Sunday, 9 June 2019

Tory top-job contender tax plans

Please tell me the ones who have suggested anything not covered here!

1. Sajid Javid:

"My priority will always be to cut the basic rate of tax. But if cutting top rate means more revenue, like what happened last time it was cut, that means more nurses, police, I would cut it if it gives us brings in more revenue and bigger public services."

It comes after he told the Sunday Telegraph he would be willing to cut the top rate of tax from 45p for the highest earners to inject more "dynamism" into the economy.

Nice bit of double think there, cutting the basic rate is his 'priority', but first he's going to reduce the 45% additional rate to the normal 40% higher rate. Half a mark, I guess.

2. Jeremy Hunt:

Jeremy Hunt has praised Donald Trump's economic record and suggested he could introduce similar tax cuts for business if he becomes prime minister.

The foreign secretary, who is one of 12 candidates standing to succeed Theresa May, said the US president had delivered "double the GDP growth that we have" and said we would want to "look at" the Republican's policy of "big business cuts in tax".

Epic fail, the Trump tax cuts were super-regressive and will simply lead to higher deficits to bugger up the next Democrat president. Let's also contrast this with what he was saying a year ago when he was still Health Secretary:

People are willing to pay higher taxes to fund the NHS, Jeremy Hunt has said, amid an ongoing row among senior ministers over how to secure the future of the health service.

The health secretary said the public was open to the idea of tax hikes to pay for healthcare "provided they can see that it is not being wasted", after a major report said the NHS would need £2,000 from every household to stay afloat.

3. Michael Gove:

"My economic plan is driven by the need to increase investment, productivity and wages across the country, with a special focus on helping those areas and regions where productivity is lower," he wrote.

"It would mean reducing the regulations which hold business back, cutting and reforming taxes - such as business rates - which put pressure on small businesses and undermine our high streets, using the opportunity of life outside the EU to look to replace VAT with a lower, simpler, sales tax," he added.

So the usual special pleading for owners of high street premises, boo, but at least he's mentioned the possibility of scrapping VAT. A sales tax would have pretty much the same damaging economic effects as VAT, but if handled correctly, could at least be neutral (or a bit more neutral than VAT) and a lot simpler to calculate and pay. Basically, all business-to-business supplies might as well be exempt, only the retailer/final seller needs to pay it over.

4. Sam Gyimah:

That’s why today I am pledging to abolish Britain’s five worst taxes – the taxes that do the most damage for the money they raise, and whose abolition will get us the most bang for our buck. I would:

* Make the Annual Investment Allowance unlimited.
* Index the tax thresholds to inflation – permanently.
* Replace business rates with a commercial land tax.
* Eliminate the personal allowance withdrawal for higher earners.
* Move towards abolishing stamp duty for homes under £1 million.

Clearly the best of the bunch.

'Commercial Land Tax' sounds a lot like LVT, there is so much we could sweep up into this besides Business Rates (SDLT on commercial premises, planning fees etc).

Before we think about reducing the 45% additional rate to 40% (Javid's suggestion), the really stupid thing that Brown/Darling introduced is the effective 60% rate for incomes between £100,000 and £125,000 (or £100,000 + twice the annual personal allowance), so well spotted Mr Gyimah!

If we could nudge him towards rejigging Council Tax in exchange for getting rid of SDLT (get rid of it entirely, stupid tax), then so much the better.

5. Andrea Leadsom:

The first cuts we need to make are to swearing.

F*** off.

6. Rory Stewart:

The international development secretary -- an outsider in the race to succeed Theresa May -- said he won’t make spending promises the U.K. can’t afford. Candidates who do so would put the country’s reputation for economic stability and competence at risk, Stewart said in a statement to Bloomberg on Wednesday.

“Candidates cannot on the one hand attack Jeremy Corbyn for fiscal irresponsibility and at the same time make unfunded promises,” Stewart said, referring to the opposition Labour Party leader. Some rivals’ plans are incompatible with the economic fallout from leaving the European Union without an agreement on Oct. 31, which they are also advocating, he said.

Fair point, but not very specific about what his plans are, if any.


Sobers said...

"Basically, all business-to-business supplies might as well be exempt, only the retailer/final seller needs to pay it over."

How would that work? Especially over the internet? At the moment a business may deal with business and non-business customers, and the division is of no interest to him, they're the same, he gives a VAT invoice if he's a vat registered business, end of. Under a sales tax such a business would have to determine which side of the line each customer fell, in order to either charge sales tax or not. Which would be impossible, especially on the net.

So unless you had a special register of businesses so that they could flash a card to show they were exempt from sales tax it wouldn't work. And such a register would be massively open to fraud - it would require massive checking to make sure people weren't registering fake businesses in order to evade sales tax. And genuine businesses could use it to evade sales tax when buying personal items. Lets say you're a plumber, you'd have a business card. But that would allow you to buy any goods that could be conceivably business items, if you were in a certain line of business, free of sales tax. Bedding for example is a business cost if you run a B&B. So unless each business card was coded by type and what supplies it could buy tax free, there would be nothing stopping our plumber buying all his household items as business items on his business card.

Sales tax would also reduce competition, as some businesses would decide as predominantly non domestic retailers they'd charge sales tax on everything, which would be non-recoverable by businesses, so no business would ever shop there, just at business only retailers that didn't charge sales tax, who would then price vs the supermarket price which included the tax. Competition would be reduced.

I can remember as a kid, many businesses were 'trade only', which although VAT had already come in, I assume was a throw back to the pre-EEC days when the UK last had sales tax, and it was necessary to prevent non-business customers getting to buy without sales tax. Nowadays anyone can walk into a 'trade' business and buy what they like, they get charged VAT like everyone else. Under a sales tax it would become far more of a closed shop again.

Vat has the advantage its quite simple - if you're vat registered, you charge vat, to everyone, no exceptions. Sales tax wouldn't be so simple and thus more easy to game and defraud.

Sobers said...

Sorry that should say "Sales tax would also reduce competition, as some businesses would decide as predominantly domestic retailers they'd charge sales tax on everything"

Mark Wadsworth said...

S, there is already a tried and tested system for exempting B2B sales.

Mark Wadsworth said...

S, your comment about 'bedding' applies equally to current vat system.

Sobers said...

Incidentally, I assume thats why 'trade only' businesses like Bookers etc existed, it was necessary to have somewhere that small retailers could buy their stock without sales tax, and thus necessary to police the system with membership cards to stop the general public getting to buy food and household items at the lower prices. A cash and carry card was highly sought after in the 70s I remember. A friends mother ran a B&B and she had one, and was always being asked to lend it out for others to use, especially for events and parties.

Sobers said...

" there is already a tried and tested system for exempting B2B sales." What is it then?

Mark Wadsworth said...

S, they have it for cross border sales to businesses registered for vat in other country. They tell you their vat number, you check online, and you don't need to add vat.

Mark Wadsworth (YPP) said...

S, each business decides which category they fall into

1. Sales wholly or mainly to other businesses (factories who sell to wholesalers, recruitment agencies). They only have a few customers with large sales to each, they check the customer's VAT number and bingo. If they make a sale to Tesco, then not really much need to even check it. No sales tax needed. Sales to end users will be few and far between and can be dealt with separately.

2. Sales wholly or mainly to end consumers (hairdressers, restaurants, resi estate agents). They just pay sales tax on their whole turnover).

3. Businesses like accountants and sub-contractors in construction. Have mix of sales to individuals and businesses, they have to check customer VAT number and split into two columns, one with sales tax, on without. No trickier than CIS.

4. Retailers and smaller wholesalers (cash and carry). Either go to the bother of checking customer VAT number and splitting, or say sod that, sales tax on everything. If a sales tax registered business buys from them with sales tax, the just deduct it from their turnover and pay sales tax on the net amount (no trickier than 'claiming' input VAT).

Easy when you know how.

Sobers said...

Whats the point of having a sales tax system where businesses claim it back? The effect of that is the same as the vat system. On the basis that businesses sell stuff for more than they pay for it, they are still being taxed on the value added. And most people would play it safe - if a legit business could claim back sales tax, then there is every incentive for every business to charge it, to make sure they don't accidentally break the law by selling to a non-business without charging the sales tax. In which case we're back to having VAT, just under a different name.

In the modern economy its very hard to determine who is 'business' and who isn't. 50-60 years ago not such a problem, there were manufacturers, wholesalers, retailers and then the general public. It was very stratified and controlled, and the GP couldn't really buy anywhere other than from retailers.

Now its entirely more fluid. The GP may buy direct from the manufacturer via the internet. The wholesaler may also sell to the GP as well as other businesses. Many people run small businesses from home. Businesses may buy from anywhere in the chain, from manufacturer, wholesaler or retailer.

Mark Wadsworth said...

S, you don't get it

VAT is a shit tax, a well implemented Sales Tax is just as shit, but at least he has raised the topic and I have put up some ideas.

"The GP may buy direct from the manufacturer via the internet."

Crikey, these companies aren't supposed to sell needles and drugs willy nilly, as a matter of general precaution, you'd hope that they only sell to GPs or hospitals anyway, who are all business customers.

And not many private individuals order a dentist's chair or an X ray machine, do they?

Sobers said...

GP stands for general public.......

Sobers said...

And actually you can buy some medical products direct from the manufacturers, my father is diabetic and he has privately purchased diabetic monitoring devices and their consumables direct from the makers (or at least their UK importing agents).

Mark Wadsworth said...

S, so? See case 3.

Sobers said...

Case 3? Why would there be a register of VAT registered businesses if VAT has been abolished?

The Stigler said...

I really hate sales taxes. They make no sense to me. Why should you pay a tax when buying a pineapple or a Take That CD? "Government needs the money". OK, so why not just add it to income tax? Maybe apply it more to the top end?

(and yes, land is better but that's a bigger fish to land).

Imagine how much waste we could cut, both in the private and public sector doing that? How many thousands of bureaucrats work for HMRC checking company VAT records?

Shiney said...

@The Stig
"imagine how much waste we could cut, both in the private and public sector doing that? How many thousands of bureaucrats work for HMRC checking company VAT records?"

Example - HMRC just intro'd Making Tax Digital for VAT. I'm involved in a software business (as well as other stuff) and we had to upgrade all our clients as MTD for VAT is mandatory. Pain in the arse... really. Lots of HMRC dudes employed checking software compliance. Lots of private sector dudes upgrading said software. Lots of other private sector dudes implementing and testing. And clients (i.e private sector companies) footing the bill.

What a waste of resources!

VAT is a bloody awful tax and should be abolished Toot-Sweet... compliance is a friggin' nightmare along with all the other economic 'bads'.

@Sobers - if you work in 'business' then I cannot understand you defending the indefensible.

Mark Wadsworth said...

S, you ask some dumb questions.

TS, MTD is rent seeking by software providers.

Sh, amen. TPTB like VAT because it doesn't apply to land backed activities.

Sobers said...

You fail to answer a lot of questions.

Sobers said...

And I don't like VAT any more than the next person. I just happen to thing IF you are going to have a consumption tax, VAT is probably simpler to administer than a sales tax that only applies to B2C transactions.

Mark Wadsworth said...

S, for "vat number" read "sales tax number".

mombers said...

The fact that 1/3 of working households need some or all of their VAT refunded by tax credits / UC is a clear indication of what a damaging tax it is.

mombers said...

Why isn't labour VAT deductible? A very good candidate for 'input VAT' is gottverdammte employer NICs

Shiney said...

"IF you are going to have a consumption tax" - which we wouldn't need if we had LVT

Mark Wadsworth said...

Sh, how about a user charge for consumption of land?

Mark Wadsworth said...

M, because VAT is a stealth tax on wages and profits.

Bayard said...

I have to agree with Sobers on this one. What is the point of replacing a shit tax with one equally shit which is harder to collect? The beauty of VAT from HMRC's POV is that, in order to reclaim your input VAT, you have to do the hard work of keeping the VAT records and paying the output VAT.