Design Your Own Budget (Taxation)

Here are my suggestions on how we can raise the £465 billion required to cover my spending plans:

1. It's always useful to look at current tax receipts, taken from Table C4 of the most recent Public Sector Finances Databank (I'm using the version dated 23 August 2010). Total tax receipts in three broad categories were as follows:

a) Taxes on business activity (income tax, NIC, VAT, corporation tax) = £340 billion.

b) Taxes on land, buildings, wealth generally (Business Rates & Council Tax = £49 billion, plus other bits and pieces like Stamp Duty, £8 billion, Inheritance Tax, Capital Gains Tax, Insurance Premium Tax, £2 to £3 billion each) = £68 billion.

c) Duties in the narrower sense (mainly petrol duty & car licence, £32 billion, but also booze, fags, gambling etc) = £72 billion.

2. Category (c) is easiest. I'd leave these as they are for the time being. I would get rid of VAT (and adjust duties up accordingly) and legalise/tax most currently illegal drugs, which would get receipts up to about £100 billion. Car licence fees would be significantly reduced and fuel duties increased to match.

3. Category (a) is easy as well, just get rid of them in their entirety, apart from:

i. A 1% tax on the retail price of new goods to cover refuse collection costs = £5 billion.

ii. Public sector pensions in excess of the Citizen's Pension rate of £140 per week would be taxed at 50% and private pensions that have received income tax relief on the way in would be taxed at 20%/40%, receipts = £30 billion.

iii. Banks won't be liable to taxes on profits or salaries, but they have a privileged position, so each individual bank will pay a bank levy of 2% per annum on the higher of UK sited financial assets (mortgages etc) and deposits from UK depositors in govt. guaranteed accounts. Bank balance sheets would rapidly shrink to a bare minimum of about £1,500 billion, so I'll pencil in another £30 billion for that. BTW, this is a heck of a lot less than what banks have been paying in corporation tax, PAYE, irrecoverable VAT etc.

4. That means we have to raise £300 billion from Category (b). I don't like all these fiddly transaction taxes, so I'll replace the lot with a flat tax on the value of land and buildings, averaged out on actual selling prices between 2005 and 2010 per square yard in each postcode sector so that it's more like Land Value Tax.

I accept that this is not the purist view, but as long as selling prices of buildings in future exceed their rebuild cost, or the selling price of bare land exceeds £nil, it would be, by definition, less than a 100% Land Value Tax and so not economically damaging. Remember that any tax or subsidy to land and buildings will first fall on or benefit the land value element before it affects the cost or value of the buildings thereon. If in any postcode sector the averaged out selling price of buildings falls below their rebuild cost, then of course the tax will have to be adjusted down in those sectors.

The magic fag packet says that if the value of the land and buildings that you currently own is less than six times your annual income, you'll be better off; if it is more than seven times, you might be a tad worse off. But with income tax etc. gone, the economy will grow a lot quicker, so after a couple of years, most people will be better off. And to those who say "Why should I pay rent for my 'own' land?" I reply, "If you don't want to, then there's somebody else who will be happy to do so."

PS, I did a chart showing the cumulative distribution of UK homes by value here, and explained how the tax interacts with the Citizen's Income scheme (about half of total spending)i.e. for people in median homes, the tax and the CI net off to more or less nothing. And for those in the upper decile, there's an extra bonus in that there'll be education vouchers to reduce the cost of sending your kids to private school.

5. There are two ways of raising £300 billion from land values - either a flat rate of (say) 6% without exemptions or discounts, or a higher rate of (say) 8% with a mass of discounts for e.g. recent purchasers in negative equity, pensioners, low income households.

It's not for me to say who's most 'deserving' of such discounts, so what I'd do is have a flat national rate of (say) 8% but local councils (whose job it will be to collect the tax) would only have to hand over three-quarters of this, so they have the freedom (subject to democratic pressure from local voters) to decide how much of this they will actually collect and spend on playgrounds, schools, health care, care for the elderly, white elephants; and how much is used to grant exemptions and discounts: at its simplest, local councils could just exempt pensioner households (about a quarter of all households) entirely, and have done with it.

We'll see all sorts of interesting tussles here, and it will to some extent turn NIMBYism on its head.