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jplevene

The Solution To Britains Economic Problem

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We have no money, an imaginable debt, a huge pension fundshortfall, risk of a double dip recession, etc.

The following would clear that, make Britain the economic super power and put us into the black within a few years, without burdening our children with our debt. So as not to waffle on, I have put this into 3 brief points:

  • Firstly, to boost growth and investment you need to reduce taxes, mainly on companies, which in turn would increas tax receipts (the proof is in world history). Our tax laws are complex and allow the rich to avoid paying tax, leaving the burden on the middle class and poor. Countries with simple tax systems have larger growth than coutries with more complex systems. The simple solution; abolish all taxes (except VAT, which should be drastically reduced) and replace with a flat 20% tax rate on people's earnings only (and then lowered to 15% at a later date), which means that companies pay no tax on their profits. All dividend payments and wages payments above £10,000, would be subject to a flat 20% tax. The dividends should be taxed at source (the company paying them deducts them). UK companies receiving dividends can reclaim the tax, once it has been paid (non UK companies can't reclaim the tax).
    This stops the non-dom tax dodge for multimillionaires. It is also the greatest incentive for large corporations to move to England as all of their profits can be re-invested which creates more wealth and growth in the UK. It also means that all profits earned in the UK are subject to tax payable to the UK government.
    There are 2 major loopholes with this basic system; millionaires could pay dividends to there own personal company that supports their lifestyle and overseas shareholders could invoice their UK company for bogus services by an overseas company instead of paying themselves dividends. However these could be overcome with simple regulation and laws.
  • Reduce the Public sector (Civil Servants) size by at least half in the first year then continue to reduce its size more slowly over the next few years. Currently the public sector is larger than the private sector that funds it. It is simple maths and common sense that it needs to be reduced as it is funded by the private sector that can't afford it. You are probably now shouting saying how it will collapse the economy, but read the next point.
  • We need to solve the Civil Servant pension fund shortfall currently at £3.8 trillion. This is easy, abolish the Civil Servant pension scheme. This is a fund, therefore the money is actually there, albeit tied up in investments, but it is not monopoly money like the rest of the money the government spends.
  • This fund should be proportionally given in cash lump sum windfalls and tax free to all civil servants who have paid into it. This will also have another effect, it will instantly inject huge amounts of cash into the economy. These Civil Servants will suddenly have large windfalls of cash that they will spend, which will in-turn boost the private sector. Unlike before, the boost will be from actual money and not borrowed money. This will counteract the effect of the mass unemployment from the previous point and create many more jobs in the private sector.

There are many other points like keeping Entrepreneur Tax Relief on capital gains, as this would promote investment and be an incentive to do so. Also there should be no tax on the capital gains on your home, inheritance tax abolished, etc.

All we need is a bold and gutsy PM who isn't afraid of the voting civil servants, unions and tabloid headlines. The unions would actually help as when they call a strike and save us money, as we wont have to pay the union members while they are on strike.

This is a very simplified version with just the major key points.

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[*]Firstly, to boost growth and investment you need to reduce taxes, mainly on companies, which in turn would increas tax receipts (the proof is in world history).

If you cut taxes from 1% to 0% tax receipts would fall.

If you cut taxes from 100% to 80% it is likely tax receipts would increase due to economic activity growing.

At some point between 0% and 100% lies the ultimate tax rate. This is all the Laffer curve tells us - nothing more.

Certainly cutting taxes under Bush from already generous Clinton level rates turned a surplus into a massive deficit and generated no extra employment.

There is no evidence that our current tax rates are too high - they are simply too complicated and open to abuse.

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so. Also there should be no tax on the capital gains on your home

While you make some good points and i don't specifically advocate CGT, i think i now get the picture

If you want to fix things, you can't leave the welfare system that caused the problems intact

Edited by Stars

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If you cut taxes from 1% to 0% tax receipts would fall.

If you cut taxes from 100% to 80% it is likely tax receipts would increase due to economic activity growing.

At some point between 0% and 100% lies the ultimate tax rate. This is all the Laffer curve tells us - nothing more.

Certainly cutting taxes under Bush from already generous Clinton level rates turned a surplus into a massive deficit and generated no extra employment.

There is no evidence that our current tax rates are too high - they are simply too complicated and open to abuse.

Though there is plenty of evidence that cutting tax rates from very high (as in the UK) to high leads rapidly to increased revenue, tax cuts to lower levels should also have longer term benefits. If lower taxes produce even a small increase in economic growth, the effect could be significant when compounded over a decade or more.

As a slight OT; the Laffer curve is often seen as a right wing ploy to justify lower taxes. However it encourages an essentially left wing view of taxation, which is that all money belongs of right to the state, and the only issue is how to farm the proles most efficiently.

I'd argue that the single biggest reason for lowering taxes is that it is our money, and as much as possible should be left with us to use as we choose.

.

Edited by the shaping machine

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There is no evidence that our current tax rates are too high - they are simply too complicated and open to abuse.

I would argue there is some evidence that our tax rates are too high (eg every time higher rate Income tax has been cut the take has gone up so far.)

but the fundamental point is spot on, Simple, clear taxes are the main solution.

It should be easy to see how much things cost and how much tax you are paying. (personally I would abolish VAT completely and try for everything on an income tax with a high personal allowance)

The OP has his heart in the right place, but the plan is fiscally (at the moment) not feasible, and politically disastrous.

To bang my own drum I would go for:

Complete free trade, no tarriffs, barriers, duty or illegal products - if people want to buy it they can as far as I am concerned. (some restriction on munitions and weapons maybe) I think this would do more for the African poor than anything else.

Obviously this would mean leaving the EU.

Corporation tax to reduce by 1% per year until it reaches 5% lower than the closest competitor.

All income taxes (CGT, Dividend tax, NI, Icome tax) to be combined into one income tax that is set at 50% on all earnings over £15k

The only benefit to be a negative income tax of 50% below £15k after you have worked and paid taxes for at least 5 years (excepting those with mental retardation etc. The catch being if you do earn money you are by definition not in need of benefit)

Freeze the NMW at the current level and let inflation erode it away so that people become much cheaper to employ.

And totally free immigration - only those born in the UK to be allowed to claim benefits after working and paying taxes for the aforementioned period.

Only public services that have the support of more than 70% of the public to be kept public. Everything else to be privatised.

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jplevene,

some good stuff. But where is this civil service pension fund? I thought that it was paid for directly out of taxation?

You gotta do something about pensions, but you will need to change the law to cut back public sector workers pension entitlements.

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Complete free trade, no tarriffs, barriers, duty or illegal products - if people want to buy it they can as far as I am concerned.

Would you also support totally free movement of labour- if people want to come here to work they can as far as you are concerned?

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The simple solution; abolish all taxes (except VAT, which should be drastically reduced) and replace with a flat 20% tax rate on people's earnings only (and then lowered to 15% at a later date)

Which has you taxing economic activity rather than monopoly power

If you tax activity, you get less of it and if you tax monopoly you have less of it. You seem to me to be specifically avoiding taxing monopoly in the belief that everyone should be taxed equally on their activity.

Imagine how much longer a game of monoply would last if the people who owned the squeres on the board were taxed for doing so (only a rough analogy)

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[*]We need to solve the Civil Servant pension fund shortfall currently at £3.8 trillion. This is easy, abolish the Civil Servant pension scheme. This is a fund, therefore the money is actually there, albeit tied up in investments, but it is not monopoly money like the rest of the money the government spends.

Are you sure that you have got this bit right?

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Fixing the economy is extremely simple:

1. Tax Land value instead of income, spending or capital gains.

2. Restrict lending against houses and other speculative gambling.

Neither are particularly radical, and I have yet to see a single sensible argument against either that isn't based on special pleading.

Yes, there are hundreds of other things that need to be done, some of them for moral reasons, some for financial, and some just because they would make life easier, but I think these two are pretty close to being the economic magic bullet that we are reassured doesn't exist.

Essentially you pass the rent of all housing on to the government, taking landlords out of the loop.

This brings in revenue that can be used to replace income and capital gains taxes, which makes working profitable and business investment in the UK worthwhile.

It will also drive down the cost of living so that benefits and the minimum wage can be lowered without lowering living standards.

A lower minimum wage means lower unemployment.

You also reduce the amount of money taken out of the economy in interest payments. Since less wealth is wasted on interest payments and tax, more is available for individuals to spend on consumer goods, services or investment and for the government to spend on public services. Investing in infrastructure, and inner-city redevelopment is cheaper, because land is cheaper and wages are lower. More importantly, government spending on regeneration no longer raises land prices, so the profits don't get stolen by landowners and can actually benefit the poor.

The same is true of foreign investors. Their investment is also highly taxed by local landowners in just the same way as government investment. This investment would become worthwhile, and with the lower labour costs we might actually be able to compete with the cheaper economies (although maybe not the slave economies).

Imagine if we had simply given all the north sea oil to handful of individuals without claiming a penny in tax. We would probably never have pulled ourselves out of the 70s slump. Yet this is exactly what has happened with land.

In fact, the only problem is that the short-term outcome would be very bad for some people, and those people are in charge.

Edited by (Blizzard)

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Are you sure that you have got this bit right?

There are quite a few different public sector pensions, I don't know the arrangements for all of them, but the ones I know are as follows;

The main civil service pension fund has no investment fund. It's pure ponzi.

Teachers pension is the same.

Police pension funds are the same.

The local government pensions have investment funds, but are mostly under funded.

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If you cut taxes from 1% to 0% tax receipts would fall.

If you cut taxes from 100% to 80% it is likely tax receipts would increase due to economic activity growing.

At some point between 0% and 100% lies the ultimate tax rate. This is all the Laffer curve tells us - nothing more.

Certainly cutting taxes under Bush from already generous Clinton level rates turned a surplus into a massive deficit and generated no extra employment.

There is no evidence that our current tax rates are too high - they are simply too complicated and open to abuse.

A simplistic example of how removing company tax will raise tax revenue:

  • I own a company and want to expand with a sales team.

  • Lets say my company is taxed £20,000.

  • Now lets say that I was let off paying the £20,000 and instead employed a salesman. He would generate more revenue and enable me to employ even more staff.

  • If I didn't employ the original salesman due to tax, the £20,000 I was taxed would pay his unemployment benefit (it would be more due to administration, etc.).

  • By not charging my company the £20,000 tax, the Government is now going to earn 15% of his wages in tax (£3,000) which they don't have to give back to him in unemployment. Not only that, but they would get more £3,000 tax payments from additional staff due to the growth he generated.

To increase tax revenues, you need to abolish corporation tax.

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jplevene,

some good stuff. But where is this civil service pension fund? I thought that it was paid for directly out of taxation?

You gotta do something about pensions, but you will need to change the law to cut back public sector workers pension entitlements.

The public sector pension fund is still a fund and not a Ponzi Scheme yet.

  • All pensions funds work as follows:

  • You and your employer pay money into your pension fund

  • This money is then invested, lets say the fund buys a building with an 8% return.

  • The fund is now continually topped up with contributions from you and your employer as well as the 8% return (loop back to previous point), which is all reinvested, which is how the fund grows.

When you retire, the 8% return from all these investments is supposed to fund your pension payments, which it won't be able to for public pensions due to how over-generous they are. The solution the fund has to use is to cash in some of the investments to fund the payments. The more people start to retire, the more money going out is needed.

The longer we wait, the less money will be in the fund, until it is eventually a complete Ponzi Scheme. Better for all involved to get out now as the Civil Servants still would have a chance of getting more than they paid in.

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A simplistic example of how removing company tax will raise tax revenue:

  • I own a company and want to expand with a sales team.

  • Lets say my company is taxed £20,000.

  • Now lets say that I was let off paying the £20,000 and instead employed a salesman. He would generate more revenue and enable me to employ even more staff.

  • If I didn't employ the original salesman due to tax, the £20,000 I was taxed would pay his unemployment benefit (it would be more due to administration, etc.).

  • By not charging my company the £20,000 tax, the Government is now going to earn 15% of his wages in tax (£3,000) which they don't have to give back to him in unemployment. Not only that, but they would get more £3,000 tax payments from additional staff due to the growth he generated.

To increase tax revenues, you need to abolish corporation tax.

But you only pay tax on the profits so if you employed the extra salesman you would lose the £20k tax liability anyway?

But I'm not here just to disagree with people so I'll give my own ideas.

All taxes removed expect 3:

A transaction tax on every transfer of Sterling between 2 parties. Cash would be removed from the system and a national clearing bank would be set up. Every time you transfer money from A to B a tiny, tiny percentage is removed from both parties. Estimates in the US showed that a level of 0.5% (0.25% per transactor) would be enough to replace the total current tax take currently bought in through every existing tax on the books. Closing defecits would be as simple as adjusting the percentage in the centralised clearing house.

A "societal negative" tax - this would be applied to products that are damaging to the wider economy such as cigarettes, alcohol, freshly legalised drugs, petrol etc. The rate would again be applied at the central clearing bank.

A Land tax - a complete survey of land ownership would be undertaken. Land would be categorised and income/potential income from it registered and taxed accordingly. Agricultural land not in use would be released for 2 national projects, one is the build you own project whereby new areas of land would be released into the planning system for self-build residential developments with a no sale for 10 years rule and the second would be to build 2m new publically owned houses. These would be rented out at 10% of the build cost per annum. The money for the second project would come by allowing savers to invest their savings in the project.

End result - hugely simplified tax system with avoidance or evasion almost impossible. Personalised tax statements showing exactly how much each person/business has transacted and the associated savings, massive reductions in corporate costs as accountancy now hugely simplified and tax expertise no longer required, speculative trading reduced due to applied taxes. Governments could compete very simply on what they'd charge as the transaction tax and be judged accordingly - rules could be changed so that running a budget defecit would no longer be allowed.

Negatives - A bit/very Big Brother as essentially every single purchase or activity you partook in would be recorded in a vast transactionn database!.

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The public sector pension fund is still a fund and not a Ponzi Scheme yet.

  • All pensions funds work as follows:

  • You and your employer pay money into your pension fund

  • This money is then invested, lets say the fund buys a building with an 8% return.

  • The fund is now continually topped up with contributions from you and your employer as well as the 8% return (loop back to previous point), which is all reinvested, which is how the fund grows.

When you retire, the 8% return from all these investments is supposed to fund your pension payments, which it won't be able to for public pensions due to how over-generous they are. The solution the fund has to use is to cash in some of the investments to fund the payments. The more people start to retire, the more money going out is needed.

The longer we wait, the less money will be in the fund, until it is eventually a complete Ponzi Scheme. Better for all involved to get out now as the Civil Servants still would have a chance of getting more than they paid in.

All pensions funds work as follows

No they don't.

This fella explains it quite well; http://www.civilservant.org.uk/pensions.shtml The quote below is taken from his explaination of the pre-2007 Principal Civil Service Pension Scheme, but the same approach is taken on other unfunded schemes.

"The scheme is unfunded. Although all civil service salaries are reduced to allow for notional pension contributions, and many civil servants also have real pension contributions deducted from their salaries, the savings and contributions are pocketed by the Treasury and used to reduce current Government expenditure. Pensions are then paid out of taxation when they fall due. This arrangement has a number of advantages, for example in avoiding the kind of investment risk faced by funded schemes, but Ministers and officials are all too aware of the long term liability that has been built up. (The Government Actuary estimated that the unfunded liabilities of the civil service, teachers, NHS & emergency services schemes totalled around £770 billion as at 31 March 2008.)"

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As I pointed out elsewhere, and has been discussed before, I believe that all the public sector pension schemes are ponzi. The local government one and the NHS one definitely are (I'm in both, although trying to transfer my 'fund' out of them).

So cutting public employment in half, whilst needed, would have major pension implications. It's odd that the only people allowed to legally operate ponzi schemes is the government.

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As I pointed out elsewhere, and has been discussed before, I believe that all the public sector pension schemes are ponzi. The local government one and the NHS one definitely are (I'm in both, although trying to transfer my 'fund' out of them).

So cutting public employment in half, whilst needed, would have major pension implications. It's odd that the only people allowed to legally operate ponzi schemes is the government.

I think you're right about the NHS pension, but I know that at least some of the local government pensions have investment funds (underfunded, but they do have them). My local one is the Rhondda Cynon Taff (RCT) pension fund. Here's a link to one of their pension fund reports. There's a summary of the assets on page 29 (the link takes you straight to a pdf download) http://www.rctpensions.org.uk/pdf/Pension%20Fund%20Report%202007%20%28Nov%2007%29.pdf

Either way, your point about the implications of job cuts on the viability of the pension schemes is valid

Edited by SpectrumFX

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All pensions funds work as follows

No they don't.

This fella explains it quite well; http://www.civilservant.org.uk/pensions.shtml The quote below is taken from his explaination of the pre-2007 Principal Civil Service Pension Scheme, but the same approach is taken on other unfunded schemes.

"The scheme is unfunded. Although all civil service salaries are reduced to allow for notional pension contributions, and many civil servants also have real pension contributions deducted from their salaries, the savings and contributions are pocketed by the Treasury and used to reduce current Government expenditure. Pensions are then paid out of taxation when they fall due. This arrangement has a number of advantages, for example in avoiding the kind of investment risk faced by funded schemes, but Ministers and officials are all too aware of the long term liability that has been built up. (The Government Actuary estimated that the unfunded liabilities of the civil service, teachers, NHS & emergency services schemes totalled around £770 billion as at 31 March 2008.)"

Not sure about the accuracy of this, it states that Public Sector managers etc. get less than private sector which we all know is not true.

Also check http://www.civilservice.gov.uk/Assets/2009-10%20Resourcse%20Accounts_tcm6-36925.pdf and you will see the money is in funds managed by companies such as Standard Life.

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But you only pay tax on the profits so if you employed the extra salesman you would lose the £20k tax liability anyway?

But I'm not here just to disagree with people so I'll give my own ideas.

All taxes removed expect 3:

A transaction tax on every transfer of Sterling between 2 parties. Cash would be removed from the system and a national clearing bank would be set up. Every time you transfer money from A to B a tiny, tiny percentage is removed from both parties. Estimates in the US showed that a level of 0.5% (0.25% per transactor) would be enough to replace the total current tax take currently bought in through every existing tax on the books. Closing defecits would be as simple as adjusting the percentage in the centralised clearing house.

A "societal negative" tax - this would be applied to products that are damaging to the wider economy such as cigarettes, alcohol, freshly legalised drugs, petrol etc. The rate would again be applied at the central clearing bank.

A Land tax - a complete survey of land ownership would be undertaken. Land would be categorised and income/potential income from it registered and taxed accordingly. Agricultural land not in use would be released for 2 national projects, one is the build you own project whereby new areas of land would be released into the planning system for self-build residential developments with a no sale for 10 years rule and the second would be to build 2m new publically owned houses. These would be rented out at 10% of the build cost per annum. The money for the second project would come by allowing savers to invest their savings in the project.

End result - hugely simplified tax system with avoidance or evasion almost impossible. Personalised tax statements showing exactly how much each person/business has transacted and the associated savings, massive reductions in corporate costs as accountancy now hugely simplified and tax expertise no longer required, speculative trading reduced due to applied taxes. Governments could compete very simply on what they'd charge as the transaction tax and be judged accordingly - rules could be changed so that running a budget defecit would no longer be allowed.

Negatives - A bit/very Big Brother as essentially every single purchase or activity you partook in would be recorded in a vast transactionn database!.

Firstly this was a very simplistic example.

Secondly I would not loose £20K of tax liability I would loose about £4K in tax liability and have to still pay £16K in tax with the current system.

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Come the revolution we need a simple tax system.. Along with simple regulation across the society.

In 2001 Putin enacted a 13% flat tax to replace the old complex Soviet tax system.. th at helped ignite the economy of Russia.

I think beyond a gutsy and bold PM we as a people will need to be ready to give absolute power to that leader who emerges. Like the Russians were in 1999.

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Buy more hats! Britain's economy can be sustained by hat production alone! :huh:

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Come the revolution we need a simple tax system.. Along with simple regulation across the society.

In 2001 Putin enacted a 13% flat tax to replace the old complex Soviet tax system.. th at helped ignite the economy of Russia.

I think beyond a gutsy and bold PM we as a people will need to be ready to give absolute power to that leader who emerges. Like the Russians were in 1999.

Agree.. But I feel Britain's a simpler tax system than many other countries.

The only vague thing is the household based income which needs to be relooked.

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I would suggest a one off wealth tax beginning at £100,000 of assets rising progressively (1.1% on 110k and so on up to 10% on £1million)FRom there progressively to 20% on £20 million and remaining at that rate ad infinitum.Levied on everyone with uk based property.Personally I would be hit for about £25k but if it sorted things out I would bear that.At least like that we could believe Dave when he says we are all in this together.

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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