Taxation truths

 

In  the 22^nd June this year the Observer published a useful 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 g 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.”