Jonathan Jones

Tinkering with tax isn’t enough

Should the 10p tax rate be brought back? Should the top rate be higher, or lower? Can the personal allowance be raised further? Is a mansion tax a good idea? Should the fuel duty rise be scrapped?

These are the questions that are rearing their heads again — as they do every six months or so, in the run up to a budget or autumn statement. The problem is that they are all considered — in so far as they’re considered at all — in isolation. We focus on one aspect of the tax system, fiddle with it a little, then move on to another.

And, as Institute for Fiscal Studies director Paul Johnson bemoaned this week,

‘the general quality of political and public debate is limited, allowing poor policy to be passed off as good all too easily, resulting in an unhelpful focus on specific parts of the tax system, and often making change politically difficult. Very specific elements of the system – notably rates of income tax – achieve totemic significance far beyond their true importance, while changes to other parts of the system are often given wholly inadequate attention.’

The result is, to put it mildly, a mess. We end up with the highest earners facing a marginal income tax rate of 50p, but those earning £100,000 to £116,210 facing a higher 60p rate (due to the withdrawal of the personal allowance). We end up paying 20 per cent VAT on a pasty that’s been kept warm, but none on one that’s just come out of the oven. We end up with someone in a house worth £20 million paying only twice as much council tax as someone in a house worth £200,000. We end up with separate allowances for income and capital gains, rewarding those who have both over those who rely on one or the other.


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