Whether we tax the rich more or punish the poor, one thing is clear, HMRC collected less revenues in 2011 than it did in 2008.
The economy is smaller, of course. Nevertheless, the New Labour tax cuts - the 2 percent VAT reduction, the stamp duty holiday - also hindered collections. Moreover, these policies did little to restore growth. New Labour's enduring legacy was to dig a big fiscal hole and push the economy into it.
When the coalition arrived, these tax cuts were largely reversed. Revenues have recovered somewhat, but expenditures have continued to grow. The deficit remains dangerously bloated.
The big question is whether we can realistically return to the collections levels of 2008. Back then, the economy was buzzing as mortgage equity withdrawal and rising household indebtedness boosted up consumption. This pushed up VAT receipts and customs duties. Home sales were also higher, generating large stamp duty receipts and higher capital gains tax. The economy was growing nicely. With higher profitability, firms were paying over lots of corporate income tax.
The housing boom has gone, and despite near zero interest rates, the Bank of England has failed to revive property prices. Thus, it seems we are stuck. Tax revenues appear to be permanently lower.
This permanent revenue loss points to need for an equal adjustment on the expenditure side. Yet, we seem reluctant to embrace this new reality. There is this vague and ill formed idea that if only we could tax more heavily the ephemeral one percent of rich people, then our fiscal problems would disappear.Taxing the wealth is never easy. Our complex tax legislation offers ample opportunities for avoidance, and that isn't going to change anytime soon.
Populism will not resolve our fiscal difficulties. We have to look to fundamental expenditure reform. We need to re-prioritize, and reduce expenditures.
It will be a painful and divisive adjustment.
11 comments:
Alice you forgot about inflation. Adjusting for rising prices, tax revenues buy much less now than in in 2008.
Don't forget that for the self employed/wealthy, tax is paid in arrears via self assessment. Also corporation tax is paid in arrears as well I think. Thus money received in 2007/8 will have been earned in 2006/7, the last full boom year. That probably accounts for the peak in revenue being after the credit crunch started in August 2007.
There is also the political dimension.
It seemed at the time that it had dawned on the politicians that they had mucked (or another word) it up big time. The only way back into power in the shortest time possible was a scorched earth policy. Leave others to clear a bigger mess and to take the blame if they were not up to the job.
We needed someone with a clear vision, highly skilled in bringing the disparate parties together and the iron will to see it through to the end.
We got Dave.
Mmm. I was paying about 31% taxes on my salary, which has not risen except by something like 0.03% recently, by now I am paying 34% in direct taxes off the top. And VAT has risen. So at higher direct tax rates and now a very high marginal rate, the books are not being sorted out.
We need radical solutions. I would suggest land confiscations from the Duke of Westminster and all the old Oxbridge Colleges, 33% for the nation, to be put into a trust, whose income is for the nation until the deficit is paid off, and then for education available who want to reach a high technical level in craft and engineering subjects, to reshape the economy.
The present jerks would not want their Eton and Oxford privileges undermined. The country needs to get radical with landed property and education reform.
Grammar School Tyke
Don't forget that Rangers FC owe them quite a bit !!!
@Grammar school tyke: According to this article (http://www.dailymail.co.uk/news/article-1328270/A-Britain-STILL-belongs-aristocracy.html) the top ten private landowners in the UK own around £10bn worth of land. Lets take a third of that (£3.3bn) and invest it at say 5% (you'd do well to get 5% these days) and it would bring you in an income of £165m per year.
The government is currently spending £126bn per year more than it raises in tax. Your £165m would pay for about 12 hours spending out of an entire year.
There is no pot of gold waiting out there to solve our debt induced woes.
Absolutely, what could possibly go wrong with a policy of the government stealing whatever it fancies?
Jim,
I saw the archives of a Cambridge College in the eighties. If land valued only £1000 was owned in the villages mentioned in the first line of the catalogue entry for deeds boxes, the value of agricultural land alone cam to £ 2 billion for that one college alone. But back then it would have been at least ten times that, and now the sum runs in quite a few billion, given share ownership, buildings owned and continued accumulation. Such a trust would yield a few billion a year, and over two decades would be a major factor in rectifying the exchequer.
Moreover, yes, let the people steal the land back. It was stolen from them my conquerors like William, who were not gentlemen but land-grabbing thugs. It should not be for the privileged few; it should be for the nation. The endowments were not given to be spent in the way they presently are. It needs to change.
Grammar School Tyke.
@GrammarSchoolTyke: Trinity College is the richest Cambridge college (source: http://en.wikipedia.org/wiki/Trinity_College,_Cambridge) with a property/investment portfolio worth £800m (others may be worth more, but not in realisable assets - ie their college buildings may be worth a lot, but their financial and commercial land holdings are much smaller). Given there are 16 older colleges that could conceivably have ancient land holdings, a very generous estimate of their total worth would be £10bn.
You've now got another 12 hours of deficit reduction done, a whole day. Only another 364 to go.
Who are we going to expropriate assets from now?
Stamp duty of nearly £10k helped put a block on our recent house move from one 3 bed semi to another.
I resent tax when Dave Cameron splooges it on unworthy causes.
Jim,
I would not believe Wikipedia on this. Most land is owned is not in the Land Registry because the endowments predate the Land Registry, and the law has not changed on that because that is how government and Oxbridge want it. The long rise in agricultural land values over the last decade only adds to the pickle.
Grammar School Tyke
Post a Comment