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The Principles of Tax Policy

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The Principles of Tax Policy House of Commons Treasury Committee The principles of tax policy Written Evidence Only those submissions written specifically for the Committee and accepted by the Committee as evidence for the inquiry The principles of tax policy are included. Ordered to be published 25 January 2011 List of written evidence 1 Bryan Harris 3 2 David Martin 6 3 British Air Transport Association (BATA) 29 4 Shelter 31 5 Coalition for Economic Justice (CEJ) 34 6 UK Sustainable Biodiesel Alliance 36 7 Scotch Whisky Association 41 8 Forum of Private Business 44 9 Imperial Tobacco Group plc 50 10 Land Value Taxation Campaign 53 11 NFU 58 12 Joseph Rowntree Foundation 61 13 ALTER 66 14 School of Economic Science 71 15 London First 78 16 Labour Land Campaign 81 17 Investment Management Association 88 18 Publish What You Pay coalition 94 19 David Chester 97 20 Christian Aid 98 21 ACCA 101 22 TaxAid 109 23 Low Incomes Tax Reform Group 112 24 Transforming Communities 119 25 The Chartered Institute of Taxation (CIOT) 125 26 Michael Learoyd 131 27 PricewaterhouseCoopers 132 28 TheCityUk 137 29 The Henry George Foundation of Great Britain 141 30 ActionAid 147 31 Law Society of England and Wales 150 32 Systemic Fiscal Reform Group 154 33 Institute of Chartered Accountants in England and Wales (ICAEW) 159 34 Unquoted Companies Group 168 35 HM Treasury 172 36 Retailers Against VAT Abuse Schemes (RAVAS) 176 37 Child Poverty Action Group 184 38 CBI 189 39 TUC 196 40 Catherine Fromant 203 41 EEF 205 42 British Bankers’ Association 214 43 RSPB 218 44 Christopher J Wales 226 45 City of London Corporation 234 46 Richard Brooks 236 3 Written evidence submitted by Bryan Harris I'm very pleased that some focus is being given to how we are taxed. It is long overdue, and I hope some lasting good will come out of it. I am a mere taxpayer, not an accountant, so forgive me if I speak in broad terms, but hope you will consider the points I make. STATEMENT OF INTENT Firstly, I believe there should be a statement of intent that describes the approach to taxation by the government and acts as an agreement that will remind politicians that the days of excess, as in milking the taxpayers, are long gone. It should also remind us all that governments should work within a budget, and keep borrowing for true emergencies, not incompetencies. MY VISION The tax industry is huge, and in my very humble opinion, totally unnecessary. Why do we have all of these people employed working out how much we should be taxed. It borders on the insane. Surely these people could be better employed in “Productive work” Taxation may be a necessary evil, but its impact needs to be reduced and made to become more equitable. That is not to say that taxation is only for the very rich, it means the burden should not be placed in one quarter, while others exempt themselves because they live off the State. There are far too many taxes, this volume badly need to be reduced and simplified, and the tax industry is ripe for pruning. Red tape of course pushes up costs, and while out of scope here, it needs to be kept in mind. I have long maintained that government makes basic living too expensive, by their taxation policies and the way they subsidise those on low income. The mere fact that we are all taxed so heavily makes it more difficult for those impoverished to live without government support. THIS HAS TO CHANGE. Basic cost of living should be very cheap. What is the point in making it otherwise, apart from being counter-productive, it encourages the benefits bandwagon. Here we are talking about somewhere to live, food and clothes. In my opinion taxation should be removed on the latter two items and reduced significantly on accommodation. By the simple fact of making it easier and cheaper to get by, day to day, there would be less need to tax us all to fund the welfare state. So, people who administer the system would also be reduced, and the requirement would then be for less taxation rather than more. SPECIFICS My hope for a fundamental change in taxation rests with the following, and while an overnight change may not be possible, we should be moving this way, dramatically: 4 • NATIONAL INSURANCE should be merged into INCOME TAX • INCOME TAX should in future be paid by the employer • PURCHASE TAX (or VAT if you prefer) should be the main form of tax revenue. • CAR TAX should be merged into FUEL TAX • The TV LICENCE should be scrapped MORE DETAIL NATIONAL INSURANCE should be merged into INCOME TAX I support the views expressed in this article by Lorna Bourke, for this subject: http://www.citywire.co.uk/money/lorna-bourke-my-solution-to-fix-our-costly-and-unfair-tax- system/a452159?ref=citywire-money-featured-articles-list The main benefit I see is in reducing the cost of collection and administration. If people have been employed for more than 25 years they should be eligible for the State pension. Those that weren't will already be on benefits, so lets continue to call it that, rather than give them a pension. INCOME TAX should in future be paid by the employer Just imagine how many administrators could be more gainfully employed if we didn't have PAYE! The army of tax collectors could find more worthwhile employment, while those employed by companies could move on to earning revenue for their company. Rather than an employer giving the employee his wage, which then gets reduced by the PAYE scheme, why not just have the company pay this tax directly, an average amount for each employee. In other words, the employee gets the pay level he agrees with his employee, but the level is less taxation, which is fixed. The employee would no longer need to worry about how much tax he pays, as he would get the same amount each week or month. The take home pay would be approximately what it is now. The company would instead pay an employee tax, for the total number of employees. That tax level could vary based on the average wage of people in the company, or it could just be a flat head count tax. For overtime the company would pay an hourly rate to the employee reduced by a percentage for tax. The company would then pay an additional tax based on how many extra overtime hours were worked throughout the year. Most interest on savings is already taxed at source, this would be extended or removed totally to make this system work effectively and efficiently. Pensioners, that is people over State retirement age, would no longer be taxed, save for their purchases on non-zero rated items. PURCHASE TAX (or VAT if you prefer) should be the main form of tax revenue. This tax should be radically reformed to be the main revenue for government. Luxury items can be taxed more, but the more disposable income one has, and the more one spends, then the more one pays. Children’s clothes (plus shoes) and food would be zero rated, as would all books classified as “Education”. 5 CAR TAX should be merged into FUEL TAX Another tax that costs a fortune to collect. Just add a penny to fuel tax and then we pay for the road we use. Rather than a tax disc being displayed in car windows, there would instead be an MOT disc. The TV LICENCE would be scrapped Yet another costly tax and so unnecessary. Funds should come from the general pool of taxation from VAT and Company Peoples tax. January 2011 6 Written evidence submitted by David Martin Executive Summary 1.The broad rebalancing of taxation towards indirect tax recommended by both Mirrlees and the OECD report Is strongly supported. The VAT base should be broadened. Many of the other proposals set out in the Mirrlees Review are accepted, although neither an allowance for corporate equity nor a rate of return allowance appear justified. 2.Direct tax should be levied in three distinct categories, business profits, earnings from employment, and profits derived by individuals from non business activities. Business tax should be radically simplified, with taxable business profits being calculated in a similar way for both incorporated and unincorporated businesses. Employment tax should be reformed through the merger of the tax and NIC systems. Other non-business profits (whether capital or income) should be aggregated and taxed together under a much simpler system. This system should however include relief for entrepreneurs, and also for savers under a new lifetime savings scheme. 3.Dividend tax credits should be abandoned, and a 25% withholding tax on dividends should be introduced. 4.Direct tax should be levied at 0% on income and gains up to £10,000, 25% from £10,000 to £35,000, and at 40% above £35,000. A simple payroll tax of 6% should be payable by employers. The shortfall for the Treasury arising from this proposed combination should be made good by a variety of measures, principally the increase in VAT and also new local taxes. A. The Mirrlees Review 1.The Mirrlees Review shows a refreshing willingness to tackle fundamental issues. There is welcome emphasis on the tax principle of neutrality and the point that If the tax base is complex and inconsistent there is more opportunity for avoidance. There are many specific proposals which are well made:- (a) Personal allowance should not be phased out for high incomes.
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