in the City are divided between a small number of banks, consultants, accountants and lawyers. This is why they can pay £ms in individual salaries and bonuses. If someone is making large profits, we need to investigate how they are, and if they are doing this through restrictive practises and large barriers to entry, then it is the State’s role to intervene to open the market and spread the wealth, especially if they are profiteering through the actions of the State. This, I believe, was what Thatcher tried to achieve. The left, through their control of the arts, culture and media successfully misrepresented this as greed culture, when it achieved a broader spread of wealth than under Labour.

    Large corporations are not efficient; certainly not when compared to SMEs. Whilst working for SMEs, I estimate these businesses derive 10-20% of profits from the inefficiencies of large companies.

    1. Reaguns
      December 15, 2011

      Great points. As we know, big companies love regulations, that is their best weapon against SMEs who can’t always afford all the compliance staff.
      Regulation is effectively a subsidy to big business.

  43. Quietzaple
    December 13, 2011

    “All elected MPs in the UK accept that there should be  a progressive tax system, which takes more tax from the rich and less tax from the poor. All accept there should be a benefit system to give more state money to those who are ill, disabled, elderly, or unable to find a job.”


    Geo Osborne is on record as referring to flat rate (income) tax as “very interesting.”

    But then perhaps the phrase “progressive taxation” is now taken to merely mean “not a poll tax” and one rate fits all is regarded as quite enough progress?

    Notable that Pitt the Younger, who introduced Income Tax with three rates to help pay for the Napoleonic Wars, was claimed as a proto Tory by the Conservative Party on YouTube before the previous election.

    Pitt regarded himself as a Whigg. Some of Cameron’s strongest supporters on the DT obviously regard him as a revolutionary socialist.

    Too much “rebalancing” will make the electorate sick.

  44. Bazman
    December 13, 2011

    Usual nonsense. Icentivise the poor by cutting the benefits and incentivise the rich to spend more by increasing their income using flat taxes. Income tax is meaningless without a job and lower taxes will not produce enough.
    No one can explain how they will deal with the children of those not incentivised enough not to have more than they can afford and this is the fundamental question. Do not write. about this unless you have an answer. Let them grow up like weeds is an acceptable as an answer. Don’t be shy come out from under your stones to be squashed.

    1. Reaguns
      December 15, 2011

      Sort of agreed with Bazman – kids are born in poverty through no fault of their own. I look in at Kidbroke for example and think how can a kid grow up there and ever get a good education, good job… the peer pressure, never mind physical violence pressure would be just immense. How do you help innocent kids whilst incentivizing better behaviour from non-innocent parents. I don’t know the answer.

  45. Gary
    December 13, 2011

    How many of these “rich” got rich by working in industries protected by the state ? For example the financial sector. In that case they should be taxed higher to offset the welfare they receive.

    I am only half joking. What I would like to see is a flat tax, and govt out of the business of business. The only thing left to negotiate is what is the definition of business, and how much is an optimum flat tax rate ?

  46. uanime5
    December 13, 2011

    “Should benefits only be paid to people on lower incomes?”

    If minimum wage is made into a living wage then those on lower incomes won’t need benefits. The fact that those who work need benefits to survive show something is very wrong with this country.

    “Do means tested benefits send perverse incentives?”

    Well it does discourage people from saving their money. Why save your money when the Government is only going to cut your benefits because you have too much money?

    Regarding universal credit I feel the the way that benefits will be withdrawn is fairer than the current system.

    Under the current rate of benefit withdrawal working 16 hours per week or full time are the only viable working hours because once a person works more than 16 hours per week they lose almost all their benefits but this loss isn’t offset by the additional income (unless you earn a very high salary). For those on lower incomes the loss isn’t offset until they work full time, so it acts as a powerful disincentive for people to work a low paid job.

    Under universal credit benefits are withdrawn by 66p for every £1 a person earns. Thus no matter how much or little a person works they’re always financially better off. This give people a real incentive to work, even for short periods of time. This will be very helpful for entrepreneurs, who at present lose all their benefits when they become self-employed even if they don’t make any money.

    1. Bazman
      December 16, 2011

      An army of official and bureaucrats snooping expensively into everyone’s lives. Often cheaper to pay universal benefits.

  47. BobE
    December 13, 2011

    The Guardian. Canada pulls out of Kyoto protocol http://bit.ly/t4O0Ly

  48. Socrates
    December 13, 2011

    I am pleased to see so many contributions supporting flat tax. I was sorry to see Herman Cain leave the Presidential race. His advocacy was sound even if his level of tax at 9% would present a problem funding the dependency culture in this country.

    Still there is yet hope, the recent Newsnight study suggesting a public move towards supporting self reliance may gain traction. It is interesting that some of the ex-communist bloc have taken to flat tax. You can’t get fairer than everyone paying the same rate! I can remember a time when you could concentrate only on business to make money. Nowadays you have to spend more time playing financial juggling to prevent yourself being hammered tax and levywise. The only people making money thesedays are accountants and lawyers.
    Flat tax would wipe out a whole unnecessary layer of advisors and free business to concentrate on what really makes us better off – hard work and enterprise.

  49. Damien
    December 13, 2011

    In real terms the total annual expenditure on benefits in 2009/2010 rose to £152 billion. This does not include education or health expenditure. We simply cannot afford to spend £152 billion and remain competitive in the global economy. The tax burden now means that one half of the country is working to maintain the other half who are not.

    IDS is wel intentioneel and I believe he will have some success with reducing the number of long term sick claimants who are malingering although this will be a costly process with the tribunals and appeals. The flaw that has not been resolved is that welfare benefits are not limited by time nor amount. For instance would it not be fair to limit one years claim in any five year period with a maximum of five years welfare claims in a lifetime?. I think we are all agreed that exceptions can be made for disabled and genuine health related claims.

    There is also a problem today in that there seems to be no stigma to living of the state on welfare while the other half of society struggle to make ends meet. Food stamps were common enough in the period during and after the war and should be given serious consideration so that the money is not spent on drugs and alcohol.

  50. Barbara Stevens
    December 13, 2011

    I believe their should be a cut off for the low paid, to make work profitable and wages better to live on. Then tax should be done in stages according to income, the higher it is the more you pay. Child benefit should be capped at the three children, those who have more should be prepared to keep them. You don’t have to have them these days if you don’t want them. This applies to some benefit clamaints the most, I did the CAB and found may with children from different fathers, who paid nothing toward them, yet the women continued to have them for the money it brought.
    The winter fuel allowance people should be asked if they really require it, many don’t, those on pension credits should automatically be given it. Those living in Spain and hot climates shouldn’t have it they are not cold.
    Other benefits like Attendance Allowance which helps in elderly care, should be improved, this benefit keeps the elderly from being taken into care, which is cheaper in the long run.
    To conclude, I’ve been sent a cheque from the revenue, which I’ve returned, I know it’s not right and have asked them to check again. This is the 2nd time, this as happened. The revenue appears to lack the ablity to do things correctly.

  51. Tom William
    December 13, 2011

    It should be made illegal for those on benefits to have credit cards. I know, from social work I do, that it is perfectly possible to fall on hard times and go from a regular income to unemployment but continue to keep credit cards or even get new ones. Debt mounts, sometimes to astronomic levels (eg £140,000 for someone unemployed for some years and who always lived in council accommodation), before bankruptcy or an IVA.

    While this could be thought to be irrelevant to a discussion of fairness/taxation, the £billions written off because of irresponsible borrowing and greedy banks keen to give away cards and accept increased debt means, in the end, that we all pay for the profligacy of others.

  52. Andrew
    December 13, 2011

    All this stuff is putting the cart before the horse. If CEOs have increased their take home pay over the last year by 49% and the average by 2.5%, how can any tax system be fair? The same applies to bosses of quangos, top public sector workers and – worst of all – GPs. Both public and private sectors are guilty of paying richly for incompetence. Nice work if you can get it. Once the ratio between average and top falls to a level that is sustainable – it clearly is not now -then one can begin to talk about progressive tax rates at levels and ratios that are also sustainable. No wonder kids with no qualifications and no jobs take what they can. The fish rots from the head down.

  53. Adam Collyer
    December 13, 2011

    Iain Duncan Smith’s reforms are a good step in the right direction. But here is really no need for the complexity of means testing benefits.

    Just pay benefit to everyone who claims. If you claim it, then your tax code gets reduced by the amount of the benefit you have received.

    At the moment we have two means testing systems – the benefit system and the tax system. I believe the civil service like it that way because it provides thousands of unnecessary jobs for them.

  54. Mark Wadsworth
    December 14, 2011

    “Does it make any sense to pay universal benefits, so millionaires end up with payments?”

    Yes of course it makes sense! From the point of view of the millionaire, it’s just a small tax rebate.

  55. Ralph Corderoy
    December 14, 2011

    Doesn’t a flat rate of tax ensure someone who earns more, pays more? Why should the rate itself increase as earnings rise? Seems to penalise those that want to aspire to earn more and increase the amount of money wasted by both sides in the war of tax avoidance.

  56. Bazman
    December 14, 2011

    The European court of human rights might have something to say about reducing income to poverty levels in Britain.

  57. Martin
    December 14, 2011

    Re “Mr Duncan Smith’s proposed welfare reforms:

    With huge numbers out of work (One Million) and not in receipt of any benefit perhaps you need to rethink your views on this. If the level of benefits for many is ZERO surely for these people it is not the level of benefits that is blocking those people from work . (2.62 million out of work against 1.6 million claimants)

    Indeed the present policy is to keep older people at work until 65,66 or 67 years old. Wouldn’t the sensible policy be to let these folk retire earlier (albeit with a reduced state pension) and let our young people work?

  58. Reaguns
    December 15, 2011

    “How much more tax should someone on £100,000 a year pay compared with someone on £30,000?”

    In an ideal economic world, I think the first £10,000 of anyone’s pay should be tax free, then perhaps 25% on everything above that.
    Well actually in an ideal world I think we’d have consumption taxes only – Austrian School.
    Failing that – negative income tax with flat rate – Milton Friedman.
    In the near term reality of UK politics, I think perhaps income up to average wage should be taxed at 15% and everything earned above average wage at 30%.

    A set of ideals to aim at, I would suggest would be aiming at having the lowest taxes in the world, so jobs can come here rather than elsewhere.

    For those who would prefer a more egalitarian society such as Germany, I would say that I would accept that provided we do the other things Germany traditionally did which is maintain a strong currency and low debt.

    “Should benefits only be paid to people on lower incomes? If so what should the cut off levels be? Or should some benefits go to all taxpayers as of right?”
    I think benefits should only be given to people with no income, everyone else should simply be given lower taxes. Ie let me keep £20, rather than taxing me £20 and then giving it back to me (probably in the form of £10).

    “Is mean testing the fairest way of limiting taxpayer bills, or should the prudent on moderate incomes also be able to receive money from the state?”
    It is unfair, immoral, and anti capitalist to pay a large pension to someone who spent all their money, and a small pension to someone else who saved theirs.

    “Do means tested benefits send perverse incentives?”
    Of course, at the margins it can discourage people from bettering themselves. I used to work in a factory where noone with kids wanted the better paid job of supervisor (rather than machine loader) because the extra wages would have pushed them out of eligibility for family credit, and so would have given them less income.
    This was not laziness – the supervisor role was agreed to be easier, less back-breaking. So the supervisor jobs, when they came up, often went to a 17 year old because he had no kids.

    “Does it make any sense to pay universal benefits, so millionaires end up with payments?”
    Yes. It saves an absolute fortune having a simple system rather than one needing legions of civil servants and a name-your-price (£2 billion? £10 billion) IT system from an American corporate giant.
    If Peter Stringfellow is offended when he receives his £200 winter fuels payment (he was) then he can pay it back or give it to charity.
    Means testing would mean he wouldn’t get his £200, but due to costs, the other pensioners would probably end up with an average of £100 to £150, rather than the £200.

    “Should bankers pay more tax on their bonuses than footballers pay on their incomes?”
    Both should be linked to success and profit. In both cases, the mediocre currently get paid almost as much as the elite.

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