When your default position holds that Government should always be bigger and seek to do more, and play an ever larger role in the life of the citizenry, it generally follows that you will also be obsessed with tax policy, and ingenious ways to come up with new revenues. After all, the all-seeing, all-knowing behemoth has to be funded somehow.
Polly Toynbee, in her latest Guardian column, lambasts the Conservative-led government for “giving up” on trying to find new revenues, and imagines a world where tax avoidance (perfectly legal) and tax evasion (not so much) can be eliminated at the click of her fingers. She writes:
Cutting the 50% top rate suggests no great enthusiasm for rigorous taxing. Last week’s ONS figures revealed gigantic avoidance of the 50% top rate. It could have been collected but George Osborne needed to prove it didn’t work. The Treasury estimated raising the rate to 50% should bring in £6.2bn, but the actual return was a puny £100m.
In year one, before its official start date, high earners gamed the tax by rushing to take dividends and bonuses early. They paid more into pensions, gaining undeserved higher tax relief. Or they used trusts, or took income as capital gains. (That can be stopped, by fixing capital gains, as Nigel Lawson did, at the same rate as income tax, as the Institute for Fiscal Studies advocates.) Once Osborne announced the top rate would fall to 45%, high earners gamed it again. Incomes Data Services reports a massive delay in bonuses until after 6 April, when they leapt up by 107% in the finance sector to catch the new 45% rate. That could have been forestalled.
In Polly Toynbee world, a 50% top rate of tax is absolutely worthy and to be encouraged, and she sees nothing wrong with this, but we already know that. What is more striking, however, is the glib way in which she assumes that the population, outraged by such high taxes, can simply be stopped from taking perfectly legal measures to limit their tax bill. Phrases such as “that can be stopped” or “that could have been forestalled” are boldly laid down, but are not followed up with the how to do it when it comes to implementation.
When she does offer specific prescriptions for raising more tax revenues, she picks and chooses from the worst and most counter-productive tax policies from around the world, including this gem:
Britain can do plenty alone: we could adopt US tax laws that make every UK passport holder, wherever they are in the world, pay UK tax.
Ah yes, double taxation. The United States is the only major western country to enforce this policy of taxing their citizens on money earned overseas, and the policy is universally despised and acts as a significant disincentive for many Americans to work abroad for any length of time. But by all means Polly, let’s adopt that hated policy.
This is not to say that there is not a very real problem of tax avoidance, but it is far more on the business side than the individual side. People are rightly outraged when companies such as Starbucks use crafty mechanisms (“oh, we have to pay all the money we make in our UK stores as a royalty to our European headquarters in Amsterdam, so we don’t have any UK profits to be taxed this year, sorry”) to avoid paying tax on profits earned in Britain. And somehow it seems even worse when those same corporations, under the harsh glare of the media spotlight, deign to cut the government a cheque, to throw the exchequer a small bone to help solve their PR crisis.
Of course, the whole quagmire could be cleaned up very easily if only there was a political party (hi, UKIP) willing to take a scythe to the existing British tax code and rebuild it from the ground up, based on the tenets of real fairness, which of course means a flat tax. A flat rate of tax on income, corporate profits, capital gains and (if we must keep it) on value added, i.e. sales. Wherever possible, double taxation should be avoided – if you have paid tax on income or a purchase already, HMRC should not be allowed to come back for a second bite of that asset later on. And if we have learned nothing else from our friends across the sea in the United States, deductions should be avoided at all costs, as should Gordon Brown’s labyrinthine system of tax credits that you can claim for everything under the sun. Eliminate deductions and tax credits so that you can lower rates for everyone.
Toynbee concludes:
Tax cheating should be Labour’s chance to tell honest political truths: you get what you pay for, you can’t have Swedish services on US tax ideology. Tax is the price we pay for civilisation. At elections, all parties promise the impossible, more with less and cuts in “bureaucracy” to pay for everything. Treating the public like children on tax does nothing for trust in politics. The door has opened for that conversation.
In her mind, big government is synonymous with “civilisation”. The more responsibilities that the government takes on, and the more that citizens are subservient to the government, the more “civilised” that society becomes. Polly Toynbee probably knows more history than me, but I can think of at least a couple of great civilisations from the past that survived and prospered just fine without 50% top rates of income tax, married couples allowances, earned income tax credits or personal allowances.
And if Polly Toynbee really thinks that the door has opened for a conversation about the government going back to talking half of every pound that you earn above a certain threshold, and preventing citizens from making private financial decisions and transactions at a time of their own choosing so as to limit their tax liability, I am reasonably confident that she will find that door slammed very hard in her face by the British people.
Semi-Partisan Politics 