Economy
Let’s look at the personal tax system. We have the most complicated tax system in the world. At the moment everyone gets a personal allowance before getting taxed. Incidentally this will change in 2011 when a number of people will lose their personal allowance and will find themselves paying tax at 63%, when including the NH contribution. At the moment this will only apply to people earning over £150,000.00 per annum. Perhaps we shouldn’t worry too much about these people, except to say that it is symptomatic of a Labour policy, which many of the left wing of the party have wanted introduced for years. It won’t stop at £150,000.00; the threshold will come down and the rate will go up. When this type of policy is introduced then tax revenues inevitably reduce dramatically.
The government is already faced with a number of our major companies moving their head offices to other countries because of the pernicious corporate tax policy in place in the UK. It won’t take long for individuals to follow.
Let go back to normal people. Someone on the minimum wage pays tax at 31% (20% income tax and 11% NHI) on the amount they earn after the deduction of their personal allowance. What nonsense. The government say that doesn’t matter because the tax credit system allows for people at the lowest to claim a tax credit increasing their pay.
Notwithstanding that many of the poorest people don’t qualify for tax credits the system of claiming is so complicated that approximately 30% of those who qualify don’t apply either because they don’t understand the system or because they can’t be bothered. The stupidity of the system is born out by showing that couples earning over £60,000.00 can qualify for tax credits. Why? You can be sure that probably all these qualifying couples are claiming.
On the other hand people at the top of the earning pile at the moment pay approximately 53% tax (40% income tax and approximately 13% NHI). This will change in 2011, see above. However for many people, because they have access to accountants and financial advisors, this amount is an illusion. Good tax planning can reduce this amount considerably. The system is inherently unfair and needs simplifying.
Let’s consider a flat band of tax. This type of tax policy is being adopted by more and more countries as a way of simplifying their tax systems and also, more importantly possibly, getting the general public to understand where and how their taxes are used.
Local governments already do this to a certain extent, when the new council bill comes out every year; it is normally accompanied by a fairly detailed document showing where the money is being used. You might not like where it is being used, but at least it’s transparent.
Suppose the government actually had the balls to say us, the voters, that they need £580 billion pounds to run the economy. Let’s also suppose that they gave us a breakdown of that requirement. NHS £90 billion, defence £90 billion and so-on we would know where the money was going and would have something to vote about when elections came round. Then on the other side of the ledger they started to list where the income was to come from. Corporation tax, VAT, car tax, petrol tax, etc, they would then be left with a deficit, which was to come from income tax. If that amount was £300 billion then it should be fairly straight forward for someone in the Inland Revenue to work out where tax free pay ends and tax paying starts. It has been suggested that a system of the first £15,000 of each person’s pay should be tax free and the next £20,000 be taxes at 20% and any further income at 30%. No national insurance contributions would be necessary as the NHS would be funded out of the general tax haul. There would be no other allowances against tax other than the initial tax-free sum.
And what about pension contributions, which at the moment attract a contribution from the tax man of between 22 and 40%. Hold your horses, pensions are dealt with in another area and need careful study before reacting.
The NDP doesn’t know whether the figures and the percentages used above are correct, but we do believe that the tax system, as it stands at the moment is unfair and unwieldy and drastically needs reform.
The idea of a flat band of tax has been thrown out by the authorities, without proper consideration. The adoption of this policy and simplifying the tax system would mean that thousands of employees of the Inland Revenue would gradually lose their jobs. A bit like turkeys voting for Christmas.
A major policy switch such as this would take some time to implement so the job reduction in the IL could be managed largely by natural wastage.
If you start thinking through the proposal mentioned above about the government setting out what they spend our money on, we would very quickly see how much was spent by each ministry. Each ministry would have to account exactly how they spend the money they are given by central government. So we would see how much is spend in the NHS on nurses, doctors, administrators, buildings, medicine etc. We would see how much of our money goes on providing unemployment benefit, how much on incapacity benefit and how much on housing benefit.
The government would probably state that providing this sort of information would be a breach of privacy; however our argument is that as it is our money; we should know how it is being spent.
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