Gorse Hill Labour

A regular blog and updates from Mike Cordingley, Councillor for Gorse Hill Ward in Trafford – Gtr Manchester.

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On Taxes: Making our tax structure right for the times we’re in

“In this world nothing can be said to be certain, except death and taxes.”

Benjamin Franklin 1789

Without tax revenue the state would not be able to provide the services a civilised society needs to function; there’d be no army, no schools, no nhs, no roads, no waste collection etc etc etc.

But the sad predicament we face now is that following the global financial meltdown, the tax take isn’t sufficient to pay for the services provided today and we’re having to borrow more. And as we borrow more, the interest payments take up an increasing and alarming proportion of the spend.

This spiralling debt will inevitably fall on future generations to be repaid. It will be our children and grandchildren that pay in the decades to come for the services we use today. But they’ll still make that repayment through the taxes taken from our grandchildren’s production of goods and services. Nothing can be said to be certain except that it’ll be taxes that pay off the debt in the end.

The debate between the political parties has inevitably centred on the level of public spending;

  • reduce the spend and you stop adding to the debt.
  • But reduce too quickly, and the economy grinds to a halt because you reduce the size of the market for those goods and services

That debate will continue with regard to the rate of deficit reduction and it’s right to do so. Interestingly though, and perhaps due to the inevitability of taxes, little discussion takes place around the tax structure itself. There’s been well publicised targeting of notorious tax avoiders, the Philip Greens and Vodaphones of this world. It’s been personalised and theatrical but not deeply objective in it’s solutions to getting more tax out of the current generation.

It’s remarkable how many taxes we have. There isn’t an exact number because it gets blurred around the edges as to what constitutes a tax.

TaxDescriptionComments
Income Tax‘What it says on the Tin’. A tax on the income from earnings, pensions and interest accrued from savings. Deducted at source from workers, negotiated via accountants and solicitors from the ‘owners’.Not perfect in its administration but essentially correct
Employee’s National Insurance ContributionA tax on wages up to £844 per week @ 12% and 2% thereafter. The cleaner gets another 12p taken out of every extra pound they earn. The chief executive of Royal Bank of Scotland gets 2p taken out of every extra pound they earn.There is an argument for abolition and merging with income tax but requires removal of 2% rate and for standard rate to apply throughout
Employer’s National Insurance ContributionA tax on jobs and the wages page to workers. The more staff a company takes on, the more national insurance the business paysAbolish
Corporation TaxA tax on profits for businessesEssentially Correct
Capital Gains TaxA tax on profits for individuals (not including main home. Although establishing which property is your main home is a subject prone to manipulation, notoriously by MPs of ill-repute.Essentially Correct
VATA tax on spendingAbolish or reduce significantly
Inheritance TaxA tax on estate at death. Ridiculed throughout the 20th Century by the aristocracy and treated by them as a voluntary tax incurred by the foolish and those who failed to see it as an enjoyable sport in it’s avoidance.Requires massive tightening of rules
Road TaxA tax on ownership of a motorised vehicleAbolish
Fuel DutyA tax on the fuel usedEssentially Correct although international agreement should be sought for air travel to be included
Alcohol and Tobacco DutiesA tax on habits disapproved ofEssentially Correct
University Student FeesA hypothecated tax on receiving higher educationAbolish
Council TaxA tax on the value of the home you live in based on it’s value in 1991 and capped at £320,000.01. Your home might be a £5m mansion, but the council tax will be the same as a house worth a penny over £320k.Requires removal of band G ceiling so that the most expensive properties pay a proportional progressive rate
Street Car Parking ChargesA levy on parking usually in town centresThere is an argument for removing this where town centre is in decline or direct competition from out of town centre such as the Trafford Centre
Business RatesA tax collected by Councils and handed over to Government based on the business propertyEssentially Correct

There’s many more duties, levies license charges etc. than shown in the above list, but even a perfunctory scan across the taxation landscape highlights that as a society we’re taxing many activitiess that we want to take place, and failing to tax practices that we want to discourage.

In an economy that is desperate for jobs and spending, isn’t it ludicrous that we slap taxes on the vital stimulants for growth? Most startling of all is the jobs tax of employer’s national insurance contribution. I want Labour to be radical and support it’s abolition. It would be a break with the Beveridge Covenant that the welfare state should be the shared responsibility of worker and business. But wealth in the modern world has shifted to the speculators, asset strippers and financial traders or the traditional landed aristocracy and new property tycoons. None of this wealth is a huge employer of labour – and instead we hit the businesses who are.

I’d love to get rid of VAT as well. We want to encourage spending. It’s a regressive tax where the poor pay a larger proportion of their income. It’s costly to administer. The main argument for it existing seems to be that on the whole, people become blind to it. And we pay a huge amount of tax this way. In France it accounts for over 50% of their tax-take. It’s the definitive stealth tax.

In a thriving economy the case for University Fees is strong, but right now, when we need to be doing our utmost to provide the best trained workforce, it’s madness to be imposing such high fees.

I’m not going to argue that removing VAT and abolishing the employer’s element of national insurance would be self-financing, although, there would inevitably be a considerable boost.

So we would have to shift the burden elsewhere. We certainly need to chase tax evasion harder to reduce the £70bn estimated to be lost each year through effectively fraudulent tax returns, but we’re never going to reduce evasion to zero.

I am attracted to Vince Cable’s mansion tax. I would also argue strongly for a Land Tax, it’s doing the economy no good to have speculators sitting on land that is not being released for housing, agriculture, leisure etc. It’s interesting that so much of the land in the UK is still owned by the aristocracy (nearly a third of the total) and it’s very much concentrated into the hands of those on the Sunday Times Rich List.

There’s a number of advantages to the taxation of both mansions and land:

  • They’re not portable, they can’t be smuggled out of the country to Monaco.
  • There’s an obvious correlation between ownership and wealth (it’s not hitting the poor by taxing mansions)
  • Non compliance can be dealt with by simply going through the courts to take ownership of a proportion of an estate; it then becomes an asset on the national balance sheet to be counted against the national debt and we would also be entitled to rental income.
  • It would suppress land values, enabling more economic growth

The extent to which you can switch partially or wholly from VAT and the job tax to Land / Mansion is a debatable point, but the principle is clear. Taxes may be inevitable, but the tax structure in place to deal with this recession is different from that needed in the years of plenty.

Mike Cordingley