TPA research raised at Prime Minister’s Questions
Oct 2014 29

Henry Smith MP raised recent TaxPayers’ Alliance research, undertaken by Harry Phibbs, at Prime Minister’s Questions today in the House of Commons. He asked David Cameron to address the fact that  public sector unions are enjoying subsidised office space up and down the country.

Department for Transport’s economics go off-track
Oct 2014 29

Today saw the publication of a quietly damning National Audit Office report into the ability, or lack thereof, of the Department for Transport to effectively analyse large-scale transport projects.

It does not make pleasant reading for anybody concerned about transport infrastructure in the UK.

The Department has failed, the report says, to adequately challenge economic analyses “where there is strong pressure and lobbying (by Government) for a programme to go ahead.” In short, in situations where politics has been put before policy. The estimated positive impacts of HS1 were said to be “over-optimistic,” and that the Department should have engaged in a “sense-check” before going ahead with the project.

On HS2 – and this is worth quoting at length:

“The original benefit-cost ratio for the first phase of the High Speed 2 programme at 2.4:1 was considerably higher than ratios for other programmes but the Department did not query why this was the case. Later on, it identified that errors in modelling had the effect of some benefits being double counted. After this was corrected and changes made to some other assumptions the ratio is now 1.4:1.”

Let’s reflect just for a moment on the fact that the Department for Transport, which along with the Treasury has signed off £50 billion of borrowed money to this project, made such substantial errors that they overstated the cost-benefit ratio of the project by almost double but refused to look again at this clearly unusual forecast until pressure from politicians and taxpayers forced them to commission another report into the strategy behind the project. There is also by no means a consensus that the new benefit-cost ratio is sound, with both the IEA and the IoD (full disclosure: the latter article was written by me for my previous employer) casting significant doubt on the ability of HS2 to regenerate the north or that it would address the concerns of business travellers. In a series of reports, we’ve demonstrated too the hidden costs of the project, that it won’t solve Britain’s capacity issues, and that it won’t deliver the jobs we are told.

 Adding to the criticism, the NAO suggest that “finance choices have been based on what the government can afford or on policy rather than value for money.” It’s no wonder that only 27% of business leaders think the project will deliver on the latter metric when it’s a third consideration for the Department.

The report concludes that the Department has “not made as much progress” on “developing clear strategic business cases and scrutinising economic analysis of the estimated benefits of new railways.” Perhaps more worrying, there is also the suggestion that the Department has not been “monitoring and evaluating benefits against (a) programme’s original objectives and using evaluation to inform future programmes.” If we’ve failed to learn the lessons from badly off-track the projections for HS1 were, one would suggest it’s unwise to bet £50 billion of taxpayers’ money that this time it might be different.

Taxpayers are entitled to feel concerned indeed that all parties are blindly pushing ahead with HS2 at a time that the Department is being criticised for an inability to properly analyse the impact it will have. Politicians enjoy announcing grand projects and cutting red ribbons at opening ceremonies. HS2 might make for a good press release, but it’s bad for Britain.

Time for honesty in our tax system
Oct 2014 27

The Times’ Philip Webster’s “Red Box” email briefing this morning carried some interesting polling in light of calls for more funding of the NHS (which I discussed on this site last week).

To pinch liberally from the briefing, the question asked was “If spending more money on the NHS was the only way to keep the current standard of services, would you be willing to see the basic rate of income tax rise from 20 per cent to 21 per cent to fund the NHS?”

Some 67 per cent of respondents said yes – when the question was changed to a 22 per cent rate, that dropped to 51 per cent. When asked about a 25 per cent level of basic income tax, however, support dropped to just 26 per cent with a full fifty per cent of people against the idea. Only 15 per cent liked the idea of a 30 per cent tax rate.

But here’s the rub. Because of National Insurance, with the employee’s rate at 12 per cent and the employer’s rate at 13.8 per cent, the real basic rate of tax isn’t 20, 25 or 30 per cent. It’s 40 per cent!

That’s why we’ve been calling for years for Income Tax and National Insurance to be merged. The latter long ago ceased to be different from the former in any meaningful way, and ends up in the same pot once they both get to the Treasury.

Our campaign video below makes the case for more honesty and transparency in the tax code, so that people know exactly what they’re handing over to the taxman. It’s time to abolish National Insurance.

NB: The “Red Box” email is well worth subscribing to, as is The Telegraph’s excellent Morning Briefing, compiled by Stephen Bush.

The time is now for Real Recall
Oct 2014 27

Other than perhaps estate agents or bankers, it’s hard to think of a group of people more unpopular than Britain’s political class. Votes for fourth parties – of both green and purple stripes – are often explained by disillusionment with the Westminster elite, amidst a festering sense that the representatives we send to Parliament still don’t entirely understand the disconnect between the elected and the electorate that has been created by scandals and broken promises.

But now, that so-called elite has a chance to take a vital first step in rebuilding the bridges not so much burnt as demolished. The power for voters to recall errant MPs has been long discussed, but the Recall Bill will go before a Committee of the Whole House today – giving Parliamentarians the chance to amend the current fudge of a Bill in favour of one that delivers real recall.

The vast majority of MPs are hard-working, decent people, but all of their good work can disappear in a headline from Portsmouth South (Mike Hancock MP) or a 32-second apology in the Commons (Maria Miller MP). In short, whatever they’re doing at the minute to rebuild the link between them and their voters isn’t working.

That’s why this Recall Bill is crucial, and why it is so worrying that the current proposals are as weak as they are. In truth, though this Bill looks like recall and sounds like recall, it’s nothing of the sort. Real recall would allow an individual voter to take up a clipboard and start petitioning fellow constituents to recall a misbehaving MP. That’s what we were promised by the Coalition back in the days of the Rose Garden, but that’s not what we’ve been given. Far from real recall, this Bill would give a committee of MPs the power to decide whether an MP is to be eligible for the process. This grubby little stitch-up of a proposal would only centralise it further and do nothing for the reputation of Parliament.

To call the current proposals a fudge would be an insult to Cadbury’s. That’s why we, along with 38 Degrees, have been pushing all parties to introduce real recall by supporting amendments as the Bill has made its way through the Commons. These amendments, tabled by Zac Goldsmith MP, would take the parliamentary committee out of the process, leaving voters as the only arbiters.

These amendments do of course have safeguards in place: an MP would only be subject to a by-election if three, increasingly high, thresholds for citizen discontent were met – and recall has been sparingly used in the numerous countries and US states in which it exists. Fears that disgruntled members of the public would cause political paralysis with endless recall petitions are misplaced, and betray a view of the electorate that does Westminster no favours. Despite what it might look like from a brief look at twitter, the vast majority of people in this country take their democratic responsibilities seriously.

The list of MPs supporting the amendments has expanded rapidly. Real recall would not only be a symbolic step forward for democracy, but would end safe seats for life. It would focus the mind of any MPs who might err. It would turn democracy into a full-time affair, not a five-yearly jamboree. It says something that the TaxPayers’ Alliance and 38 Degrees are working together, and it’s not often Douglas Carswell MP and John Mann MP are on the same page. We may not always see eye-to-eye on policies, but strengthening our democracy is something we can all get behind.

It is ironic that if the Bill goes through as it is, a political measure designed to bring Westminster closer to the people would only push them further apart. If Parliament is to restore its reputation, it must show it trusts voters and support Zac Goldsmith’s amendments today.

The NHS has enough money. It needs to spend it better.
Oct 2014 23

“NHS needs extra cash and overhaul” scream the headlines today, with NHS England boss Simon Stevens making the case for an additional £5bn in funding per annum to stave off a funding crisis.

There is no disputing Simon Stevens’ dedication to the NHS. He took a significant pay cut to take the job when he left private provider UnitedHealth, and has since then advocated a sensible approach to funding the NHS. But his call today did rather smack of hoping that ever more money will solve deeper-rooted problems.

Historically speaking, the NHS between 1979 and 1997 saw spending increases averaging 3.2% in real terms. The NHS Budget very nearly doubled between 2000 and 2010, and has been protected from the necessary savings that have been par for the course in other areas. Yet, as the National Audit Office noted in 2010, that didn’t necessarily translate into better hospitals.

“Over the last ten years, there has been significant real growth in the resources going into the NHS, most of it funding higher staff pay and increases in headcount. The evidence shows that productivity in the same period has gone down, particularly in hospitals.”

Why? More money created more middle managers. More money created higher pay . My colleague Alex Wild did a fantastic job last week demonstrating where a lot of that money went. Spoiler: the pockets of executives.

More money certainly didn’t do anything for the patients at Mid Staffs screaming in agony down empty corridors.

This is why today’s announcement, and the NHS arms race we saw during party conference season in which every leader assured more funding and more nurses, is the wrong way to go about delivering a health service that works in ten or twenty years. In today’s Daily Telegraph, Andrew Haldenby, the director of the think tank Reform, makes this argument in a most compelling fashion.

We need to think more critically about the long-term, and about cutting out waste and inefficiency. Our research demonstrated £50 million a year is lost on PR officers and non-jobs; last week, The Times reported on some £5 billion worth of inefficiencies. That’s money that could be on the frontline. That’s before we mention the seemingly endless financial black hole that appears whenever the NHS – or any Government department – attempts to tinker with its IT systems.

Governments are in a tough spot, of course. Reform the NHS, and you’re accused of meddling, opposition politicians ready to barrack you for fiddling with the “envy of the world.” Some of the reforms announced by Stevens today will save money in the long-term and should improve care for patients, but we need to go much – much – further.

And we need a little more honesty about the debate. Last year we spent just over £50 billion on debt interest, half the budget. As Norman Lamb, the Health Minister, said in his speech at Liberal Democrat conference:

“Yet, as our national debt grows year by year as we borrow to keep public services going, so the amount we spend on interest to service that debt grows.

“Every pound we spend on interest on debt means a pound not spent to support someone with dementia, to provide therapy for someone with severe mental ill health or to ensure that a cancer patients gets access to drugs that can keep them alive.”

Never let it be forgotten that Britain’s national debt is the greatest challenge to the NHS, to the police, to the fire service, to local government social care and to every other essential public service. In short, every decision must be made with the intention of bringing the deficit down. And with that in mind, regrettable as it is, it’s impossible to support any calls for more NHS funding.

Expenditure data: HM Treasury

Nine Mansion Tax questions for Ed Balls
Oct 2014 20

Shadow Chancellor Ed Balls wrote in today’s Evening Standard about his alarming Mansion Tax plan. So, Mr Balls, can you answer these nine questions:

1. What bands and how much?
You said that those in homes valued between £2m and £3m will have to pay an extra £3,000 a year. But what would the other bands be, and how much would be payable in each band?

2. How many homes will drop out?
Having to pay a Mansion Tax will mean buyers won’t pay as much for a home as they would have done. Have you estimated the impact on prices of the Mansion Tax, and how many homes would fall a band or fall out entirely because of the tax?

3. How much less from Stamp Duty etc?
A Mansion Tax will reduce house prices, which means the Treasury won’t collect as much in taxes such as Stamp Duty and Inheritance Tax . Have you estimated the impact that lower prices will have on overall revenues from Stamp Duty, Inheritance Tax and other taxes?

4. How many widows will defer?
Have you estimated the impact on revenues from allowing low-income homeowners such as widows to defer payment, also known as the “death tax”?

5. How will the “death tax” trap affect the housing market?
Some low income homeowners will avoid moving so they don’t have to pay their deferred Mansion Tax when they sell. Have you estimated the impact on the housing market from the “death tax” trap of deferred tax bills building up, keeping larger homes out of the market and restricting associated economic activity?

6. Will it really raise £1.2 billion?
Even without modelling for deferment, the impact on prices reducing the numbers and the loss of other revenues such as Stamp Duty and Inheritance Tax, our estimates assuming charges ranging from £3,000 to £30,000 a year would yield only £830 million. How have you calculated your estimates?

Using estimates from Knight Frank last year on the number of homes in each of the bands below, we guessed some charges you might introduce for bands over £3 million. These charges range from the £3,000 a year you mentioned for homes in the £2m-£3m to £30,000 for homes over £10 million. As you’ll see, the total revenues add up to £415 million. Since then, Knight Frank have confirmed that the total number has risen from 55,000 to 110,000. Even if you assume the revenues double, too, this only yields £830 million, well short of your £1.2 billion target.

Band Monthly charge Annual charge No. of properties Revenues, £m
£2m-£3m             250            3,000          24,200 72.6
£3m-£4m             400            4,800          11,000 52.8
£4m-£5m             550            6,600            7,150 47.2
£5m-£10m          1,200          14,400            8,800 126.7
£10m+          2,500          30,000            3,850 115.5
Total          55,000 414.8

7. How will you avoid massive cliff-edges?
Our estimates suggest an annual Mansion Tax of £14,400 for a home valued at £9.9 million but a £30,000 bill for a home valued at £10 million. That creates a huge cliff edge with a substantial distortionary impact. These amounts will have to be even bigger if the tax is to raise the £1.2 billion you claim, meaning even bigger cliff edges. How will you avoid these cliff edges?

8. What if a future Chancellor freezes thresholds?
So many taxes, like Stamp Duty, Inheritance Tax and Income Tax started out as taxes only for the rich. You say that this time it’s different. But how will people be sure that a future Chancellor won’t freeze the thresholds?

9. Why not add Council Tax bands instead?
We don’t need higher taxes, we need to cut waste and cut taxes. People who have bought expensive homes will typically have paid vast sums in Stamp Duty to buy them and Income Tax, Capital Gains Tax or Inheritance Tax to raise the money to buy them. But if you really must tax these people more, couldn’t you have chosen a simpler way that wouldn’t make our tax code even more complicated than it already is? Why have you chosen to campaign for a whole new tax with new thresholds, valuations, rates, bands and rules instead of simply adding new bands to Council Tax?

TPA Annual Review 2013 – 2014
Oct 2014 16

After another successful year, it’s time once again for our Annual Review. In our tenth year, we’re trying a new format – quite obviously inspired by our Chief Executive Jonathan Isaby’s journalistic past!

Taxing Times can be found via the ‘about’ section of our menu bar, using our on-line viewer or by downloading it for yourself.

Why Australia’s Treasurer isn’t sure whether Corporation Tax will still exist in 20 years time
Oct 2014 14

Will Company Tax still exist in 20 or 30 years’ time? Good question. I don’t know. But I’d like to find out the answer.

Australia’s Treasurer, Joe Hockey, answered my question with refreshing honesty at a lecture hosted by the Institute of Economic Affairs about the future of corporate incomes taxes (“Corporation Tax” in the UK).
Joe Hockey IEA twitter pic

I pointed out the relentless downward pressure on average corporate tax rates in the OECD and how some small countries like Estonia have abolished corporate income taxes, instead taxing distributions of funds rather than profits. Much like our corporate tax proposals outlined in by our 2020 Tax Commission‘s Single Income Tax.

I asked if Australia might be the first big economy to bow to the inevitable and follow suit. After joking that he would indeed announce that he was abolishing the tax at the lecture, he discussed the challenges with relation to corporate and cross border consumption tax issues, including the OECD’s Base Erosion and Profit Shifting initiative.

At some point, the downward pressure on Corporation Tax rates will become too great for a big economy to resist abolishing it entirely. The substantial simplification and transparency benefits, along with the considerable wider economic benefit from effectively removing taxation from investment will become too big relative to the revenue additional revenue it raises in comparison to a tax on distributed earnings.

It’s a pity our politicians are so timid that they would prefer to wait until they have no choice rather than seize the competitive advantage available from being the first country to do it.

Cameron’s was a “positive speech for taxpayers”
Oct 2014 01

Responding to the Prime Minister’s speech at Conservative Party Conference and the announcement of two major taxation policies, Jonathan Isaby, Chief Executive of the TaxPayers’ Alliance, said:

“This was a positive speech for taxpayers, with tax cuts for the lowest paid and long-overdue relief for ordinary people being clobbered by the higher rate of tax. Leaving more of people’s money in their own pockets is not just morally right, but the best way to promote economic growth and long-term prosperity. Taxes in Britain have been too high for too long, and the Prime Minister is absolutely right to want to bring them down for hard-pressed working people.

“The next step must be to bring National Insurance thresholds in line with Income Tax, taking those on the lowest pay out of tax altogether.”

Our reaction to the Chancellor’s speech: Much more must be done
Sep 2014 29

Responding to the Chancellor’s speech at Conservative Party Conference, Jonathan Isaby, Chief Executive of the TaxPayers’ Alliance, said:

“The Chancellor is spot on that you can’t tax your way out of a deficit, and that Britain’s astronomical debt must be dealt with. However, much more needs to be done to face up to the huge challenges Britain faces. That means radical tax reform, a war on waste, and another hard look at public spending.”

On the freeze of working age benefits, he continued:

“Freezing benefits is a necessary step towards restoring discipline to our public finances, and ensuring that taxpayers get a fair deal from the welfare system. The benefit system must support those in need and help people into jobs, but can never become a long-term alternative to work.”

On the headline measure to abolish the 55% “death tax,” he continued:

“A tax cut – any tax cut – is always welcome, but piecemeal measures like this don’t represent the radical reform our tax system needs. Britain needs more vision, more ambition, and more boldness from all of its political leadership.”

Ed Miliband’s new taxes are “lazy and dangerous”
Sep 2014 23

Responding to Labour’s plans to introduce a number of taxes and increase spending on the National Health Service, Jonathan Isaby, Chief Executive of the TaxPayers’ Alliance, said:

“This was sixth form socialism of the most uninspiring kind. It is lazy and dangerous to implement populist measures that won’t raise the money politicians promise. Windfall taxes will hurt pensioners who rely on stable returns for a comfortable retirement, sin taxes hit the poorest hardest, and a Mansion Tax would be a vindictive gesture that will eventually find its way down the property ladder to hit much less expensive homes, too.

“If we want more money for essential services and cancer drugs in the NHS then there must be a serious and sustained war on wasteful spending, alongside a rigorous reassessment of priorities.”

Facebook page provokes Council backlash in Berwick
Aug 2014 19

Berwick Town Council has spent £1,511 threatening a Councillor over a facebook page exposing the alleged misuse of Council powers and funds, it is claimed.

The page focused on the perceived turmoil and confusion caused by the Councils’ decision to take over the management of Berwick’s Portas Pilot, a project focused on regenerating Berwick Town Centre with £100,000 of taxpayers’ money, as well as other uses of the Town Clerks’ delegated power to award council money to projects and subcontractors.

After raising questions around these decisions on the facebook page the whistle-blower received an email and later a letter demanding that the posts be taken down. These legal steps allegedly cost the taxpayer £1,511.

Questions have been asked over the legality of the launching of these legal proceedings as it is alleged that the decision was made outside of a properly constituted Council meeting, by four members of the Council Finance Committee, without the apparent knowledge of the Town Clerk.

Taxpayers’ could question whether raising legal actions against a member of the public attempting to scrutinise controversial uses of taxpayers money is the best way to spend scarce resources. A Council spending taxpayers’ money should not reject taxpayers’ scrutiny.

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