High tax Britain

Nick

Doesn't work when you have 165 billion a year deficit to pay off.

Commentator

Britain isn't open for business. It's made it very clear that it is shut for business as all three main parties retreat to the laager of cultural and economic socialism.

Christopher Bowring

The economic argument is presented well. Of course, we ought to cut higher rates of tax to encourage people to work more and to rake in more tax revenue. What is not discussed here is the political aspect. The Chancellor needs to carry his coalition partners to support the budget. He also needs to contend with the usual 'tax cuts for the rich' jibe that would inevitably follow a higher tax rate cut. At a time when people are suffering pay freezes and redundancies especially in the public sector, such a political balancing act is difficult. No doubt, Mr Osborne would agree with your piece. The politics of the issue make it rather less straightforward.

boulay

i am sure that osborne would love to slash income tax - he might even agree with the laffer curve and want a nice low and flat rate like the channel islands but there is no way he can do it because the national press would go beserk.

there would be the Beeb and Guardian and Mirror claiming it is disgraceful and that "cleaners will be paying the same rate as fat-cats..." and there will be the down-right stupid who will have no grasp or experience of economics who just follow the herd.

finally there will be the usual journalist t055ers who have absolutely no ideology and just see it all as a game and will try and look clever by twisting and playing what is said in the hope that they force a resignation or score a scoop without any consideration to reality and what is actually good for the country.

that is why britain will remain a high tax country for a long time....

Fex Urbis

Tax high,
Growth non existent,
Inflation out of control,
Wages plunging,
But house prices are high so everything's ok.

James Sproule

Stand by for a budget full of lots of gimmicks, like the reduced taxation on companies employing less than 10 people. This was expected to be popular and has so far attracted 1500 people. The Treasury cannot understand it. Their view being that small business men should be skip focusing on selling things and instead embracing the chance to fill in multiple forms on gender discrimination in order to qualify for a tax break.
Labour disastrous decade is going to take some time to clear up, and the various equality and human rights legislation are a real hindrance. A clear stance that we need to lower taxes, and an indication of direction is going to be more important than targeting of a interest group deemed especially deserving.

Ed P

Apart from a lower tax load on businesses, we desperately need less EU legislative constraints. For a robust recovery, manufacturing & exports must be encouraged - this is not possible whilst hobbled and overburdened.

TrevorsDen

The French keep 67% but pay extra for their health insurance which is 10 billion in deficit.

So apples and oranges please.

What is the French benefits bill?

Wikipedia may be a dubious source - but its easy ...
'Despite a downward trend registered since 1999, the tax burden in 2007 (43.3% of GDP) remains at a high level, both historically and in comparison with other countries.
OECD countries have experienced an increase in the tax burden since the mid-60s comparable to that of France, rising from 25% of the GDP in 1965 to 36% in 2005. That of the countries of the European Union has increased by nearly 12 percentage points of GDP over the period. Efforts to control the increase in the tax burden have been made by the states of the OECD: the tax rate decelerated during the 90s and has decreased slightly since 2000. This is why France continues to be among the OECD countries whose tax rate is the highest.
Taxes account for 45% of GDP against 37% on average in OECD countries. The overall rate of social security and tax on the average wage in 2005 was 71.3% of gross salary, the highest of the OECD. The levels of social security contributions are particularly high (16.3% of revenue against 9.4% in average for OECD). The social security budgets are larger than the budget of the national government.
The budgets of both the national government and of social security organizations run deficits.'

Can we start again?

merlindragon

I hope by growth they don't mean cutting corporation tax. People don't have any money to spend when these new businesses start up. Here's hoping for an income tax cut!

GDT

I fear the UK is lost. The politics of envy and class warfare is rife.
With every tax increase the country falls even further under the burden of "The State".
At what point does the balance tip? What will happen when the country cannot honour it commitments?
Without a vibrant private sector there cannot be a public sector. Higher taxes strangle the life out of the private sector. It is tantamount to "cutting your nose off the spite your face".

TrevorsDen

oh and PS
'Here in France the deficit is expected to hit 8.5% of gross domestic product (GDP) this year. This is better than the UK, but a headache for the French government nonetheless.
In theory the government is opposed to increasing taxes but as we saw from the 2010 Finance Bill proposals, it went for the option of reducing the “social” tax breaks available as a less direct way of increasing tax revenue.
There is no guarantee that we will not see direct tax increases in France in the not too distant future, particularly those aimed at higher earners.'

http://www.connexionfrance.com/higher-taxes-in-france-10612-news-article.html

Interewstingly
'President Sarkozy also touched on another important issue in his New Year’s Eve address.
“In 2010 we will need to consolidate our pensions system, whose future financing I have a duty to secure, and face the challenge of how to care for the elderly, which in the decades ahead will be one of the most painful problems faced by our families.”
This echoes a concern raised in a paper by the Centre for European Reform in 2008, which warned: “Europe stands on the cusp of a demographic revolution. Europe’s changing demographic profile poses political, economic and social challenges'

and

'The UK is in an even worse situation than France. Last year the European Commission forecast that unless the UK government cuts state pension costs and healthcare bills, its public debt will jump from 60% of GDP to 160% by 2020 and 406% by 2040. '

'French business is currently burdened by the world's highest level of payroll tax (cotisations sociales), which at 43% are far higher than in any other country'
'High tax burdens are the most critical problem of the French economy, and they are particularly felt by small businesses'
' in small businesses employers frequently hesitate to create jobs for fear of being unable to lay the new employees off without considerable penalties. Alternatively they outsource work to foreign suppliers rather than employ staff locally, or resort to temporary contracts rather than offering full-time permanent jobs. This situation also depresses salaries'
http://about-france.com/geo/french-economy.htm

tomdickandharry

Hmmmmm... It's obviously a balancing act. For example, Think London, who aim to promote FDI in London, did a survey of multiple CEOs of MNC a found that they were more concerned with the quality of infrustructure/education then the corporate tax level. Implying that quality of public sector is a bigger influencing factor on FDI than tax levels.

Surely the beacon of low corporate taxes is the Celtic Tiger, which worked out so well(!)

Now that's obviously different from income taxes, but to pretend that businesses aren't concerned about the quality of infrustructure/education (which is, to a large degree, improved by public sector investment) would be disingenous.

Finally, Tom Clougherty, can you please mention the fact that you are the Executive Director of the Adam Smith Institute in the post - preferably next to where you use Adam Smith Institute research to back up your argument? Your not the first person to do this, but I find this habit of posters coming in and making out their own research to be third-party, and then using it to back-up their claims as intellectually dishonest.

Having said this, you didn't only use Adam Smith Institute research. I would be interested to see a link to the BKR International research if possible?

Commentator

True but the fact that the Lib Dems and many of the public believe in a flat earth should not be an insurmountable obstacle when the economy has massive debts and is haemorraghing tax revenue. To clear that obstacle requires something called leadership.

Olaf

Taxes are the opium of parliament

Perry

But the fundamental question - and let us return to it often - is

WHAT DOES THE GOVERNMENT DO WITH OUR TAXES?

As far as I can see, the greater proportion is simply wasted, either on

- foolhardy projects
- EUSSR
- paying off or propping up ridiculous banking scams
- ditto PPI scams
- unwinnable 'wars'
- bonkers politically correct laws / directives / 'initiatives'
- global warming scam
(etc - I'm bored!)

True, LieBore spawned many of them, but, as they say, it takes two to tango. A simple 'we have no more cash - you got yourself in this mess, now get out' should suffice to loosen the grip of many of the parasites.

Simon Stephenson

Commentator : 11.12am

Leadership, eh. I think you underestimate the scale of the difficulty. We've had 50+ years of marketing men working to convince us that lies are truth, and for the vast majority of people the natural mental response to this onslaught is to accept it, not to fight it. We've now got a population that largely fails to understand how socially necessary it is to discriminate on the basis of probability and intellectual robustness - and in reality, why should we expect any different, when we've had 50 years of being told that this idea is wrong?

Past leadership might have been able to prevent us from migrating to cloud-cuckoo-land, but it'll take more than this to cause us to repatriate to a place of reality.

normanc

There's no chance of above trend growth for the next four years - which is the magic bullet, along with increased taxes, that is going to balance the budget. Expect to see at least a £50-80bn deficit if this government limps on for another 4 years.

There hasn't been a leading politiican convincingly putting the conservative case now for almost a generation. There's the odd scribbler in obscure and darkened corners of the internet, like John Redwood, and the odd guest article in The Spectator from Australians and Americans but no concentrated effort to explain that a country can operate with a small state. Cameron left it far too late until he came to the party and is discredited in the minds to many.

The result is seen in the comments here where supposedly right wing voters are saying that we need higher taxes to enable the government to continue spending so much and others afraid that tax cuts will prove to be unpopular (!!!).

Apparently we're all socialists now, unfortunately. There was even the delicious sight of a Tory MP boasting here this week that they are taxing business more than Labour planned to.

You couldn't make this stuff up.

Jonathan Woolf

The economics of this is clear and hardly revelatory. Having said that, it is unclear if Boy George has even heard of the Laffer curve or suceeded in getting the Treasury to model taxes dynamically not statically (we don't hear much about that these days do we?). I'd certainly lay a bet that he's not read Capitalism and Freedom. In fact, all the evidence suggests the Coalition is as economically illiterate and as wedded to pointless marginal gimmicks as Brown was.

Even if we make the heroic assumption that despite the evidence Osborne gets the economics but is stymied by "the politics", what does that really mean? In effect it means this government has surrendered to the minority leftist media narrative propagated by the Guardian and BBC. This is pathetic - it is as if the consensus prevailing since the late 80s that low tax rates increase revenues and prosperity never existed. The Coalition should have been repeatedly stating, based on fact, how the higher 50p rate was reducing the overall tax take. This would prepare the ground for abolishing this rate. Couple this with a rapid increase in personal allowances to take the low paid out of tax altogether (which is by far the best economic stimulant, not wasting money on unproductive public sector "investment") and the politics would become easy.

There is a massive opportunity for the UK to become the multinational HQ of choice. Lowering personal tax rates and corporate tax rates to be ultra-competitive would see us leapfrog New York, Hong Kong, Switzerland and of course anywhere European and bring in huge numbers of high value jobs, make us all richer, the tax take rocket, and consequently the public services better funded. The Coalition does not remotely have the vision to grasp this.

cuffleyburgers

Taxes need to be both cut, and simplified.

The tax code should be cut to a maximum of say 10 pages. A flat system, possibly dual banded, high personal allowance, no tax credits, no deductibles, nothing. A single rate of corporation tax applied equally to all forms of income.

That would free up thousands of highly paid and very capable people currently working in accounting and tax consulting to do some productive work.

The long term aim should be to get the costs of government below 20%.

To me it is quite grotesque the current situation where the average worker in the productive sector (ie the private sector) works the best part of 3 days a week just to pay his taxes.

One day a week is already too much.

Of course this will only be possible outsde the EU...

TrevorsDen

normanc -- We had 8 years of a Bush conservative govt - where did it leave US debt?
Its not above trend growth that we need its just ordinary rend growth. I do not think the treasury were banking on anything else. In fact the coalition ditched Darlings growth targets - I think they are suggesting about 2% which is about trend.

Commentator says the LDs are not interested in the debt and deficit but they have a LD chief secretary and an LD who put up tuition fees. As ever with commentator his comments are not founded on reality.

The plain fact is some toss pot on hundreds of thousands and paying 50p tax still ends up better than me.
We have a debt crisis right now - so let the winging bastards pay up.
By all means lets see much lower levels of tax as the economy recovers, and lets see that for every one and lets see higher thresholds.

Dimoto

Only time can possibly influence the political climate.
Since the coalition came to power, there is certainly a slowly growing re-realisation that we need a powerful private sector and lower taxes, and some general pleasure at any small indication that the economic fundamentals are slowly turning.

The government really needs to report much more on "progress to a sustainable future" with some simple graphics.

As time goes on this more positive view should become entrenched. The reception (by the general public), of the mooted public sector pension reforms will be interesting.

The time is not ripe for serious tax cuts, but Osborne should really provide some metrics as to why the 50% tax-rate is unsustainable (always a good word to use in the prevailing greeny zeitgeist), and announce that he will can it, "when the economic conditions allow" - hopefully next year.
He needs to send the signal and allow people to get used to the idea.

startledcod

At the risk of sounding trite, 'Fortes fortuna adiuvat' (fortune favours the brave) or even 'Who Dares Wins'.

The top 10% of tax payers already pay over 24% of income tax, the way to get them to pay more is to lower the top rate.

George Osbourne knows that, Ed Balls knows that, the UK needs the money. George Osbourne has to just do it and then send every single coalition MP out to explain, over and over and over again, that tax revenues will increase as a result of a significant cut in the top rate.

normanc

TrevorsDen, Bush wasn't a conservative, not a fiscal one at any rate. If you read any American conservative commentator they'll say that Bush was spending far too much.

Funnily enough, Obama recently approved the extension of the one fiscally conservative thing Bush did, the 'Bush tax cuts'. If tax cuts didn't work, or weren't popular, why would someone whose other policies are, for the USA, pretty far left wing endorse such a policy?

And your last paragraph is never anything a true conservative would say. The politics of envy and 'tosspots earning more than you' is pure socialism - you're showing your true colours there.

Commentator

Good to see the bar room bore TrevorsDen fulfilling his alloted role of the Coalition's parrot....

Mr. Green

Doing something to sort out the IR35 dabacle would be a good thing too. The amount of money lost to tax avoidance could be recouped if sub-contractors didn't feel they were being fleeced.

Neil Craig

The correlation between GNP and electricity production is thoroughly proven. China's electricity has increased at 10% annually for 30 years and so has its GNP. Ours has been overall static since 1997 anso has our GNOP. If the government would simply stop preventing the building of cheap nuclear power reactors and bring their regulation down to something remotely comensurate with its safety record (by 2 orders of magnitude nuclear is safer than any alternative) we would get spectacular growth.

Almost all our economic problems would be solved by getting government parasites out of the way.

Owen Morgan

Thank God for the Irish. All the best commentators (well, apart from Nelson, Forsyth and Hoskin) have Irish names, these days.

John Bracewell

Lower tax burden on businesses.
Lower income tax.
Less EU legislation burden.
All of the above are sensible ways of encouraging growth but remember there are LibDems in this coalition government. They are busy scuppering the British Bill of Rights and there is no way they would not fight the above measures for growth. Many of them have a socialist democratic or Labour (in the case of Cable) background and love high taxes and redistribution of wealth. The chances of getting a growth budget of any significance from this coalition are pretty small.

TGF UKIP

Social Democrat governments instinctively believe that tax cuts for the cleaning lady are more growth generative than tax cuts for the business owner. But of course that's what Fraser Nelson thinks too.

TomTom

Bush and Clinton ran a US economy that was decrepit in terms of production and did so by having Greenspan the Senile run a lax monetary policy since 1999 at least. Clinton gave China tariff-free access to the US and EU and boosted profits as a share of GDP at the expense of wages. Consumers needed easy credit to keep consuming on stagnant incomes and the 9/11 Defence Spending Boost kept the show on the road.

Western economies have lived in la-la land for 3 decades since the Oil Shock and forgotten that physical goods make up the mainstay of export earnings not imports on credit

MarkPlym

Why not go the whole hog, guys, and have a reverse income tax, whereby the more you earn, the less you pay. That way, the parasitism of the ruling elite will be complete, literally living off the rest of us. The banking community have been doing this for some time! Pip Pip

Sir Graphus

Did I not read the other day a survey; apparently tax receipts are £10bn more than predicted: roughly;
50% of the people wanted spending cuts reversed.
40% of people wanted tax cuts, specifically fuel
10% thought it ought to be used to cut the deficit.

So that's it. We're fucked. Only 10% of voters seem to understand we have a serious problem. 90% think we can go la-la-la with our fingers in our ears and the deficit will go away.

Major Plonquer 1

The People of Britain have spoken and spoken loudly. They want to be poor, they want to remain poor and they want everyone else to be poor too. Poor people are good. Wealthy people are bad. They even refer to people who make money as 'better off' - like to Hong Kong or Singapore.

This is a perfect example of how democracy works. The People want to be poor and they've elected governments to carry out their wishes. There's no use complaining because successive governments have done precisely what the People want them to do.

Colin Cumner

Income tax SHOULD be cut and VAT reduced, too (yes, I know it has only just gone up) but how can this be achieved when the country is in such debt? Well, a good start would be to reduce the massive social welfare expenditure the UK has seen fit to maintain for decades. I concede the Coalition has made a start in this direction but I gather I am not a lone voice when I say the cuts already being proposed are not deep nor as widespread as they should be. Nibbling at the edges is a 'nervous Nelly' approach. AND BRING THE GREEDY BANKERS TO HEEL - what sacrifices have they made since the massive bailouts the banks received from the public?

richardj

Jonathan Woolf is spot on - we have to reduce taxes and employemnt costs and edge away from the dead hand of Europe. The reduced tax revenue from the 50% rate should be made very public as soon as the comparative figures are to hand and the rate reduced.

I take Jonathan you are the film man?

Martin C

It's called "The Laffer Curve". And we in the UK are on the wrong side of the peak, and have been for some years now.
Sadly, increasing taxation is an easy panacea for politicians, for even on the wrong side of the curve it will increase revenue for a little while before the malign effects bite as persons and businesses go bust or emigrate. And politicians are notoriously short-termist. Not to mention totally insulated from the consequences of their decisions by fat pay-offs and incredibly fat, index-linked unfunded pensions.