Time for more fairness and sound objectives in taxation

The author suggests that the burden on individual citizens and small business is far too high. He argues for a tightening up of the corporate tax avoidance rules, and the abolition of income tax in favour of levies upon bad personal and corporate behaviour. This he terms 'RAT' - Reformed Action Tax.

How did all this income tax start?

Taxation as an idea has lost its way - or rather more exactly, been so perverted by those deciding about its nature, it no longer has any moral or practical validity.

This is to state the obvious, but the obvious is so often overlooked: taxation started as a means of giving those in charge more money to spend. In the case of the Church, this might be a new cathedral to the glory of God; in the case of Kings, it could be for anything from foreign adventures to new mistresses; in the current situation, it is to the glory of Mammon and what remains of Gordon Brown's reputation.

Until 1798, taxes on individuals were rare and sporadic. Most they were on property, crops and land. But in that year the younger William Pitt introduced an income tax to help bail out the Government which was busy trying to squash the French revolution in general, and Bonaparte in particular. After the war ended, he abolished it....but by then the precedent had been set. Having gotten elected by opposing it, Robert Peel introduced it again in 1842 - as a temporary measure. Rather like temporary public ownership today, it proved to be permanent. Indeed, this may well have been the first case of a politician saying 'watch my lips', the lips having proved to be lying.

What is income tax supposed to deliver for us?

Within a decade, personal income taxation had moved from a temporary need to raise money urgently for national emergencies to an accepted part of life - that life consisting of governments and the civil service being unable to control spending effectively or forecast anything accurately. We pay income tax chiefly because MPs and civil servants are incompetent and self-serving - and don't let anyone tell you otherwise.

From 1947 until roughly 1978, income tax developed two new roles: wealth redistribution, and welfare funding - the welfare of the People including education, health and housing plus the eradication of malnourishment. Tax rates went up and the public sector sprawled in all directions - but whether we choose to like it or not, in the heyday of this approach Britain grew faster than ever befoere in its history, had higher citizen happiness levels and lower wealth inequities, and for its 'progressive' domestic policies was admired by every country in Europe.

Mrs Thatcher arrived with a brief to cut down government waste (she failed), reduce the size of the civil service (she failed), fuel economic growth which would trickle down to everyone (it didn't), and reduce the overall tax burden on the highest number (it went up, merely moving to local taxation and VAT). She did put the Unions firmly back in their box, and improve industrial efficiency. But she created a new class - like the TUC, above the law - called bankers.

Governments will always protect bankers, because without their skills and money, they'd either go broke or double everyone's tax and thus never get reelected. Under first Tony Blair and then Gordon Brown, the banks were given carte blanche to lose their raison d'etre - support for commerce and home ownership - and develop a new one: making so much money for themselves they could afford to do very silly things, lose all the money and then reverse the normal relationship with Government by demanding taxpayer bailout.

We are all about to pay a lot more tax because Government banking regulation was pathetic and the banks went utterly insane in their lending practices - and don't let anyone tell you otherwise.

To summarise the story so far then, income tax has been - and is still - paid to subsidise foreign adventure, pay for political incompetence, keep the Civil Service job creation programme going, keep the bankers in clover, and help ordinary people afford the self-defence they often need against what life throws at them - for example, mad bankers. (Despite some forty years and in the region of £18 trillion being spent on it, wealth redistribution has always failed, and has largely disappeared as a political objective for anyone beyond Tony Benn - who will thus remain free to will his own personal and formerly aristocratic fortune to his family).

To shorten that to a conclusion, all but one of the uses of income tax is a waste of time and money. The welfare dimension seems to me something to which any civilised society should aspire: but it has undoubtedly ensured that the 'need' for defence against life has become an assumed expectancy. (There is further waste here in that we see both abuse of the system and hopeless targeting)

Is abolition of income tax going to save us much money?

The amount we would save on adminstration alone borders on unimaginable. And the quicker we do it, the more we stand to save: having spent £530,000 in 2007 on recruitment fees alone, the Customs and Revenue (CAR) had exceeded this amount by the half-year of 2008. Replying to a parliamentary question at the time, one of Darling's minions was forced to admit that the total tax-collection headcount was 90,000 and growing. Every last one of these employees will get an index-linked pension (if you think this petty, remember that the commitment to civil service pensions is running at £3.2 trillion). And the top chaps are pulling down six figure salaries.

Directly, the payment of increasingly complex income taxes forces millions of Britons to employ professional accountancy and further advisory assistance.

That none of this is doing anything to stop Britain's overspending has been obvious for centuries, but the spectacular rise in indebtedness since 2002 (since when, Lord Mandelson continues to insist, the Government has been paying back national debt) shows the urgency with which the problem needs to be addressed. The Office of National Statistics (ONS) records that each one of us owed the rest of the world £854 back then. Seven years later, the figure is £5442 - seven times bigger.

There is an obvious hypothesis here: that income tax is like road building - the more you spend on it, the worse things get.

Equally obviously, not having earned income removed from our directly mandated salaries 'at source' would enable all of us to pay off an enormous amount of debt. This is another area where, before the credit crunch, apologists were keen to show how debt was good, and the only way to drive forward a capitalist economy. Almost everyone still believes that both the growth and the credit are vital, although for what I'm not sure - the death of the planet perhaps, or the building of hundreds of new debtors' prisons. Nevertheless, there is a stark statistic hidden in all this which is so bizarre, one can't help but laugh at the madness of it.

In August 2007, The Independent noted that UK mortgage, unsecured loan and credit card debt together came to a staggering £1.35 trillion. The GDP for the same period was £1.33 trillion. In theory then, every last penny of UK domestic output had been consumed with money borrowed from the banks. (In practice, it was indeed all borrowed from banks: the vast majority of it was mortgage debt)

No wonder the survival of a debt culture is deemed to be vital. (Exactly a year later - and after all the disasters of that twelve month period - the same newspaper showed the debt rising to £1.44 trillion)

Anyway, being still of sound mind my assumption here is that it will be good for everything - life balance, the banking system and long-term consumption - if we got the personal indebtedness down drastically. Abolishing income tax wouldn't be the only way to do that - we pay £180 billion a year, and that wouldn't make much of an immediate dent in it. But as most of the debt is due on mortgages - another delightful side-effect of the Thatcher Revolution - our ability to pay off credit cards would be positively affected. The outstanding card-based debt is only £212 billion. (Daft as it sounds, paying off this 'income overspend' debt would stimulate consumption in the short term - and bring some much-needed confidence to bear)

But I digress: the 'average' UK citizen pays between 15 and 23% of income in tax. Abolition of it would make a gigantic difference to us all - and, if past experience is anything to go by, mean that future governments would be literally forced to cut and make more suits from the cloth they were given. The trick would be for the Government to have to get the tax monies they'd lost from somewhere else, where demands for accountability would be much greater. More accountability = less hubris, less waste and fewer bureraucrats. Hold that thought.

'They just don't know what's a-goin' to replace it'. (Move it - Cliff Richard on rock n roll, 1958)

But is the abolition of income tax just a pipe-dream? I ask this question of course purely to have the pleasure of saying 'not at all'. I would say that - but consider the evidence for a minute.

Personal income tax raises £150-180 billion a year. That's 33% of ALL tax income - and, I would argue, a smaller proportion of the total tax take than most people realise. What bumps up the total we shell out is the National Insurance Contribution at 22%; while a tax in real terms, the NIC is really an insurance policy in return for which the Government provides health and pension products and services.

However, when people and the media go on about 'taxes' in the UK, they mean taxes on individuals: income tax and council tax.

The population of the UK was, at the start of this sentence, sixty-one million. With all their varying interests, lifestages, circumstances and just sheer numbers, it simply is not possible to motivate and organise enough of us individuals to oppose the inequities and waste involved in income tax collection and expenditure. I am sure this has occurred to government, and I'm sure they like that just fine.

Rule One is therefore as follows: if we are to make government more accountable - and less likely to see personal taxes raised as 'their' money - the money has to come from a smaller number of sources, and ones highly unlikely to put up with incompetent expenditure policies.

What I propose is a new model of taxation, and new, vitally important functions for taxation.

New Model taxation

Thus, 73% (33 +22+18) of Britain's tax revenue is currently paid by you and I.

Iniquitous as this seems on its own, we mustn't forget all the employee responsibilities and local taxes - business rates - which are paid by every commercial concern. Time for a closer look at that.

Small and medium-sized enterprises (SMEs) are 99.9% of UK firms numerically, the total being 4.7million. But while they employ near to 60% of all people in productive work, they account for just 51.9% of Britain's GDP. Think about that for a second: just under half of ALL our output comes from 0.1% of companies - just 4,700 of them. You don't need to be a conspiracy theorist to imagine the awesome power that must come with being that big: just look at how the non-doms emerged untouchable from Darling's 'crack-down' on tax avoidance.

Non-doms are nearly all bankers - and financial services overdependence is frightening. That's to say, it is when you can find an accurate figure. One of the outstanding (and growing) features of government online 'information' is its covert function of hiding all the stuff they'd rather you couldn't work out. Over the years (and especially since Meltdown) New Labour has tried to play down the degree of over-dependence, at times quoting ridiculous figures such as 37%. In fact, when all the activities of banking, insurance, financial retail and overseas consultancy are taken into account, financial services stand at around 62% of GDP. The sector employs around 440,000 people in the UK - 1.7% of the total workforce.

That's how enormously we depend on banking.....that's why banks get bailed out for whatever they want.....that's why bankers tell governments to go to Hell. And that's why the growing world recognition that our bankers are in an engineless aeroplane is an economic disaster far in advance of anything most people have as yet grasped.

As we can see, banking is not a big employer - you can't have THAT many £30 million bonuses if there are two million employees. (By contrast, telecoms businesses represent 4% of GDP and employ ten times more people. In short, the banks contribute almost diddly-squat to UK payroll taxes). As for Corporation tax, Big Business avoids most of it

SMEs employ three out of five UK workers. Taxes and tax consultancy cost the sector £72 billion in 2007. But according to the National Audit Office, over 60% of Britain's 700 biggest companies paid less than £10m corporation tax, and 30% paid nothing. This is a telling extract from The Guardian (2.2.09):

'The veil of confidentiality that covers these tax avoidance schemes is so difficult to penetrate that nobody knows exactly how much tax goes missing each year. UK listed companies are not required to set out exactly how much UK corporation tax they actually hand over to HM Revenue & Customs. When the Guardian asked each FTSE 100 company to provide this information only two offered a response.'

The overall conclusions from all this I draw as follows: (a) the percentage of the cake baked by personal income earners is outrageous, (b) the balance paid between SMEs and big corporations needs a massive overhaul (c) the power accruing to big business and globalists generally is bad for the private citizen and not conducive to reality checks - or cheques for that matter (d) considering their access to UK financial markets for capital, large companies in general and financial institutions in particular are getting away with murder (e) the huge power of these global concerns is being applied negatively to the debt collection problems of the real entrepreneurs: SMEs and sole traders; and (f) the tax avoidance schemes used and enjoyed by the globalists are raping social budgets - and reflecting the degree of pernicious influence they exert.

No wonder Gordon Brown sounds like a turkey with his constant emphasis on the future as globalglobalglobalglobal. He daren't say anything else.

In short, we have as much corporate as individually bad socialbehaviour with which to deal here. And this is why my primary suggestion is that income tax be scrapped - in favour of a tax regime designed to both promote good social behaviour, and determine that rather more of the bulging pockets should undo the careful sewing thereof. Trickle-down Reaganomics having manifestly failed, it isn't wealth redistribution we need here: it's responsibility redistribution.

Redressing the balance of Fairness

The first lunacy to treat is that allowing enormous corporations to end up paying far less tax than the SMEs upon whom our real future in the post-US hegemony world depends. A good start here would be the abolition of business rates for the SME sector, and a doubling of them for large concerns. Not only would this be almost cost-neutral, it would also give the small community retailer a much-needed advantage over the multiples who move in and tend to produce ghost towns within five years.

The tax-avoidance employed by large concerns is a more difficult issue, but isn't intractable. Non-doms must simply be told they're paying tax like everyone else, and if they don't like it well, hey - we're already overdependent on your trade: so bye-bye. More broadly, tax avoidance is only possible by shifting assets and income around. There are two possible approaches - one a tax calculated by the number of employees (not a good idea, as the bean-counters would simply cut headcount) and the other one based on units manufactured in the previous year and the total customer value thus created. No TA scheme can deal with such a tax, and as the volume-growth model needs to change anyway, this seems to me an excellent idea.

The standard cry in the face of fairness is 'but they'll leave'. Perhaps they will, probably they won't. Either way, if we are to rebuild a truly British economy after four decades of make-believe products and decimated industries, we must break our dependence on foreign-owned concerns: we are a nation, not a business park.

But the chief imbalance remains that between income tax/NIC/VAT at 73%, and the miserly contribution of 10% from business.....plus (while we're at it) the somewhat average input from the super-rich on Inheritance Tax (all of one per cent).

As must be obvious by now given the direction of this essay, Income Tax would be abolished. Taking people's earnings from them serves no objective-based purpose other than money collection - which in itself breeds the deadly idea that it is 'their' money. However, this doesn't mean individual citizens would pay no tax: rather, that how they behaved could radically reduce their tax burden.

The National Insurance Contribution would morph into a broader scheme, but represent an amount entirely ring-fenced for health and pensions use only - a reality audited by independent professionals. That is to say it would not be positioned as a tax, but rather payment into a proper insurance scheme.

This would produce the equivalent of 35% of current Exchquer tax income, with both employees/individuals under 65 and business upping their current contributions by 5% each. The monies thus created would be partially hived off into a National Pension Investment Account managed by one of the nationalised banks - of which I assume there will be many by the end of 2011. The remainder would go towards an NHS budget almost double its current size. It would be financed partly by the new contributions scheme, marginally by obligatory management staff reductions, and hugely by a more realistic means-based treatment system applied both to in-hospital care and prescriptions. (And to raise morale, Patricia Hewitt would be shot).

As for VAT, as EU members there's not a lot we can do about that. In five to ten years time the situation may well be different. The most we can do is vary the rate levied depending upon whether items being taxed are deemed socially positive or negative. (This is the point at which Libdem readers holler "Oooh, and I suppose YOU'RE going to be the one making that decision hmm, hmm?" To which my reply as always guys is, "Someone's got to".)

Nevertheless, somehow the 33% Income Tax shortfall needs to be at least made up. And this is where the broad principle of PAT applies.

The replacement for Income Tax - Reformed Action Tax (RAT)

To assess how this might work, we must return to the list of socio-economic problems we face. But initially, the broad principle needs to be restated. Effectively, our culture would move to one taxing anti-social behaviour, not income. Anything clearly deleterious to the effective running of society (and unltimately, the planet) would attract taxation and/or genuine social service. In hardship cases, the latter would replace the former.

According to means, every citizen in work aged 16-64 would be given a designated number of RAT 'points' at the start of the tax year. This would represent the maximum bill they would be asked to pay twelve months later. During that year, they could attract RAT credits based on behaviour.

The same would apply to households and businesses.

* Social indiscipline and substance abuse

This is an enormous subject, but there are several key areas worthy of illustration. Brewers and distillers must fork out more for the physical, social and community damage associated with the products they sell. All alcohol producers based in Britain would face a RAT charge on sales, and the tax would also be applied massively to all retail sales. Price promotion at on or off-licence point of sale would be banned.

ASBOs would be abandoned in favour of RAT points collected at each incidence of public drunkeness, violence, indecency etc. If not paid from earned income (a la PAYE) they would tot up eventually to loss of liberty while undertaking social service.

The same principle would apply to drunk driving, speeding, careless driving, dropping litter and so forth.

Community apathy and life imbalance

All employers asking employees to work more than eight hours a day would be subject to RAT charges on their profits - and lose RAT credits

School misbehaviour would attract parental RAT charges.

Pre-agreed social services carried out by taxpayers would attract RAT credits.

Health and Diet

Every UK citizen would receive (means-tested and obligatory) an annual check of body-mass index and liver function. Healthy scores in both areas would attract RAT credits, unhealthy ones RAT points. All monies paid for the tests would go directly towards funding the NHS.

A RAT tax would be levied on all manufacturers' and retailers' product lines high in fat, sugar, salt or E numbers.

RAT credits would be given to all shop owners selling fitness items (not apparel), bikes etc. Attendance at a gym would attract RAT credits.

All non-UK citizens would pay in full for health treatment at the point of purchase.

Pollution, recycling and energy conservation

Every household (rented or owned) and business in the UK would start with a potential RAT levy at the start of each tax year. Credits could then be gained for the following:

Insulation, installation of solar panel/wind turbine, low water usage, gas, oil and electricity usage*.

An increased RAT would be levied on businesses adding to direct pollution and delivery carbon footprint.

* This would not apply to householders disabled, receiving full-time care or aged over 65.

Birth control

From the third child onwards, all offspring would attract heavy RAT points for ten years

Anyone undergoing sterilization after the age of 30 would get five years worth of RAT credits

Inherited Wealth

Wealth that is inherited by a later generation faces an unanswerable amorality charge on the simple basis that it hasn't been earned. This is as true today as it was six hundred years ago: if we are all to enter the world with an equal opportunity, then we cannot have some doing so with £130 billion, and others with nothing.

Reality intervenes to tell us, however, that there will be degrees of inequality which no tax system could fix without turning into the Soviet Union.

Inherited wealth is also open in my view (based on sixty years of observation) to the charge that it tends to produce drug-addled wasters and playboys. The most notable exception to this is Rupert Murdoch: you must make of that what you will.

Many will argue that it is an inalienable human right to pass on money to one's children; in which case, every tax ever invented is immoral, and IHT is simply a tad more immoral than others.

But with new miracle-ingredient RAT, there is no need for IHT: I would abolish it.

Instead, the amount one was allowed to leave would depend on what other good causes were supported in the Will. The more one left to these, the more PAT credits would accrue to the beneficiaries over time following one's death.

That said, there would be a ceiling inheritance of £10 million, adjusted for inflation over time.

Accountability

When dealing with sixty million people, it is remarkably easy to avoid accountability. Tougher measures to make business contribute to a more balanced and less polluted society would have to accompanied by far more government transparency about what specific levies did and did not achieve.

As big business involves under 5000 companies in the UK, they would be invited to regard work done using such levies as services supplied. And they would thus be given considerably more power to interrogate government use of their monies.

Conclusions

The thesis of this essay is easy to define and demonstrate: individual citizens and small businesses are paying far too much tax, and mostly for the wrong reasons.

My recommendation would be to switch to a tax with the primary objective of encouraging better corporate and individual behaviour (RAT) and redress the balance between the little man and big globalism when it comes to real payment of taxation.

With the existing Establishment, it is unlikely that most if any of the suggested changes outlined above will attract anything beyond laughter: the governmental elite is, after all, so utterly dependent on banks and multinational business for both income and loans, its members will do anything to ensure continued good relations with them. In this sense, such anti-libertarian concerns represent precisely the same constitutionally dangerous threat to that of the trade union movement during the late 1970s and early 1980s.

A Government prepared to sacrifice social budgets and infrastructural investment for 59.6 million people to the self-inflicted needs of 440,000 is the best evidence one is ever likely to see of this. To date, New Labour has given each and every one of those employees £2 million of public money. This is a scandal, and only root and branch tax reform will ensure it is never allowed to happen again.

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