George Osborne promises simpler and flatter taxation

A little earlier we reflected on George Osborne's defence of his spending pledge during his address on tax reform.  Summarised below are the main messages from the Shadow Chancellor's speech:

Labour is using tax policy for party politics: "Last Spring’s Budget, for example, attempted to present an increase in income tax on the lowest paid as a reduction in headline income tax rates. The con trick lasted all of three hours before it was exposed.  Last Autumn’s Pre Budget is still unravelling.  The ill-judged increase in capital gains taxation and the clumsy changes to the tax treatment of non-domiciles have resulted in a toxic mix of complexity, uncertainty and negative signals to the rest of the world."

Conservatives have a tradition of being tax reformers: "British tax policy led the world with Geoffrey Howe’s shift from direct to indirect taxation.  Our tax policy led the world again in the second half of the 1980s, when Nigel Lawson demonstrated that reductions in income tax and corporation tax rates could over time boost both economic performance and increase revenue.  And Britain led the world in the 1990s with environmental tax reforms such as the landfill tax.  I hope that the next Conservative Government will continue this proud tradition of leading the world when it comes to tax reform."

The Liberal Democrats have also been taking sensible steps on tax: "I am happy to acknowledge that both ourselves and the Liberal Democrats have looked at the future of aviation taxation and come to the similar conclusion that it makes environmental sense to move from a passenger-based tax to a plane-based tax.  This will incentivise fuller planes and cleaner engines and I am glad the government, having fiercely opposed our plans, now want to adopt them."

Adam Smith will be our tax adviser: "I believe that Adam Smith’s four principles – efficiency, certainty, transparency and fairness – still provide an excellent guide for the design of tax policy today."

Lower corporation tax is good for the economy: "Ireland is the poster-child country that has reaped huge rewards from attracting foreign investment with a lower rate of corporation tax.  The Netherlands has led the way with reforms to corporate taxes that helped encourage Shell to tax headquarter there rather than in Britain.  And the new EU member states have also added to the competition on our continent, with countries like Slovakia and Estonia introducing flat taxes.  Meanwhile Britain, which was a pioneer for lower business taxes in the 1980s, has been left behind.  Ten years ago we had the 4th lowest corporation tax rate in the EU.  We now have the 19th lowest.  It is time for Britain to set the pace again.  The evidence on the positive economic impact of lower corporation tax rates is strong.  The work of leading academics such as Jim Hines from the University of Michigan has shown that capital and investment are extremely sensitive to tax rates.  The evidence is not conclusive on how large this dynamic effect is.  The consensus is that it is not large enough to make cuts in corporation tax self-financing in the short run, but over a longer period the returns are likely to be large.  There is also overwhelming evidence that multinational companies shift profits around the world to take advantage of low headline tax rates, however hard tax authorities try to enforce transfer pricing and thin capitalisation rules."

Conservatives will establish a new Office of Tax Simplification: "Our tax code is probably the most complex in the world.  It is certainly the longest – we overtook India for that dubious honour following last year’s Finance Bill.  The size of Tolley’s tax handbook has doubled over the last ten years.  Complexity is also incredibly costly – a survey by the Institute of Chartered Accountants found that the total cost to UK businesses of implementing new legislation is £10.2bn.  That is why we are working with the experts to do the long term thinking on simplification. With PWC on simplifying corporation tax.  And with Grant Thornton on simplifying income tax and National Insurance, and the administration of VAT.  And it is why the final aspect of the proposals being examined by Geoffrey Howe’s group will be so important – the establishment of a new Office of Tax Simplification with a remit to examine the existing tax system and make proposals for simplification.  With a permanent staff of tax specialists aided by secondees from the tax professions, this will create a powerful institutional momentum towards a simpler tax system."

Our proposals for the taxation of non-doms are the right ones: "In order to strike the right balance between a competitive tax system that attracts international talent and a fair tax system that commands public support, I proposed last year a flat rate charge on non-domiciles in return for a promise not to change other aspects of their tax status for at least five years.  The reason why we designed a flat rate charge was precisely to avoid the need to pry into people’s bank accounts and try to assess their offshore income.  It was a good deal and it was broadly welcomed by the City as striking the right balance between fairness and competitiveness."

Download a PDF of George Osborne's full speech: The Principles of Tax Reform.

Comments

[Tony Makara]

Mike Ainsley, if the problem of import dependency is not addressed and if you are still alive a generation from now you will remember my words as the effects of social and economic decline will be in full flow by then. Currently it is still possible for government to patch up the economy, keep it fueled with credit to give the appearance that it works and just about support the massive welfare state that has developed over the last 35 years. However the day will come when even playing catch up won't be possible and the days of democratic conjecture on this issue will also be over, leaving the door open to political extremism. Betrayed by politicians who put the interests of individuals above the long-term interests of the nation. We are about to diminish, to be overtaken and overrun by the eastern economies. Then Mike Ainsley, the time for cracking cheapskate jokes will be over.

[Malcolm Dunn]

An interesting debate,Conhome at its best I think. Whilst not an economist I'm in favour of free trade by instinct if it is to the advantage of Britain. Therefore I am not against 'managing' as circumstances dictate and allow and would have no compunction against introducing tarrifs if it benefits British workers without hugely damaging the consumer.
After many benign economic years the fact that we still have so many unemployed is an absolute scandal given that so many industries depend on immigrants. This cannot be allowed to continue.

[Yet Another Anon]

I don't think I suggested that "helping to poor" was the point of raising the income tax threshold. Presumably in a sense the poor wouldn't be helped at all, because the truly poor would be on means-tested benefits anyway
The higher tax thresholds would mean that when they got a job they would be better off.

Something else which could be done is to stop crediting people on benefits with NI contributions - in a lot of cases people are turning down part time jobs because they wouldn't pay the full neccessary contribution, if they wouldn't get the contribution anyway then they would lose this disincentive.

Importing what we can produce for ourselves is just crazy
What about Software, despite advances of many Linux products (most still written in other parts of the world including commercial ones) and of Star Office/OpenOffice.org, Microsoft still dominates the Operating System and Office software market - would you suggest adding tariffs on their software and making it more expensive - that wouldn't be very popular among people who had trained on those and who were using systems where applications had been developed to run on the MS Office products or on Windows and where maybe a lot of re-training and re-coding might be needed as a result to switch, especially in small businesses and home users who struggle to afford such packages. In many cases there is open source software that will do the same things or work in a very similar way, so many people feel intimidated by slight interface differences and Microsoft propaganda into feeling they can't switch to a different product.

Industry needs workers with the skills relevant in those jobs, it isn't just a matter of the tax regime and regulatory regime being right, a company needs people who can start doing work from the outset, if neccessary they need to be able to recruit people from abroad. If people with certain skills are here, whether they come as refugees or doing other jobs as economic migrants then companies looking to setup somewhere are more likely to consider setting up in the areas they are in - once a company is setup locally whether by a British firm or overseas firm then others from the local area the sites are setup in will also start getting jobs there and getting into the right training and mindset for that particular industry.

[Tony Makara]

Yet Another Anon, you believe the use of specific software is of more importance than determining the economic direction of our country for the next fifty or hundred years? The problem I have in explaining my point about the dangers of import dependency is that so many people fail look beyond their own lives, their own needs, or give a moments thought to the state of our nation after they have passed away.

Each one of us, has only a limited lifespan, we must always remain conscious of what we live behind. That includes the state of our country. As we get older we get a sense of time ebbing away from us, we go from counting the years we have lived to wondering how many years we might have left. Yet our nation, and our people will continue long after we have faded into history. We must consider those generations to come, what we do today will mark their lives, just as the actions of previous generations mark ours.

We must not allow our country to be overrun with foreign goods, to be bought up by foreign interests, to be dismantled inch by inch. We need to hand our nation down to future generations intact and able to sustain itself. Britain is beginning to disintegrate, due to import dependency, due to immigration, due to law inposed from abroad, due to a diminished sense of identity. Children are killing each other on our streets, half of marriages end in divorce, more and more children are born illegitimate, we are losing our way. We need to rebuild our nation, socially and economically. Those who don't see the breakdown that is already occurring must be blind, or in denial. Britain as we know it is slipping away, and to quote Mr Cameron, the lion must roar again.

[Adrian Peirson]

@Mike A

German Secret service and the Ex Italian PM says that Intellligence agencies know 9/11 was an Inside Job
http://www.prisonplanet.com/021104vonbuelow.html
http://www.prisonplanet.com/articles/december2007/120407_common_knowledge.htm
Japanese Parliament questions 9/11 and calls the official version of events a 'FairyStory'
http://www.911blogger.com/node/13392
http://www.911blogger.com/node/13340
http://www.911blogger.com/node/12215

[Yet Another Anon]

Yet Another Anon, you believe the use of specific software is of more importance than determining the economic direction of our country for the next fifty or hundred years?
Business relies very heavily on software, many people do their home accounts using Microsoft software, the economy relies on the Personal Computer more than ever - decisions taken by Software multinationals have a big effect on the global economy, you suppose that specific software doesn't matter - it does if a company then has to rewrite a large amount of the code it uses to support new software or if the file filters in new software don't properly support document formats previously in use.

What about the software in use on production lines - supposing the machines in use in that particular industry use software produced abroad. It isn't the stone age you know, British industry has to compete with hi-tech industry around the world, much of industry uses equipment produced by other companies - many businesses have contracts with IBM or Microsoft and other US companies that are for years ahead, starting trying to force switches to using British companies could create a UK recession in itself I would have thought because whatever they are going to use has to be there for them to use before they can use it and the government can't decide seperately on each item on whether it could start being produced in time in the UK.

[Yet Another Anon]

Watch WTC7 Collapse, neatly, at FreeFall speed into its own footprint, Just like WTC1 & 2.
Aside from the fact that this is all total bilge it has absolutely nothing to do with economic policy, it is recycling of Al Qaeda, Communist and Anarchist propaganda.

[Yet Another Anon]

All of which could be eliminated by reducing our Population
People in the world will still use energy and fuel so simply not allowing them into the country will make no difference to global warming or other pollution globally, the only way any difference to reducing global warming would be if the UK contributed to reducing world population through greater use of birth control and capital punishment.

Coin our Own Money instead of Borrowing it into existance from a Private Bank
Money borrowed is still based on actual assets, some borrowing isn't from banks anyway - National Savings and Investments schemes amount to borrowing from private savers in order to invest. Everyone with any kind of bank or building society account with money in it is effectively lending that organisation money.

The National Debts in both the UK and even more so the US are far too high of course, many will have expected George W. Bush when he entered office to have cut Federal spending instead of which he let rip with spending while slashing taxes and the worry has to be that George Osborne by committing to match Labour's spending for so long has rather boxed himself in - 11 June 2009 must still be the most likely date for a General Election and yet George Osborne's commitment which he re-iterated in the last couple of days leaves him committed almost 2 years after that date to matching Labour's spending plans, it's not clear that Labour's 1997 commitment to match spending for 2 years really benefited them any more than a commitment for only a year would have done, generally when people switch their votes it is on the assumption that there are going to be some differences between the partys and whether it's a year, 2 years or 3 years people are still going to want to know what the main parties intentions are for the remainder of that parliament for which they have made the commitment.

[Andrew Lilico]

Editor,

Can we please delete at least the more lunatic elements of Adrian Peirson's emails? He's making this thread look like a conspiracy theorist loon debate.

[Editor]

Yes, Andrew. I will do so now. The best thing is to email me when you see nonsense/ spam etc being posted. Samuel and I do keep a close eye on the site but can't give it round-the-clock attention. Thanks!

[James]

Great debate.

Andrew Lilico - quick question for you? Do you have any figures on the costs of raising the income tax threshold by x amount?

I ask because I too have always felt that raising the threshold was better than reducing the tax rates. But when I met George Osborne last year and tackled him on this, he said the problem was the enormous cost of raising the income tax thresholds by even a small amount.

If you have £3.5billion if flexibility, you can cut IHT for anyone except millionaires, or you can raise the tax thresholds by a tiny tiny amount - hardly noticable.

I'd love to see some figures on this?

[Adrian Peirson]

Don't think about this, Why doesn't Government Print Money in to the economy Instead of Borrowing it.