According to City AM, the UK financial sector paid about £53.4 billion in taxes last year. The figures in the article are a bit jumbled, so let's go straight to the actual report by PriceWaterhouse Coopers on the Corporation of London's website, and extract the following figures:
Taxes 'borne' by FS sector:
Corporation tax - £3.8 billion*
Employer's NIC - £9.1 billion
Irrecoverable VAT - £5.5 billion
Business Rates - £3.2 billion
Stamp Duty and other - £1.3 billion
Taxes 'collected' by FS sector:
PAYE income tax and Employee's NIC - £19.6 billion**
Income tax withheld from interest paid - £5.6 billion
Stamp Duty & Insurance Premium Tax - £2.7 billion***
Net VAT - £2.7 billion***
Jolly good. In the single tax world I envisage, they'll still be paying LVT i.e. Business Rates (maybe £6.4 billion), but so that (a) they don't let the fact that income tax, corporation tax etc have been scrapped go to their heads and (b) in order to keep the banks down to size, what I envisage is a flat tax on their total UK financial assets (excl. land and buildings).
UK banks claim to have total assets of £6,000 billion-odd (if we exclude the non-UK stuff shown on e.g. HSBC's balance sheet), so in order to collect (say) £47 billion, we'd need a tax of 0.75% per annum. The banks will then of course fall over themselves to shrink their balance sheets (i.e. deleveraging, i.e. formally writing off bad debts, dumping all the inter-bank stuff etc.) down to (say) £4,000 billion, in which case the tax goes up to 1.2%, so they'll then shrink their balance sheets down closer to their true value of about £2,000 billion, in which case the tax goes up to 2.4% and so on until some revenue-maximising rate is arrived at (might be more or less than 2%, who knows?).
The percentages would be lower if we extend this tax to insurance companies (but then we have to distinguish between 'risk' insurers and life insurance/pension insurance, which are conceptually different).
Remember that banks can earn a margin of at least 2% on their lending/borrowing operations in their sleep, so this income is akin to 'rent' and therefore can be taxed at very high rates without doing any harm to the economy. If they can spot lending opportunities with a higher return that this - like lending to businesses, then the extra money they make is truly earned and is theirs to keep.
Hey presto, banking sector downsized, taxes simplified, taxes collected and damage to the economy reduced to an absolute minimum. What's not to like?
* Elsewhere in the report it says £5.6 billion
** Elsewhere says 'total employment taxes £24.5 billion', which is less than £19.6 billion + £9.1 billion Employer's NIC. Perhaps the latter figure includes £4 billion bank bonus tax accrued but not paid in the year in 2010?
*** It is not clear why they consider some VAT or Stamp Duty to be 'borne' and some to be 'collected', but hey, differentiating between the legal and economic incidence is a tricky topic and let's assume they got it roughly right.
Thursday, 16 December 2010
Taxes paid by the UK financial sector
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In the single tax world I envisage, they'll still be paying LVT i.e. Business Rates (maybe £6.4 billion), but so that (a) they don't let the fact that income tax, corporation tax etc have been scrapped go to their heads and (b) in order to keep the banks down to size, what I envisage is a flat tax on their total UK financial assets (excl. land and buildings).
Ah... the lure of "just one more tax". Using taxation as a means of (a) showing others who's in charge; (b) placing an artificial limit on a type of business you don't like sounds like the worst of the statist one hears from LabLabLib.
"Good intentions will always be pleaded for any assumption of power. The Constitution was made to guard the people against the dangers of good intentions. There are men in all ages who mean to govern well, but they mean to govern. They promise to be good masters, but they mean to be
masters." -- Daniel Webster
If you're going to tax land values as a sort of 'societies premium passed to the landlord' then you could as you say tax the same 'rent' on lending. Fact is most banks and lenders are mortgage companies. So their rent charge will be the rent not collected by the landlords and hence not taxed by LVT.
Is that right?
If so, where do I sign up?
OP, I have done the supply-demand curves, and as it happens, the revenue maximising rate is also the rate that optimises the size of the banks - not too small, not too big. Plus it is a tax on 'rent' (i.e. a privileged quasi-monopoly position) ergo does not harm the economy in any way.
It's like petrol duty (which raises about four times as much as it costs to maintain the roads, so it's actually 'rent' for the use of road space/time), if you reduce it, the roads just get more crowded, so people who have to drive for a living (lorries, salesmen, commuters, tradesmen, couriers) might save £10 a day in fuel duties, but they lose sixty minutes in traffic jams. Seeing as these people expect to earn more than £10 an hour, reducing fuel duties actually makes them worse off.
L, yes, my bank tax is 'bayonetting the survivors'. This was just my little addendum to your FS manifesto.
Such a bank asset tax clearly will not apply to intermediaries, pension advisors, insurance brokers, stockbrokers and the like. Did I mention that CGT, Stamp Duty & Insurance Premium Tax will be the first taxes to disappear?
@Mark
I'm quite certain that your choice of tax is both logically, and economically sound. I wasn't saying that taxing bank assets wasn't economically sound (I've not put any mental effort into that at all).
My point was that you envisage a single, simple tax system, and then can't resist adding another tax to it. Once that bridge is crossed, why not another tax, and another? Why will your successor at the exchequer not say "hey, we could raise additional money by taxing income and consumption"?
Unless effort is made to limit the methods and scope of a tax, and make the public understand that it is good that it is limited, it will always expand. Usually in the name of a "social good", but that leads to the government's idea of social good superseding all others, and then we're on to beer tax, cigarette tax, salt tax, green tax, blah, blah, blah.
The fact that you would have to create legislation to define the difference between a bank asset and "intermediaries, pension advisors, insurance brokers, stock brokers and the like", is the first step to a complex tax code and the never ending game of "find the loophole".
The beauty of LVT to me is that it is simple and flat and universal. There is no argument with it since we just measure area and bill accordingly.
OP, those are fair comments. It is quite clear that even if we had an optimum tax system, following governments would then go back to the old ways of stealth taxes. But hopefully people will remember the Golden Age when we had full employment and the economy was growing at 10% a year.
But in this instance, there is no need 'to create legislation to define the difference between a bank asset and "intermediaries, pension advisors, insurance brokers, stock brokers and the like" ', because banks and building societies are clearly registered as such, and you need a licence to take deposits from the general public. The tax is the price of the licence.
If, conversely, I set up a business with my own money and lend money to people to buy houses, I am clearly not a bank, if my business fails, I lose money, who cares?
It's not like these stupid VAT arguments about whether something is a cake or a biscuit, or arguing whether food has to be served hot because that is how it is made, so selling warm bread straight from the oven is not VATable but selling e.g. a toasted sandwich is VATable.
It is my job to get involved in these pathetic arguments, which is why I would never propose any rules which people like me could circumvent.
"you need a licence to take deposits from the general public. The tax is the price of the licence."
If you go down that road, you could end up with one tax (LVT), but licences to do anything. What's to stop this hypothetical government charging you for a licence to run a retail premises, own farm animals, own a dog (again), be an accountant, be a company director, the list is endless. In fact, don't even go there, because the next thing would be that you would have to go on a course (two weeks, naturally) run by a licenced training provider and pass a test before you are qualified to apply for the licence. I suppose at leat it would give the bureaucrats put out of work by tax simplification something to do.
B, if you take any idea to extremes, then of course you end up with absurdities.
But, returning to my favourite topic of taxi drivers' permits, if the local council decides that there is an optimum number of taxi drivers allowed to work in the town, is it better to hand out a fixed number of permits for free, which are then traded/passed down in the grey market at £10,000 each (privately collected tax) or for the local council to say that there is a charge of £1,000 per year for a permit (publicly collected tax)?
Both restrictions have the same impact on supply, prices etc, but all in all, publicly collected taxes are less bad than privately collected taxes.
... and lest ye misunderstand, the optimum number of taxi drivers is of course set by free markets. And that makes the area more attractive to live in (cheaper taxis) or work in (easier to make a living as taxi driver) so if there are no restrictions at all, then the extra land value is probably more than the money the council can get from auctioning off taxi licences.
The auction procedure is best when there is a practical or political limit on something, e.g. landing and take-off slots at UK airports.
Yebbut, once you have permits for something, the same arguments can be put forward for permits for anything, e.g. if taxi drivers need permits, why not pharmacists? (dunno if they do, they do in France) If pharmacists, why not any retail premises?
Also why should taxi-drivers' permits be tradeable on the grey market, when licences to sell alcohol are not, being tied to a particular person. Could this not apply to taxi-drivers, too?
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