Taxation truths

 

In  the 22^nd June this year the Observer published an article by Will Hutton containing some useful facts and perspective on taxation in the UK.  This is a summary (published without his permission, but I hope he won’t mind. I have tried to put information from the article in bold type, and my own minor interpolations in ordinary type.)

1.Next year (2026) the UK’s tax take  as a share of GDP will rise to its highest level  in 70 years.   The right-wing press  will have a field-day flaunting this as speculation in the next few months continues about  almost inevitable need to increase the present level.  This post is written in the hope of encouraging a more informed debate.

2.  However, the UK comes only 8^th in a list of 14 OECD countries  with 35.3%  of GDP taken  in tax.  This is just above the OECD average of 33.9% (and no surprise given the need to repair 14 years of “austerity.") France is top of the list with 43.8%  Finland (the happiest country in the world according to a survey published today) is third with 42.4%, Germany  sixth with 38.1%, the USA 13^th with 25.2% (which, of course, does not include universal health care.)

3.The freezing  of income tax thresholds for nearly all of the 2020s means that the number of higher-rate taxpayers has  already increased by about 40% to some six million, and will climb by the end of the decade to eight million.  Britain  has by default  created a very progressive income tax system.

4.On  the other hand, while wealth as a share of GDP has doubled over the past 40 years,  the proportional revenue from taxes on capital and property has scarcely budged.

4.  The contribution from indirect taxes other than VAT has  halved over the last 30 years.  The freezing of  excise duties on fuel alone has cost a cumulative £30bn fallaway in tax revenues.

5.  According to the IFS, there is no unequivocal relationship  between tax share and good economic performance.  All the Nordic countries have higher tax to GDP ratios,  while poorly performing Colombia and the Czech Republic  have lower ratios.  The US is often cited as  an exemplar of the opposite  but its dynamism has as much to do with its continental economy, pool of scientific research  and deep capital markets. (And, as I hint above, I suspect if the amount US citizens spend on health insurance were included they would move sharply up the table.)

6.  The UK is in fact astonishingly entrepreneurial.    We rank third in the world for the number of startups,  and third in the world for hosting “Unicorns” – fast growing companies valued at more than $1bn.

7. If Britain wants the common good outcomes of functioning public services  and a decent social floor than the money will  have to be found. The task is to find the resources to deliver what we know we need  and work out a fair  means of raising tax  that doesn’t deliver perverse outcomes.

8.  Hutton has reservations about a wealth tax, as I do.  It is too difficult to calculate and too easy to avoid.  Well designed council, inheritance and capital gains tax are surer mechanisms.

9. Over a five or 10 year period a system [of council tax] based on today’s values and with wider bands must be phased in.

10.  Fuel duty now only represents 1% of GDP and should be restored to 2%.  As electrically driven vehicles become the norm we need to move to systems of road usage  pricing.

11.  Together reformed car and council tax could yield as much as £50bn, enough not only to help our strained public services but to unfreeze those income tax personal allowances.

12.Hutton reminds us of the famous dictum of Oliver Wendell Holmes Jr that “taxes are the price we pay for a civilised society.”

A Bitterly Disappointing Year

 

During my week’s holiday (walking in Conwy with an Anglo-German group) I’ve completed reading two short books which I picked up almost by accident during my stint as a volunteer in our local library.

The first, by Michael Peel (a journalist with the Financial Times and formerly their foreign correspondent), has the rather lengthy title  “What Everyone Knows about Britain, Except for the British” and argues that we look at ourselves domestically  though a trick mirror, but from abroad we are seen not as the “Great Power” we think we are (and maybe used to be) but as a seedy, incompetent "has-been"and something of a laughing-stock.  The book is, in my view, uneven, and spends rather too long on uncomplimentary comparisons with such as Thailand and Nigeria, but is packed with useful information and perspectives.

Here’s one: “In 2023 the [Conservative} government raised the personal pension investment annual tax-free allowance from £40 000to £60 000 – a perk worth up to £9 000.”  (footnote on page 24).   

For the past 48 hours our Labour government has been desperately trying to reduce the money we spend on allowances for disabled people but, as far as I’m aware, has as yet done nothing to reduce this absurd favour for those rich beyond most people’s wildest dreams.

The second book is a novel by the former Labour MP and Minister Chris Mullen entitled “The Friends of Harry Perkins.”  Published in 2019, three years after the Brexit referendum, it tells  the story  of what the history of the Labour Party, still in Opposition, might have been.

After an unstated time period the fictional new Leader of the Opposition addresses the Shadow Cabinet as follows:

“. . .[We] have to go into the next election with an economic programme  entirely distinct from that  of the current management.  We all know that Brexit is a disaster.   An increasing number of our voters are waking up to that reality.  The issue can no  longer  be  fudged.    An handful of zealots have manoeuvred our country into this position and it is time we stood up to them.”

Instead, in real life,  Sir Keir Starmer and his  Cabinet has spent their first year on a programme which  seems largely indistinguishable from that of the “previous management."

To be fair there have been some progressives moves.  The minimum wage has been increased and the remaining hereditary peers have been kicked out of the House of Lords. 

 But we continue to tax the wrong things (employment with the increase in NICs); fail to tax the right things (land, pollution, extraction of scarce resources)); waste money on vanity projects (the Lower Thames Crossing,  fancy aircraft to carry H-bombs we shouldn't use but  can’t anyway  without America’s permission); maintain poverty-creating measures  (the two-child benefits limit and harsh elements of the PIP system); kowtow to the US (a Royal visit for Trump!); fail to make any substantial overtures to our nearest in dearest in Europe (rejoining the Erasmus scheme if not the Customs Union); and cut back on our “green “credentials  (issuing licences for the further exploitation of North Sea oil and permitting the expansion of airports.)

Although Sir Keir Starmer continues to give some projects aggrandising  titles (“Great” British Railways) and to make his announcements  flaunted between two oversized Union Flags, the government  continues connive at the damage being done to the four areas in which the UK can still validly claim to be among the world leaders.  These are:

 

1.    1.  Information: The BBC is the jewel in our crown, still the world’s  most trusted source of information, yet the funding of its overseas services is reduced, the domestic service similarly threatened with “defunding” and bullied by accusations of  impropriety because it “accidentally” allows a few inappropriate criticism of the  IDF to be broadcast.

2.    2. Higher Education: Our universities still have great international reputations (though not for much longer if they continue to debase the quality of their degree classifications), yet they are starved of funding, some to the edge of bankruptcy , and overseas applications to study here are impeded in order to reduce headline immigration figures.

3.    3. Overseas Development: Again, a reputation of effective development assistances among the best in the world, but instead of reversing the Tory cut of funding from 0.7% to 0.5% of GDP, funding is further reduced to 0.3% of GDP, much  of that spent in the UK to house asylum seekers – hardly development.

4.    4.  The Arts: British  TV programmes (especially comedy), films, music both “pop” and classical, are  admired and enjoyed in many parts of the world, but defunded, hamstrung by visa restriction and squeezed out of the school curriculum

Truly a bitterly disappointing first year.

 Things can only get better. 

On one way for them to do so would be for labour’s leaders not only to listen to their own MPs, but also to the Liberal Democrats and Greens. (See previous post, “The Vision Thing” 4^th November 2024).

Government by “winner takes all” fiat  is failing  even when the intentions are good.  Now we need to move on from talk of “U turns” towards democracy which is “government by discussion.”

The Trinity made comprehensible.

 

Tomorrow is Trinity Sunday

I have two special reasons for being interested in the doctrine of the Trinity. One, because I live in a row of houses called Trinity Terrace, (so named because it says in my deeds that the builder bought the land from the ”Masters and Fellows of the College of the Holy and Undivided Trinity, Cambridge.)  The other arises from an incident when I was at junior school.

I was a fairly biddable school boy, not so much from innate goodness as fear – corporal punishment was rampant - but one occasion when I transcended the rules and suffered the indignity of being “kept in” (thankfully not the “double ruler”) sticks in my mind.

The church in which I was baptised and sang in the choir from about the age of seven had Choral Matins as its main Sunday morning service.  Every month in which there were five Sundays, we sang on the final, extra Sunday the Athanasian Creed instead of the usual Apostles’ Creed.  Whether there was some theological basis for this, or it was just a quirk of the vicar, I have no idea.

When I was in Standard 3, as it was then called, around the age of nine, the teacher said something, I don’t remember what, which trigged me to whisper to my desk-mate “the Father incomprehensible, the Son incomprehensible, and the Holy Ghost, incomprehensible and yet there are not three incomprehensible, but one incompressible.”

“Peter Wrigley, were you talking?”

“Er, well er . .”

“You will stay in at playtime and write down what you said.”.

So I did.  How I spelt it I wouldn’t like to say.  Nor have I any idea what Miss Parr made of the bit of paper I nervously handed to her, but I was allowed to go out and finish playtime.

So, with that background, allow me to explain what I believe is a rational basis of that which St Athanasius found incomprehensible.

God the Father.

It is not irrational to suppose that somehow the universe began.  I hesitate to write that some one or some thing began it, because that implies a person or a physical entity.  Better, I believe, to think of a cause. Better still, a force. 

There is nothing particularly modern about this idea.  The Church of England’s  Thirty-nine Articles, agreed in 1562, stipulate that “God” is not an old man with a long beard, resting on a bed on the Seventh Day, but “without body , parts or passions.”

Maybe the force has a purpose, or maybe not.  Maybe the force is benevolent, or maybe evil, or perhaps indifferent to what happens to the universe and the creatures in it.

Maybe the force intervenes in the universe and the lives of the creature in it.

Maybe not.

Maybe we shall never know.

But it is probably best for humankind to think positively and assume benevolence.

God the Son

The world’s different religions have different interpretations of the nature of the force. or forces, where, as with the Ancient Greeks and Romans, there were assumed to be numerous Gods, each with a different purpose. Our tradition is based on the opinions and teachings of what we call the Old Testament Prophets and what many believe to be the final revelation in the life teaching and example of Jesus Christ, along with  the writers of the New Testament Epistles.   Some regard additions by later sources  (eg the Early Fathers  Julian of Norwich, George Fox, various Papal pronouncements, Don Cupitt) as adding to our understanding.  Muslims go further and believe that Mohammed (peace be upon him) has the final say.

From these revelations we learn that the Force is benevolent, can be simply described as “love,” is endlessly forgiving and, “like a father,” wanting us to love even our enemies and care for each other and the creation.

God the Holy Ghost

Most Christians have already moved on from ghosts and now refer to the “Holy Spirit.” I suggest we can now take a further step and refer to the "Force."  The Force is still at work in the world (maybe even the Universe) and is available, if we so wish, to latch on to in order to help us lead the kind of lives we are intended to live: to strengthen our resolve and to protect us from any “perils and dangers” we might encounter.  This, again is not a fanciful idea.  We all find “safety in numbers” and assume that associating with others with similar aims by some mysterious means creates a bond, a force,  which strengthens and enables us in fulfilling our goals.  Regiments try to embolden their soldiers by appealing to its  “spirit,” traditions and ceremonies: football supporters  assume that cheering the teams creates  a force on spurs them on to victory.

Star Wars provides us with the modern version:  “The Force be with you.”

QED.

Or “Amen.”

It’s not incomprehensible, but perfectly logical and believable.

The Spending Review

 In a recent article on Liberal Democrat Voice (What Rachel is Doing Right, 9^th June) Sir Vince Cable, who was Business Secretary in the Coalition Government, describes  the present Chancellor of the Exchequer, Rachel Reeves, as  “competent, decent and economically literate.”  He itemises three reason for praising her.

1.    1. She has succeeded in persuading the Treasury to regard government expenditure for investment purposes as separate from current expenditure.  This it has been traditionally reluctant to do.  Gordon Brown circumvented the prohibition by the expensive PFI scheme, for which we are still paying dearly.  Serious proposals for public investment during the Coalition were blocked by Treasury resistance, but, on this, M/s Reeves has broken the mould – and “the markets” (as we can see today) have not cried “foul.”

2.    2. She has insisted on balancing current expenditure with current tax revenues.  This has been difficult for a Labour Chancellor since there are obvious Labour priorities  (eg the two child limit, among many others) which ought to be scrapped.  However, Cable recognises that,  after the Truss experience, confidence in the UK’s economic probity  is no longer sufficiently great to risk flouting conventions.  As pointed out above, “the markets” have recognised this.

3.   33.  She has recognised the unfairness of the present distribution of income and wealth in the British economy, with the elderly and established  more than comfortable while the young struggle to achieve the normal necessities of life (a home and a secure job).  She has tried to move the balance  in a more equitable direction by abolishing the universal Winter Fuel Allowance (WFA) for pensioners and the farmland  exemption from inheritance tax. Cable does not go into detail on these two measures so the following justifications are my own:

a)    The WFA for all pensioners was largely a waste of money.  There are about 10 million pensions and 8 million of us are very comfortably off.  When  the “bung” was introduced by Gordon Brown in the late 1990s the Liberal Democrats criticised it as “badly targeted”  Labour’s exemption from the abolition for those pensioners receiving pension credit covered only the bottom 1 million and the next million still needed help, so it was still badly targetted  However the new limit of “annual income less than  £35 000" is absurdly high. Labour got the sums wrong in the abolition and is now being over-profligate in compensation.

b)    The purpose of the exemption from inheritance tax on farmland was to avoid rich people buying land in order to ring-fence their wealth.  This should have been emphasised, and some method of exempting genuine farmers (eg an “active farmer” test as suggested  by Tim Farron) included.  Again, not thought through, and public relations.

Reactions to the spending review have been fairly predictable.  The Tories ignore the distinction between current  expenditure and investment and bleat about the increased borrowing costs (forgetting that most of the payments on government debt come to ourselves, some of it even to me in my modest holdings of National Savings Certificates, and to many in the form of their pension funds).  Conservative  Shadow Chancellor,  Mel Stride, thunders that taxes will rise in October to fund this profligacy.  Well, of course they will, and about time too, not to compensate for profligacy but to repair fourteen years of neglect.

The Liberal Democrats, more constructively, point out that much of the welcome increase in funding for the NHS will continue to be wasted on bed blockers who no longer need hospital treatment but for whom no places in the inadequate care system can be found.  We really cannot continue to ignore this gap in our social provision (and somehow the money has to be found, be the provision private or public.)

 The Labour Government has had a bad first year because it has been hemmed in by the promises of no tax rises it felt were necessary to win the election. In my view they have missed two golden opportunities to break the promise: the “discovery” of the £22bn black hole and, even more credibly, the withdrawal of the USA as the guarantor of the defence of Europe.  The latter in particular was an ideal opportunity  to declare the need for extra taxation, and the right wing would hardly have been in a position to make credible protest.  

 Having missed these two opportunities I hope labour will manage to confect some excuse to enable us to pay for the level of public services we deserve.  Be that as it may, I believe the review shows  they are now steering closer to the right track.

Migration: another shooting in the foot

 For most of my lifetime  the UK has had a Balance of Payments problem.  This is not the much discussed  current problem of the government's expenditure exceeding its income, thus appearing to require  stern "fiscal rules" (though we've had that as well) but the balance of our our external payments.  As a country we have persistently spent more money on the products of other countries, imports,  than we have earned by selling  British products to other countries, exports.

 Imports have to be paid for in foreign currencies.  Exports earn foreign currencies. The two must, in the long run, balance.

One of the main methods of bringing the two into balance has been to make our exports cheaper and so more attractive, and our imports dearer and less attractive, by lowering the value of  our currency , devaluation

When I was a boy we casually referred to five shillings (a quarter of a £, or now 25p) as  "a dollar."  That was because  $4 could be bought for £1.  (To be exact, slightly more, $4.03). A half crown (2/6d) was "half a dollar" in schoolboy slang. 

In 1947 the government devalued the pound to £1=$2.8.   So British products abroad become roughly 1/3 cheaper, and imported products 1/3 dearer.

 However, it didn't do the trick in the long run so in 1963 we devalued again to £1=$2.4 

That didn't do the tick either, and from 1972 onwards the £ has been allowed to float: find its own level according to market forces.  Today it is valued a $1.35.

If you  plot those figures on a graph: 4.03. 2.8. 2.4, 1.35,  against time you will have an accurate picture of the efficiency of the British economy over the past 80 years under the stewardship of the two major parties.

 To continue this simple guide.

 We automatically think of exports as products sold abroad.  But they needn't be.  If foreigners come here and buy products  that is as much an export as sending the product to their country  to sell it there.  Tourists coming here and spending their money  on hotel bills, transport, restaurants, theatres,  souvenirs etc.  are therefore adding to the "exports" side of the Balance of payments.

Similarly when we go abroad and send our money, which we have changed into foreign currencies, that is the equivalent of importing.

So, to get to the subject of the post,  foreign students coming here  to buy our education, and while they are here renting rooms, eating meals, travelling, going to the gym, buying clothes, going to concerts etc, are making a contribution to our export earnings.

On Thursday a substantial decrease in the the level of immigration was announced.  Sir Keir Starmer took the credit: Labour's policies were working.  The Tories insisted that the reduction was actually the result of their policies. 

A large part of the reduction is due to increased restrictions of foreign students.

 Having spent all of the post war years making desperate  attempts to boost our exports, the two major parties are now competing  to claim the credit for cutting them

 You couldn’t make it up.

 

Language! No change there then.

The one thing Labour promised us in last July's election campaign was "change."  But most  people, whose major obsession is not politics,  can be forgiven for thinking that what we've been getting is the mixture very much as before.

 This is particularity true of  of the political debate itself, which continues to be conducted in intemperate, inappropriate and exaggerated language.

 Last week was immigration week.    Sir Keri Starmer, not in the heat of the moment but at his podium flanked by two Union Jacks, solemnly intoned that a "squalid" chapter of our politics (allegedly open immigration) had damaged our country "incalculably" and that Britain risks becoming "an island of strangers."  That last comment at least will make a fitting addition to the distasteful  Tory list of Enoch Powell’s "rivers of blood,"  Boris Johnson's "piccaninnies" and Theresa May's "hostile environment." 

This week started as Brexit-reset week.  Sir Keir hailed his achievement as "putting Britain back on the world stage," Rachel Reeves declared us now "the world's best placed country on trade."

 What excessive nonsense: it is nothing of the sort.  Nor is it the "betrayal" or "surrender" that the right-wing press dutifully insists.

 It is a measured but modest step in the direction  of improving the botched settlement by which the Johnson government "got Brexit done."

 For a restrained and rational discussion on the benefits of immigration please see the previous five posts.

 Here is a brief assessment of the of the changes the "reset" has made to our relations with the EU.

1. On everything, much of the detail still remains to be settled.

2.  On defence: we shall co-operate, may get a share of the EU procurement budget, but will have to pay a contribution.   A useful move in the right direction.

3. On mobility: only for youth, and nothing settled as yet.  

4.  On Erasmus +  (students and apprentices):  nothing at all

5.  On export of animals and plants: substantial reduction of SPS checks.  A major advantage for farmers and food exporters.

6.   On greater freedom for artists( musicians  etc.) to tour:  nothing at all 

7.  On mutual recognition of qualifications: nothing at all.

8.  On fishing : a curate's egg - great for Scottish salmon farmers, not so good for the fishing fleets

9.  On energy: should result in lower electricity bills.

 The discussions are to be repeated annually.  We have made a positive start, re-established ourselves as credible and supportive partners, though still very firmly a "third country," and cleared  the decks for future progress.

Let's hope the discussions and reporting of the completion of this round, and preparations for the next, can be conducted in a restrained and patient manner.  Personally I should like us to rejoin tomorrow, but that is not (yet) politically possible  Nor do I think the EU would at present be wiling to accept us back.  But slow and steady may eventually restore sanity. 

Part of our problem is the speed with which the debate moves.  One day it's  migration, then  BREXIT, then Garry Lineker, then starvation  in Gaza, and  today Trump's attempt to bully Cyril Ramaphosa, and two young Jews assassinated in the US. Perhaps hyperbole is the only way of catching our attention.  We never give ourselves time for thoughtful discussion

Welcome Immigrants (5)

 A final word from "Bridges not Borders" (See previous posts)

 " We may not be able  to open all borders tomorrow, but we need to make a start.   We need to begin working towards achieving the conditions that could make this a reality, for example greater global wage parity, universal standards for workers' rights and meaningful cross-border  environmental protections.    We must strive  for a more equal world where people are not forced to migrate, but instead have the right to move  as well as not to move.

 This might all sound  like a naive Utopian dream, but so too did many major struggles  for social change in the past.  We must start imagining  in the way those who went before us did, those people who fought for  a very different world at a time when it seemed impossible." 

These extracts from the "Global Justice Now" pamphlet were written by Aisha Dodwell.

 For further and  better particulars  see: globaljustice.org.uk/migration. 

If you agree with the sentiments, if not all the detail, why not join "Global Justice Now," 66, Offley Road, London SW9 0LS (020 7820 4900)?