Where’s the tax coming from?

I’ve been musing on the Government’s ‘black hole’ of ￡20+ billion.

Setting aside any debate over whether it was the last lot’s fault, or whether all but a complete idiot could see what was coming, there’s clearly some more tax to raise.

You all know we do a lot of business in Europe – principally Germany, France and Spain. In Germany, you pay a lot more tax than in the UK – but you also get a lot more for it.

In Germany, people complain vociferously when a train is a few minutes late. In Britain we’ve got used to the idea of train being cancelled moments before its scheduled departure time. In other words, willingness to pay tax is defined by the perceived, and experienced, benefit.

So what have we heard as solutions to fill the ‘black’ hole?

First, take away pensioners’ winter fuel benefit.

That went well, didn’t it!?

Second, tax the top earners. Would that work?

The Unite union’s plan is for a tax of 1% to be applied on the assets of those worth more than ￡4 million, which it says would raise ￡25 billion a year to fund investment in public services and avoid a return to austerity.

Have taxes on the super-rich ever worked? Not really.

By definition, they have advisors to make sure they don’t cough up.

And why should anyone, whatever their means, pay more tax on funds that they’ve already paid tax on once?

Everyone should look at?HMRC’s summary ?of where most of our tax comes from. In short, it’s mainly from income tax, national insurance, VAT and duty. Even corporation tax only brings in half of what VAT delivers. And we don’t want to clobber business… nor should a government supposedly intent on delivering economic prosperity!

Then the government has also twisted itself in knots by saying they won’t put up taxes or national insurance (NI).

So here’s my solution.

It’s a bit of a sematic swerve.

I have never understood why the rate of NI drops like a stone (down 6%!) for earnings over c.￡50k. In a progressive tax regime, why should you not pay the same proportion of your income as NI whatever your earnings – whether ￡20K or ￡20m?

According to my calculations – using HMRC and ONS data – if full NI were applied whatever one’s earnings, this would produce at least ￡7.5 billion. And that’s probably a major under-estimate as I’ve only used the lower end of each earning percentile band.

OK – it’s not enough to fill the ‘black hole’. But it’s not a poxy one-and-a-bit billion which is all the winter fuel allowance withdrawal will deliver.

Moreover, it’s easily collectable through PAYE.

And frankly, those earning over ~￡50k will not really notice (after a bit of initial squeaking).

THIS, I would suggest, is how to think creatively about effective tax revenues.

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