Tuesday, Mar 30, 2010
Now is the time to leave the UK
Citywire: A VAT hike wins City backing
Economists told MPs that a VAT hike would be well received by the City as it would be a transparent, measurable move to cut the country's growing debt pile and would remove uncertainty.
Posted by mark @ 11:23 AM (2104 views) Add Comment
49 Comments
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1. greenmind said...
VAT hits those on lower incomes the hardest - no wonder the "pinstriped scargills" want it.
2. jack c said...
It also catches those who operate in the black economy
3. uncle tom said...
"It also catches those who operate in the black economy"
Helps them, more like..
"No income tax, no VAT, no money back, no guarantee..."
- My guess is that a VAT hike is a near certainty, soon after the election.
4. jack c said...
UT - agreed, VAT rise an odds on certainty - it could jump to 20% and It does catch people in the black economy - for example if you genuinely fill the car with petrol/diesel or buy your re-heated food from Greggs you cant avoid paying the VAT.
5. fallingbuzzard said...
But someone in the black economy can still pocket the VAT on the sale, which is greater than costs, and they can still buy things with no VAT. VAT increases definitely benefit those working in the black economy.
6. mark wadsworth said...
Those City people really are Arthur Scargill in pinstripes - remember that VAT does not apply to banks, finance, house prices or new residential construction, or indeed other land/asset based activities such as farming.
So they are cheering for the tax that affects them least, surprise, surprise, and which will hurt the productive economy most (as well as one that is mildly regressive to incomes).
7. tenant super said...
I noticed on last night's debate, none of the three stooges would rule out a VAT hike so this is clearly a dead cert.
8. The Dude said...
Two words....Carousel Fraud. This is still being done and the country is being robbed £bns per year. Stop this and get back what has been lost over last five years (£10bn+) and we may be able to spend more on NHS or Schools.
We are so wrong....rob the poor....leave the rich....and let the VAT thieves run the country into the ground.
9. down wave said...
7. tenant super said...I noticed on last night's debate, none of the three stooges
would rule out a VAT hike so this is clearly a dead cert.
The only certain thing that everyone watching last night now knows is that the UK is all but
bankrupt and that we all will have to pay for the deeds of the 'Incompetent GOD of Economics' Gordon Brown.
Far better to hike the import duty on imported goods from the far East and reduce the VAT on British Made Goods.
10. maddison said...
VAT is the best tax for a few simple reasons.
It doesn't punish savers, it is simple to administer, the more you spend the more you pay. Best of all though is that you can tailor which products to apply it to via the Zero rate. You can therefore stop poorer people paying too much. Having said that it should really only be increased if income tax is reduced.
11. tenant super said...
VAT is preferable to income tax rises in some ways since food, kids clothes and books are VAT free but the VAT exemption should extended to utility bills to make it a true tax on optional goods. The reason I think it is better is that I believe the poor should also pay something as well as the middle classes. My unemployed single-mum friend went bankrupt over a £1200 credit card debt. She should never have been given it but then she didn't have to take it either. The bank and banksters who gave her the card should pay more proportionately for the loss but VAT to close the deficit means she herself will also pay something which to me is morally just.
On the down side, it taxes the productive economy as MW says
12. mark said...
Maddison VAT is not simple to administer from a business point of view, it means the business or self employed person is simply an upaid tax collector for GB... it increases workload and red tape.
I am not totally sure how much money you can squeeze from british taxpayers, it is near the pip now..
get rid of Tax discs on cars, fire all the people who work in this dept and add it to petrol thus reducing overheads on the UK.. how many people do they employ to chase, register, input, sell tax discs?
13. letthemfall said...
tenants: "I believe the poor should also pay something as well as the middle classes"
They already do - and proportionately a lot more than the "middle" classes, by which I presume you mean those who are not poor (and not as highly taxed). A rise in VAT will simply shift the tax burden even further on to those who pay the most. If you really believe the bankers should pay the most then I don't see how pushing up VAT achieves this - it achieves a lot for the bankers of course. As for your friend, whom you imply is a bit feckless, didn't Marx say that the rich would extract money from the poor by lending to them? No wonder there is so much credit card debt.
I think Norman Tebbit would approve of your morality.
14. mark wadsworth said...
@ Maddison, VAT is the worst tax as it destroys most jobs, distorts the economy most etc. For far too long politicians have got away with the lie that it isn't a tax on savings, or that is a tax on consumption. It is not, it is a tax on gross profits. The clue is the name "Value Added Tax".
15. jack c said...
tenant super said...VAT is preferable to income tax rises in some ways since food, kids clothes and books are VAT free but the VAT exemption should extended to utility bills to make it a true tax on optional goods
I dont think VAT can now be totally removed from utility bills (reduced but not removed) - from memory (and I stand to be corrected on this) it's to do with a European ruling - perhaps Mark Wadsworth will have more info and can comment on this
16. tenant super said...
@12 "If you really believe the bankers should pay the most then I don't see how pushing up VAT achieves this "
It doesn't. I believe in a bank tax to recoup all the bail out money. People like you and I who have opposing ideologies are unlikely to agree although I am always willing to consider opposing arguments if they are new to me or presented in a novel way. Within the framework of my own Tebbit-esque beliefs, VAT is in many respects preferable to income tax though I realise that people of differing political persuasions will not concur.
17. mander said...
VAT increase does not make economic sense when they claim they want businesses to export more and produce more. Going back to the last night debate on Channel 4 Osborne mentioned: "responsibility", this can be achieved by making interest on debt not deductible so debt will not be used for inflating assets but only by companies/people who really need credit and have a viable business plan. To compensate corporation tax or more or less VAT should be reduced. This will help clean the economy of debt addicts with no viable business plan. So what is the choice and responsibility Osborne was talking about in the end?
18. tenant super said...
I would add that the reasons MW outlines are valid but I still think taxing earnings are worse. Bottom line is that I oppose all tax except LVT and possibly inheritance tax, this is a lesser of the evils decision.
19. gone-to-colombia said...
VAT rise, just the start.
20. mark wadsworth said...
Jack C, VAT is EU-imposed and is a ratchet, if a country gives up a historic exemption and starts charging VAT, then it cannot make that supply exempt again.
TS, "VAT is in many respects preferable to income tax"
Why? It's a super-tax on the gross profits (i.e. wages plus business profits) of everything but farmers, housebuilders, buy-to-let landlords, banks, finance, insurance. Do we really want to tweak the tax system to wreck the economy even more and simultaneously benefit the bankers and land owners?
And income tax is far more honest - unlike National Insurance or VAT which are stealth taxes. Better to have honest, in-your-face taxes like LVT or income tax, then at least people realise what they are actually paying. The fact that I prefer LVT to income tax is a separate issue, LVT being even less stealthy than income tax.
21. jack c said...
MW - thanks for the clarification
22. letthemfall said...
ts:
Perhaps the real difference between you and I is that you are driven by ideology. I don't think I have one, unless you consider a deep distaste for economic injustice an ideology. Beyond that, a fairer economic system benefits the economy as well as making the country a more pleasant place to live. Others have made the case against VAT very well, so I need not reiterate it.
23. Bajista said...
How convenient that the city like the VAT idea when most of financial services activity is exempt from VAT...
24. tenant super said...
It is true from the perspective of businesses VAT is not level. But at an individual level, income tax inevitably means I pay more than Joe next door because I earn more than him even though we use the same services. You could argue that VAT on the company Joe and I work for pay us both x% less as a result of VAT and therefore I still pay proportionately more tax because of the greater 'reduction' in wages but I'm sure the disparity between our tax burden would be less with a VAT increase than an income tax increase.
25. letthemfall said...
That was once the argument for the poll tax - everyone uses the same service, therefore everyone pays the same. And many Americans argue, especially where health care is concerned, that if you want something you pay for it. If you can't afford, clear off and die, literally in some cases.
Yes, if you earn more you should pay more towards a civilised society, especially if those additional earnings bear little relation to the value produced, as is the case with many high earners. That is the price of civilisation, of culture. The alternative is to turn the clock back a century or more; arm yourself and be prepared to defend against the wolves at the door.
26. timmy t said...
Scrap income tax because it reduces the incentive to work more and earn more, scrap VAT because it reduces the incentive to spend, scrap car tax for the reasons Mark has already pointed out, scrap council tax and save billions in administration costs and put it all in LVT. All the taxes talked about here hamper economic growth, whereas LVT doesn't, it just gets rid of an almighty chunk of red tape.
27. tenant super said...
What Americans don't realise is that they're being shafted by price fixing monopolies in health care providers and insurers. Some people believe health care is a 'right' that should be available to everyone but others believe it is a service like any other which must be paid for by the consumer. What I think both sides would agree on is that corporatism and price fixing monopolies are not a good thing.
Addressing corporatism is the big challenge of our time. The fact that "additional earnings bear little relation to the value produced" is the result of corporatism and in some cases, the privatisation of infrastructure which has resulted in monopolies. One can desire true free market capitalism or some form of socialism but one thing is for sure, we live in neither.
28. braindeed said...
24. timmy t said...
Scrap income tax because it reduces the incentive to work more and earn more, scrap VAT because it reduces the incentive to spend, scrap car tax for the reasons Mark has already pointed out, scrap council tax and save billions in administration costs and put it all in LVT. All the taxes talked about here hamper economic growth, whereas LVT doesn't, it just gets rid of an almighty chunk of red tape.
Fancy a bit of anarchy then Timbo?.....Red tape?, isn't that another name for regulation? Of course we can trust the Bankers to self-regulate. Abolish all tax collecting?.....yes and our magnificent police force too presumably - since how would we pay for them?
I'm only guessing, but have you got a nice bong on the go?
29. enuii said...
Question; what was the effect the last big VAT hike from 12.5 to 17.5% (if I remember right) and what exactly prompted it and how was it related to the prevalent economic conditions of the time?
30. mark wadsworth said...
Braindeed, if we had LVT then no land price bubbles so no credit bubbles, there would be little left for the bankers to mislend on.
We'd pay for police out of Land Value Tax.
31. Realist said...
Vat on products....I don't care. VAT on labour intensive industry just expands the black economy and where it is paid by labour intensive industry it is merely another income tax.
32. tenant super said...
I am unsure as to all the details but LVT should pay for infrastructure like policing and a judicial system and inheritance tax should pay for a universal education with excellent grammar schools accessible to all of ability. The 'death tax' emotive thing from the tories is silly because the dead can't be taxed. They no longer have a self that can be aggressed against and I do not think that aggressing against a deceased will is logically possible (and it is the giver not the recipient whose will it is to pass on wealth). I support inheritance and gift/disposal tax and LVT as inherited wealth and choking land supply to increase its value are the biggest sources of unearned wealth.
Everything else (roads, health services etc) we should move as far as possible to a pay-for-use system. Legislation that favours corporations and monopolies such as planning laws should be abolished and paternalism can be axed whilst they're at it.
33. braindeed said...
28. mark wadsworth said...
Braindeed, if we had LVT then no land price bubbles so no credit bubbles, there would be little left for the bankers to mislend on.
You too?
The stuff we had in my Britforleb days just made me giggle
34. timmy t said...
braindeed - we're not much cop at regulating the taxes we currently have in place. The tax take doesn't need to alter, just the way in which it is calculated so we encourage the right things and discourage the wrong - like the house price bubbles as MW said.
35. braindeed said...
31. timmy t said...
braindeed - we're not much cop at regulating the taxes we currently have in place. The tax take doesn't need to alter, just the way in which it is calculated so we encourage the right things and discourage the wrong - like the house price bubbles as MW said.
Ah.....put like that it all sounds so....dare I say it, simple.
36. Ride_on said...
I agree financial services should not have VAT applied, you would have to add value for that to be the case. As we know this is not true for the finance sector.
However it is the opposite of what we need, which is NVAT (non-value added tax), could be added to marketing and financial services.
37. alan_540 said...
The only fair tax is income tax, but of course high earners don't like it.
38. landofconfusion said...
13. mark wadsworth said...
" For far too long politicians have got away with the lie that it isn't a tax on savings, or that is a tax on consumption. It is not, it is a tax on gross profits. The clue is the name "Value Added Tax"."
I don't see how it's a tax on savings. It's (for most people) an indirect tax on production dressed up as a tax on consumption.
"33. alan_540 said...The only fair tax is income tax, but of course high earners don't like it."
How is income tax fair? I mean, if I work 40 hrs a week and a colleague works 38 hrs a week why is it right that he pays 20% tax on those hours and I pay 40% tax on any hours I work above what he works? I don't understand.
39. alan_540 said...
If you earn £100 and I earn £200, it's only fair that I pay twice the amount of tax as you.
40. iguana said...
Enuii
The 12.5% was the reduced rate of the 'luxury' charge of 25%, applied to such luxuries as electrical goods and 'bling', the standard rate was then 8%. The 12.5% rate was scrapped when the standard rate went up to 15%, which in turn went up to 17.5%.
Pay attention at the back there, I will be asking questions later!
41. landofconfusion said...
I see. So you advocate a flat rate of income tax and not the current staircasing?
From what I remember, the government needs to raise £xbillions in tax and therefore taxes those who earn the most more than everyone else. If they didn't then tax rates would be so high that they would harm or discourage from working those on low incomes.
Now there must be a better way and LVT has my vote.
42. alan_540 said...
Yes, a flat rate of income tax, simple to administrate and completely fair as it depends on ability to pay. It is fairer than LVT (which is a form of Poll Tax), although I do understand the benefits of LVT, it is not based on ability to pay.
43. alan_540 said...
...and in addition, get rid of all other forms of indirect taxation as they are inherently unfair.
44. landofconfusion said...
Ok, I don't see how it's fairer than LVT though. Income tax is both obligitory and directly impacts on economic productivity. Also, staircasing is still needed unless you have an alternative stratergy? Or would you hit those on low incomes & reduce employment with high income tax rates? Or hit those higher up in the earning scale by raising the tax free threshold, therefore discouraging additional economic activity above this level? Or..?
Also LVT solves many problems including a few not solved by income tax (for example, you can't avoid it).
45. alan_540 said...
Income tax is only paid by those who can afford to pay it (by definition), the rate is simple to calculate (government spending requirement divided by gross national earnings). Staircasing isn't needed as it distorts the system either in favour of the lower paid (social redistribution of wealth from rich to poor) or in favour of the rich by having a top rate above which earnings aren't taken into account (in effect increasing the tax burden on the poorer - in reality middle classes, or modal earners). I don't understand your point that it impacts (negatively) on economic productivity, because everyone would be paying the same rate. Tax free thresholds are not needed universally as incomes can be topped up for the lowest earners in the form of tax credits. As regards avoidance the rich will always find a way to avoid tax, after all they make or influence the rules, after all that's why we've got company CEO's boasting that they pay less tax than their employees etc. but for the bulk of earners on PAYE income tax is pretty much unavoidable. As I understand LVT it's a tax based on the value of the land (clue's in the name I guess!) owned. So large landowners would be more likely to release land to build houses on to pay the LVT for the rest of their portfolio. More importantly it would help drive down the cost of land and thus housing costs for everyone. Maybe a combination of both would be good, but I'd go for income tax simply because if you earn nothing you pay nothing.
46. alan_540 said...
...scrap the tax credits top-up (bad idea), the minimum wage should ensure a livable wage for the lowest earners.
47. landofconfusion said...
41. alan_540 said...
Income tax is only paid by those who can afford to pay it (by definition)
No this isn't right. Income tax is paid on income that's why it's called income tax. You can help out lower earners by raising the threshold at which they start to pay tax but by doing so you have to raise that lost tax elsewhere. Without staircasing you'd have to raise the flat rate of tax thereby making working hard less viable option and impacting on economic growth.
"the rate is simple to calculate (government spending requirement divided by gross national earnings)."
Actually it might be (sumOf(Gross national earnings) - ((Tax Free threshold) x sumOf(Number of earners)) / Government Expenditiure) / (sumOf(Number of Earners).
But under this formula you might find that economic growth is suppressed as most people don't earn very much and would therefore work less. Also most of this countries tax is paid by higher earners who would now pay less tax.
"I don't understand your point that it impacts (negatively) on economic productivity, because everyone would be paying the same rate.
Because those at the bottom of the economic ladder woud end up with less money and less incentive to work. They would also as a consequence consume less and that would end up reducing our national product.
"Tax free thresholds are not needed universally as incomes can be topped up for the lowest earners in the form of tax credits.
But tax credits aren't economically efficient and why should I work hard if I know that the government is going to take a large slice of it above a certain level? Why not just work 'cash in hand'?
Also isn't this just another way of staircasing? If I earn a lot I pay more income tax because I don't get tax credits?
"As regards avoidance the rich will always find a way to avoid tax"
Which is why LVT is such a good idea! You can't avoid it.
"after all that's why we've got company CEO's boasting that they pay less tax than their employees etc"
From what I've heard that's because they claim non-dom status. But with Land Value Taxation that wouldn't help them. In fact I would charge them more as they're a non-citizen!
"but for the bulk of earners on PAYE income tax is pretty much unavoidable.
So you would implement a flat rate of income tax but raise it to compensate for lost income from hight rate earners + tax avoiders and raise it again because of having to raise the tax free floor? I don't understand.
"As I understand LVT it's a tax based on the value of the land (clue's in the name I guess!) owned. So large landowners would be more likely to release land to build houses on to pay the LVT for the rest of their portfolio."
Well, yes. And houses would cost less as a result meaning more money would be available for other things. I'd also ban BTL but that's another argument.
"Maybe a combination of both would be good, but I'd go for income tax simply because if you earn nothing you pay nothing."
I might go with that, although those who earn nothing tend to live of the state anyway and so for them LVT is a mute point.
"...scrap the tax credits top-up (bad idea), the minimum wage should ensure a livable wage for the lowest earners."
The idea that the minimum wage should be set so that workers earn a living wage (at least) and can d so without government subsidies (benefits) is a good one. It's also progressive as at the moment, employers who use minimum wage workers are effectively subsidised by the state as those earners will be entitled to benefits because their wages are so low.
BUT this being me back to my point that it would suppress economic activity. Less people would be in work because cost for businesses would be higher (more people earn within or below current basic rate tax than above and so businesses would have to pay more).
And I haven't mentioned pensioners.
48. landofconfusion said...
"Actually it might be (sumOf(Gross national earnings) - ((Tax Free threshold) x sumOf(Number of earners)) / Government Expenditiure) / (sumOf(Number of Earners).
On second thoughts:
(Amount of money generated above Tax Free Threshold / Minimum Yearly Government Expenditure) = Minimum flat tax rate (%)
is a bit eaiser.
49. alan_540 said...
Nice critique! The devil's in the detail as always, all we can be assured of is that the current archaic system of taxation will not fundamentally change in our lifetimes.