The Chancellor announced in the last Budget that the Government will look into integrating “the operation of National Insurance” with Income Tax. But fiddling with the operation is not enough and the Government’s repeated delays on both their pensions white paper and National Insurance consultation suggests that something bolder might be on the cards.
Come and listen to our panel discuss how the Government could abolish National Insurance from 6.30pm. Doors will open from 6pm.
Richard Baron is Head of Taxation at the Institute of Directors and will chair the panel. He will be joined by David Ruffley MP, Rory Meakin and David Martin.
David Ruffley is the Member of Parliament for Bury St Edmunds and is a member of the influential Treasury Select Committee.
Rory Meakin is Head of Tax Policy at the TaxPayers’ Alliance and will discuss the new Towards 2020 report How to Abolish National Insurance which will show how it can be done in three simple steps without losers.
David Martin was recently Head of the Tax Department for a large City law firm. David wrote Abolish NICs for the Centre for Policy Studies in November 2010.
The event is by invitation only and places are limited. So if you would like to join us, please email your name and organisation (if applicable) to [email protected]
The overall burden on companies of Britain’s tax system has risen up 2 places in a world ranking compiled by the World Bank and PwC. It’s not often that British taxpayers get something to smile about and our smiles won’t be that wide at this news, either. We’ve climbed up from 18th best to the giddy heights of 16th.
While movement up the table is welcome, the fact that the UK is just a place above Kazakhstan and five places below where it was in 2006 shows that there’s a lot that’s left to be desired. So what’s dragging us down the league tables?
The report cited our system’s devilish complexity as a principal reason for the UK’s poor position in the table.
The problems are well illustrated by the fact that while an average sized business in the UK has to make eight tax payments a year and spend 110 hours on tax compliance, a similar sized company in the United Arab Emirates (UAE) makes half as many payments in a tenth of the time. But it’s not just the UAE. There are 20 other countries which also don’t require businesses to spend so many hours preparing their tax returns.
Rates don’t help, either. Corporation Tax in Ireland stands at just 12.5 per cent compared to 24 per cent in Britain. It’s blindingly obvious why major corporations don’t want to base their operations here.
Tax regimes in oil-rich middle-eastern countries are flattered by the value of the oil captured by governments in those countries. So Britain can’t be directly compared with them. But among the top ten systems are Canada, Singapore and Ireland. There’s no reason why we shouldn’t aim for a better system than Canada’s, for example. Business is crying out for tax simplification – 79 per cent of directors want Income Tax and National Insurance fully merged for example. Our recent Towards 2020 paper How to abolish National Insurance shows the Government how it can merge the system without creating large groups of losers.
The 2020 Tax Commission’s final report The Single Income Tax outlines the complete overhaul of UK taxes that any Government intent on pushing Britain back up the tax tables. Radical reform would boost enterprise, create jobs and restore growth to our flat-lining economy. It’s time the Government got to work. Taxpayers deserve better than 16th best.
Pensioners, the self-employed and other groups would benefit from our proposal to abolish National Insurance, I explain at ConservativeHome:
For decades, lancing the ugly boil of National Insurance from the none-too-pretty face of the British tax system has been on the wishlist of tax reform campaigners and payroll professionals. The complicated system of weekly ‘contributions’ has long since twisted out of its original insurance shape into the current reality of being just another tax on income. Different rules on things such as when it’s applied, who is liable, what is ‘employment’ and what’s allowable as an expense make for a nightmarishly fiddly system that’s a major headache for employers and anyone trying to work out how much they have to pay.
I wrote in CityAM about how our new How to abolish National Insurance report shows that it can be done in three simple steps:
AS GEORGE Osborne approaches his Autumn Statement, there’s reason to hope he may finally do something about a tax albatross that hangs around the necks of employers and workers alike: national insurance.
A consultation on integrating national insurance with income tax was first announced in the 2012 Budget, scheduled for this summer and then postponed until the autumn. It’s November now, and it still hasn’t been launched. There’s also been no word on the white paper on state pensions reform, which may involve decoupling pensions from national insurance contributions. These long delays suggest reform may finally be on the cards at last.
Last week Richard Baron – Head of Taxation at the Institute of Directors – and Eamonn Butler – Director of the Adam Smith Institute, spoke to a packed audience at our offices in London about the morality of tax. It was a fascinating discussion and, for those of you who couldn’t make it, a video of the speeches is now available online. You can read more in the final report of the 2020 Tax Commission, the Single Income Tax.
We’re keen to spread the word about the 2020 Tax Commission’s innovative proposals not just around the whole country but internationally, too. I wrote an article for the Institute of Public Affairs’ IPA Review on how The Single Income Tax could benefit Australia as well as Britain:
Australia’s tax system has its problems. Too complicated, too many special allowances and specific taxes, and too much money drained out of the pockets of working Australians. But things could be worse. Australia could have the British tax system, instead. Imagine a system that imposed tax rates on labour income which, when you add them all up, are as high as 66 per cent.
Our 2020 Tax Commission has been cited in the House of Commons chamber twice this week by MPs urging the Government to simplify the tax system.
Apart from the merit in making an over-complex system more comprehensible for all of us, a simpler system would cost less to administer and massively decrease the incidence of tax avoidance.
Questioning Treasury Minister David Gauke on Tuesday, Esher & Walton MP Dominic Raab (video above) specifically urged the Government to merge National Insurance and Income Tax, on which we have been campaigning for some time.
Alas the Government for now is only willing to look at merging the operation of the dual systems, which is why we will be continuing to keep up the pressure on ministers to implement the proposals of the 2020 Tax Commission which include a full merger of National Insurance and Income Tax amongst many other simplifications.
Yesterday, meanwhile, Wycombe MP Steve Baker (video below) was part of a cross-party chorus from all corners of the House of Commons chamber calling for “radical tax simplification”.
Pressure is mounting on the Government to cut Capital Gains Tax following Liam Fox’s call for a 3 year suspension and a ‘pointmaker’ paper by the Centre for Policy Studies which says that the tax is too high even by the Treasury’s own analysis.
Former Defence Secretary Dr Fox told The Times that the Government should, for at least three years, abolish Capital Gains Tax, a key (but permanent) proposal of our 2020 Tax Commission’s Single Income Tax, to “do something that ricochets around the world”:
We should simply throw down the gauntlet and say that we are cutting our taxes, we are making Britain more competitive, we are going to reform our labour laws, make hiring and firing easier and do what we know works because it’s worked before.
The Centre for Policy Studies, meanwhile, has published The Case Against CGT, pointing out that if the Treasury thought that 28 per cent was the revenue maximising rate when Income Tax was 50 per cent, due to the incentive to disguise income as capital gains because of the gap between the two rates, 28 per cent must logically be higher than the revenue maximising rate when the top rate of Income Tax falls from 50 to 45 per cent in 2013. The paper also states:
The overwhelming conclusion of the economic literature is that the optimal rate of CGT is zero. If the Coalition really does want to increase economic growth by being bold in tax reform, that should be its goal.
In a major Centre for Policy Studies speech on boosting competitiveness titled “There is an alternative: why the government needs a growth policy and how to achieve it”, David Davis has today urged the Government to start delivering the 2020 Tax Commission’s Single Income Tax, which he described as “brilliant”:
The government needs a coherent long term strategy for a genuinely lower flatter tax.
There is no need to reinvent the wheel here.
There was a brilliant exposition of what is necessary published by the TaxPayers’ Alliance only a few months ago.
This strategy would eliminate the vast complexity of our tax, destroying the chance of tax evasion as well as reducing the problems the government are currently having with avoidance.
Most critically it would cut down the economic distortions and the handicaps to growth that that creates.
It will take 10 years to deliver but we should start now.
Liberal Democrat leader and Deputy Prime Minister Nick Clegg has called for a fresh tax raid on the rich. Mr Clegg cited the prolonged economic stagnation as a reason to hike taxes further still:
If we want to remain cohesive and prosperous as a society, people of very considerable personal wealth have got to make a bit of an extra contribution. In addition to our standing policy on things like the mansion tax, is there a time-limited contribution you can ask in some way or another from people of considerable wealth so they feel they are making a contribution to the national effort? What we are embarked on is in some senses a longer economic war rather than a short economic battle.
It’s clear that the Deputy Prime Minister just doesn’t get it. Almost everyone is struggling financially and taxed too heavily already, so trying to load a burden on the rich might seem reasonable to people who are rightly angry about how much tax they are lumbered with themselves. But a new, stronger, more powerful dose of fiscal crack cocaine is not the answer to our government’s debilitating tax-and-spend addiction.
Former Labour Chancellor Denis Healey warned successors off the practical difficulties involved with a wealth tax:
We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.
The 2020 Tax Commission’s final report, A Single Income Tax, fully explains (starting on page 323) the overwhelming case against wealth taxes from the unfairness of ‘dry charges’ to the devastating economic impact of ‘capital flight’. Recently, the Irish, Dutch and Italian governments have cited capital flight as a reason why they have all abandoned their plans for wealth taxes. In addition, the report also quotes the Financial Times reporting that the Swedish government’s decision to scrap its wealth tax in 2011 will have almost no effect on its finances because the tax was so damaging to the Swedish economy:
The move will have virtually no effect on government finances. The tax raises around SKr4.5bn a year from just 2.5 per cent of all tax payers, but it has been blamed for years of massive capital flight from the country estimated at up to SKr1,500bn.
Excessive spending and high, complex taxes are the cause of the economic malaise we’re stuck in. More taxes, especially a wealth tax which even Dennis Healey rejected due to its disproportionate economic damage, are not what we need to reinvigorate out economy. We need to simplify and cut taxes to boost our economy and we need to cut spending to close the deficit and pay for the tax cuts we all need.
Just 16 per cent of the public trust George Osborne to see the country through the recession, according to an opinion poll by ComRes for ITV. Meanwhile, a survey of business leaders for the Institute of Directors found that 54 per cent thought attempts to reduce taxation have been ‘ineffective’, 62 per cent were critical of attempts to simplify employment law and 68 per cent similarly dismissed attempts to ease the burden of business regulation.
It’s not hard to see why. The Government as a whole and George Osborne in particular have talked about ‘austerity’ and ‘difficult choices’ so much that it is a common misconception that public sector spending has been cut. It has not. In fact, I wrote yesterday about how spending in July this year was up by 5.1 per cent compared to July 2011.
The rhetoric may be useful in terms of ensuring the public are (more than) fully prepared for the moderation in spending growth that the Government has implemented, and the cuts to specific programmes and bodies that it has undertaken. It may also be useful for calming bond markets and convincing them that the British Government will indeed eventually bring spending down to match tax revenues. But one thing it is also doing is depressing confidence among people employed in and reliant upon contracts from the public sector.
This would be more than counteracted by the confidence of consumers with more disposable income and businesses with readier access to freed up resources if the rhetoric were backed up with action on spending cuts and the tax cuts they would allow. But consumers are still paying high taxes and businesses are still being priced out of labour, property and product markets due to competition from the public sector, killing off potential growth, jobs and prosperity.
As many are now saying, public spending is rising too far, too fast. It’s time to wield the axe and cut tax, Mr Osborne.
If you deal with tax every day, as the Revenue does, and are expert on the subject, this is probably fine. But if you do other things for a living and come across tax only once a year, you probably won’t have much of a clue.