Forecast tax receipts for 2012-13 are £571 billion, so assuming we can get public spending levels back to 2003-04 levels (adjusted for 3% annual inflation) to get the deficit down to +/- nothing, here's how I'd raise that (I've checked the workings forwards and backwards).
All existing taxes can be assumed to be scrapped unless expressly mentioned on this list (so please don't come along asking "What about Inheritance Tax? What about Vehicle Excise Duty?" if it's not on the list, it's scrapped):
- Flat income tax of 10%, no personal allowance = £100 bn. Income from overseas will be exempt from UK tax (unless avoidance was afoot).
- Flat corporation tax of 10% (but keep surcharge for North Sea companies) = £20 bn
- Income tax at existing rates 20% and 40% on pensions/pension funds which have received tax relief or accrued prior to 6 April 2012= £20 bn. If people would like to withdraw cash or shares from their pension fund, they will be free to do so and the tax charge will be a flat 20% of the value of assets withdrawn.
- Ad valorem 10 % duty on imports of physical goods 10% = £50 bn (it's mildly protectionist and a bit of a cop-out, but needs must).
- Petrol, booze, tobacco and gambling duties, no changes (maybe reduce tobacco duties a bit and increase fuel duty as VAT will no longer apply), chuck in duties on various drugs which will be legalised; auction proceeds from radio spectrum, airport landing slots etc = £80 bn
- Ad valorem 1% tax on new goods to cover waste disposal costs = £5 bn
- Bank asset tax of 0.5% on higher of UK financial assets or UK deposits = £30 bn (banks will deleverage and shrink their balance sheets like topsy, so the rate will be nudged up in future years to keep revenues constant.
- Business Rates on commercial land and buildings will be approx. doubled and made more like Site Value Rating = £50 bn
- Domestic Rates at 3.5% - 4% of current market value of residential land and buildings = £220 bn*
Total £575 bn
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The welfare system as it stands (excluding payments for severe disability and long-term care) will be replaced in its entirety with a flat rate, non-contributory, non-taxable Citizen's Income/Pension as follows:
Children up to 18 = £35/week
Young adults to 24 = £52/week
Adults 25 - 64 = £70/week
Citizen's Pension for 65 and over = £140/week.
The total cost of the scheme will be about £240 billion (a bit less than the current welfare system), which is not uncoincidentally, a similar amount to that raised in Domestic Rates.
These amounts will be deducted from a household's Domestic Rates bill and any surplus paid out in cash monthly. Approximately three-quarters of households will be due a small cash rebate.
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* This is the only contentious bit. We don't have time to implement proper Land Value Tax in the next three weeks, so all homes will be valued using the same computerised method as in Northern Ireland in 2005 and allocated to twenty-six bands which are each 20% 'wide'. The annual tax will work out at about 3.7% of the starting value for each band. Band A will be for homes worth between £50,000 and £60,000 (annual Rates approx. £1,800), all the way up to Band Z for homes worth more than £4,800,000 (annual Rates approx. £175,000).
To put your minds at rest, over ninety per cent of homes will be in Band A to Band K and the tax for Band K will be about £11,500 a year; the Citizen's Income for two parents, two kids will be over £9,000 a year, so it's not really a large amount of money in net terms.
If anybody wants to gripe that his home should have been allocated to a lower band, then, unless it is quite clear there has been a misallocation, before a case is looked at, that person will have to submit details of all his income and assets for the previous year. If it turns out (as it will in nine out of ten cases) that his overall tax bill will go down anyway, then no need for a downwards reallocation.
Pensioners who cannot afford to or do not want to pay will be able to enter into a binding will and their heirs will be asked to pay the Rates on their behalf. if the heirs are unwilling or unable to pay, the rates will be rolled up and redeemed on the death of the surviving owner or any earlier disposal.
Sunday, 18 March 2012
My outline budget for 2012-13
My latest blogpost: My outline budget for 2012-13Tweet this! Posted by Mark Wadsworth at 13:54
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26 comments:
OK, I have some problems with LVT but agree it's simpler - so going in the right direction. In your removal of all other taxes do you include council fees and licence charges/red tape fees etc. Also what about money paid to the government and the EU in licences, phone band auctions, carbon charges, prescription charges and the like, or are these 'duties' and hence to remain?
Nice budget, I see that the UK is out of the EU for the next fiscal year? :)
Woodsy42: Phone band auctions are LVT, so I don't see any reason to chuck that one out, abolishing them won't reduce the costs for the customers.
I saw this over at the ASI btw: Mansion tax - There is a case for wholesale reform of Britain's land/property taxes, but the mansion tax is the wrong way to go. Tax policy should be driven by economics, not envy-fuelled class warfare. This taxing of wealth is essentially theft.
I don't know if their reform ideas include something in the way of LVT, but they certainly subscribe to the notion of housing value as wealth in opposition to their ideological figurehead.
W42: "do you include council fees and licence charges/red tape fees etc. "
Yes.
"Also what about money paid to the government and the EU in licences, phone band auctions, carbon charges, prescription charges and the like, or are these 'duties' and hence to remain?"
We're not paying anything to the EU or any other countries when i'm in charge, obviously.
Payments for a government-protected monopoly (like radio spectrum, taxi drier's licences, aircraft landing slots) are perfectly acceptable. Carbon tax is out of the window (extraction is a monopoly, using it isn't). Prescription charges seem fair enough to me, but that's hardly a tax, is it?
Kj, ta for back up.
"Wholesale reform" is meaningless, they could mean replace it with poll tax or scrap it. And yes, they constantly piss on Adam Smith's grave, because in this country the right wingers appear to have staked claim to his legacy, they completely ignore the bits they don't like.
To be fair, bricks and mortar are private wealth; the location value of any plot is not (or should be seen as) private wealth as it is national wealth, and the nation can't tax something it already owns, it levies user charges.
No more petrol taxes please! I much prefer Harrison's idea of a car licence that llimt's the amount of users to avoid gridlock. Although where possible I'd advocate infrastructure upgrades so to increase capacity. Taxation, unless it's monopoly taxation should be a last resort.
In general I agree though.
I'd vote for it.
Re: petrol taxes, given that it is a limited resource high taxes make sense to ensure efficient usage.
I'd be happy to see vehicle excise go (certainly in its current form which effectively just replicates fuel duty)
If it were to be kept I would base it on vehicle size and weight; making it a tax on road space occupation and road wear-and-tear.
CD, petrol duty (in the UK at least) is like rent for roads, even if there were an unlimited supply of petrol (once they get those bacteria to work) or if all cars ran off electricity generated by magic, we simply lack roads and/or however many roads you build, they will always fill up, and petrol duty is a cheap and cheerful kind of road pricing.
To keep the motorists onside, all the traffic lights will be turned off and most speed limits abandoned.
QP, ta. Yes, cars have to be registered, but by and large this is for the benefit of "everybody else" and not for the benefit of the owner. The actual cost of DVLA registering a car is a few quid, so why even bother charging for it, it's easier to make it an offence not to register and cover the cost out of fuel duty.
MW, I can understand the need for road rationing in heavily congested areas such as London and the South East, but I don't see the value in subjecting sparsely populated rural locations to equally penal levels of taxation.
Fuel duty is a very destructive solution to a problem that is largely location specific. I'm sure most inhabitants outside of London would be quite happy to put up with a bit more traffic in exchange for lower prices at the pumps.
CD, exactly not.
Out in the countryside, where you can whizz along at 40 mph doing 40 mpg, the fuel duty/VAT for a ten mile commute is (say) £1. In London, with an average speed of 10 mph and half the time wasted at traffic lights (which will be turned off), you're doing 10 mpg average, so the fuel duty for a ten mile journey (say) £4.
And time is money as well.
The country dweller can do his ten mile journey in ten minutes; in London it's three-quarter of an hour. We value our own time at (say) £10 per hour, so the country dweller is already £9 off by the time he gets to work (£6 time saving and £3 fuel duty saving).
And even if rural areas are hit slightly harder by fuel duty, that results in lower land values, so it all sorts itself out. It would be very difficult to enforce higher taxes on petrol on towns, because people would just drive out to the countryside to fill up at the weekend.
Further, nobody's forcing our country dweller to live in a little hamlet somewhere and work in a nearby town, it makes more sense for him to buy a house closer to the town, win-win.
MW, there's absolutely no need for a quasi space tax in areas where there's an abundance of space, it makes no sense. Yes fuel duties erode local land values but then all taxes do this so this isn't a reason to hold onto income taxes for example.
Fuel taxes reduce the consumption of personal mobility and restrict individual liberty, while there's certainly a case for some form of road sharing this -in my opinion- doesn't validate the use of inflationary blanket taxes that virtually double the price of motoring.
Could save a lot of money dumping the citizens-income for non-voting citizens (those < 18) It would reward responsible parents and not feckless ones.
There is two different issues with roads, one is the capital and marginal cost of using the road, the other is the space scarcity in a few locations at specific times. While fuel duty is a good approximation of the first, congestion charging is fair for the second. Why not use both? Capacity requirements (more lanes) above two lanes (that are used for a quarter of the day) should be financed by CC.
CD, in principle, congestion charging is more or less the perfect tax, it's the opportunity for surveillance and snooping, spy-in-the-sky which bother me. If the time-cost-penalty of driving in slow moving urban traffic is not enough to deter people, then how high would the CC have to be?
If we could somehow segment the market for "rural petrol", "town petrol" and "congested city petrol" that would be fine too (like red diesel for tractors to be used on fields, which has much lower duty in the UK) but how on earth do we police it?
SB, we've had that debate many a time, the point here is a reasonably gradual transition (plus the point about levelling up post tax incomes of mothers and everybody else).
Kj, yeah but no but. See my response to CD. It's about weighing up practicality and principle. If something can't be made to work in practice then there's usually something wrong with the underlying principle (compare Child benefit = good with Child tax credits = unholy mess).
SB, further, the child rate citizen's income is only one-tenth of the overall CI budget, and as it is largely a reduction in Domestic Rates and families need bigger homes, it's not exactly a giveaway.
Income tax at existing rates 20% and 40% on pensions/pension funds which have received tax relief or accrued prior to 6 April 2012= £20 bn. If people would like to withdraw cash or shares from their pension fund, they will be free to do so and the tax charge will be a flat 20% of the value of assets withdrawn.
How do you get £20bn out of that, given the state of pension funds?
JH, there is approx. £2,000 billion in funded pension funds, so the latent tax income @ 20% from that is £400 billion (might go up, might go down), which will accrue over the next twenty or thirty years. If people all cash in early, then all the better. Then there's tax on all the unfunded public sector pensions of gross approx. £30 billion a year.
Please note, the much vaunted "dire state of pension funds" has nothing to do with the assets, which are real and are there, it has to do with the liabilities.
So if Higham Holdings plc's pension fund has assets of £100 million and liabilities to pay future pensions of £120 million, that's most unpleasant for HH plc, but at least £100 million will be paid out (even if HH plc goes bankrupt), I'm looking at the tax on the £100 million, not the shortfall of £20 million.
Please not import duties! Better to cut spending by an additional £50 billion, or have 15% rather than 10% income tax.
Protectionism like that would blow the WTO apart and cause severe damage to the world economy.
AC, I'm against import duties in principle, but why is 10% import duty worse than 20% VAT?
Answer = it's not, not by a long chalk.
If somebody imports a Chinese TV set for £100 and pays £10 at the quayside, that's better than importing it tax free, selling it for £300 in the shop and then handing over £50 VAT.
And in the medium term, the tarrif and the 10% flat tax will be scrapped in favour of higher Domestic Rates, that's how this works.
So, to move things on a bit how do we conspire to get at Georgie Porgies little red box and substitute this real budget for the fake one he's no doubt got planned.
All suggestions via the undoubted security of this comment thread...
L, there's a theory that things are true if people believe them to be true (see e.g. Fall of the Berlin Wall).
If enough TV reporters and newspapers simply published it a few hours in advance on the basis that it was a genuine leak, by the time he stands up in the afternoon, most people would have worked out that they'd be much better off, there'd then be Hell to pay once they realise that their dreams were shattered.
The real beauty is that lots and lots of pointless bureaucrats are immediately seen to be utterly redundant.
Please may I add a couple of items? The shutting down of the Bank of England, well certainly its role as lender of last resort, and the scrapping of the entire FS regulatory system?
L, you put those in the manifesto ages ago and they are still a core part of it.
Yeah, I know. but I thought it'd be handy to get it all done at one hit, as it were.
Re tolling/CC, this sums up a compromise that I've been a fan of for a while:
(the article is about the London congestion charge)
The equity argument is probably the most powerful weapon in the antis’ arsenal. And it is the one which proponents of the policy have the toughest time answering. Like it or not, it resonates politically. Perhaps this is what rankles British voters.
For these reasons, it may be premature to think about tolling entire downtowns or freeways. A better plan is to concede that we won’t get the most economically efficient, toll-everything outcome (sorry, transportation economists). Instead we should settle for tolling only portions of facilities while leaving the remainder of them au naturale.
Were, say, two lanes of a four-lane freeway tolled and flowing and the other lanes free but congested, the time savings your money buys you would be very visible to drivers. Equity concerns would be blunted since the poor have a free option. In fact, low-income folks would be better off than before, thanks to the chance to use the toll lanes when really necessary, express bus service in the toll lanes, and increased throughput there.
Kj, like I said, tolling is fine in principle, the same as car parking charges, but it is very difficult in practice.
Like I don't begrudge them £1.50 for using the Datford bridge/tunnel, what annoys me is the ten minute wait each time. The time cost of those ten minutes is as much as the tax, if you include wasted petrol and lorry driver's wages. And one golden rule of taxes is that the collection costs are kept to a bare minimum of revenues (less than 1% is good, less than 0.5% is better).
If we really could have some elegant sat nav type system that charged you automatically that was cheap to install (and yes, that might be the case in five or ten years time), and there were no worries about 'spy in the sky' stuff*, then I'd be all in favour.
* I'm not fussed, I use an Oyster card on London transport so in theory the computer knows exactly what journeys I've made and when, so what?
Kj, like I said, tolling is fine in principle, the same as car parking charges, but it is very difficult in practice.
And one golden rule of taxes is that the collection costs are kept to a bare minimum of revenues (less than 1% is good, less than 0.5% is better).
Yeah I remember, but first of all, car-parking charges are a must, collection costs nonwithstanding. In central locations, it's either parking charges (on public streets), or handing over business and rents to private parking providers. As for tolls, most of the tolling systems I've managed to get the figures off run in the 20-35% range in collection costs. Still, spending a quarter on collection costs may still be worth it. As theorised in the article, giving people a choice of a fastlane may just be a net benefit for all drivers, and if the toll revenue pays for the extra capacity itself, capital cost/running costs/toll collection costs included, then what's the problem?
Like I don't begrudge them £1.50 for using the Datford bridge/tunnel, what annoys me is the ten minute wait each time. The time cost of those ten minutes is as much as the tax, if you include wasted petrol and lorry driver's wages.
True, and as you say, most likely this will improve, and those who value their time can make a choice, both about the economics of it all, and their loss of privacy.
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