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Compass swings off course

Compass, which describes itself as the think tank for the "Democratic Left", has just come out with a set of proposals for putting the tax system to rights. As this was written by Richard Murphy & Company, the proposals are predictable.

1. Introduce a 50% Income Tax band for gross incomes above £100,000. This raises £4.7 billion compared with the current (2009/10) tax system, or an extra £2.3 billion compared with introducing this band at £150,000 as proposed by the Chancellor.

2. Uncap National Insurance Contributions (NICs) such that they are paid at 11% all the way up the income scale (although pensioners would continue to be exempt); make NICs payable on investment income. This results in further revenue of £9.1 billion.

3. In addition to (1) above, introduce minimum tax rates of 40% and 50% on incomes of above £100,000 and £150,000 respectively; these raise an additional £14.9 billion.

4. Introduce a special lower tax band of 10% below the poverty line (below £13,500 per annum), while restoring the ‘basic rate’ to 22%. This costs £11.5 billion.

5. Increase the tax payable (higher multipliers) for houses in Council Tax bands E through H (while awaiting a thorough overhaul of property valuation and local authority taxation) raising a further £1.7 billion.

6. Minimise personal and corporate tax avoidance by requiring tax havens to disclose information fully and changing the definition of ‘tax residence’; these two reforms are estimated minimally to yield £10 billion.

7. Introduce a Financial Transactions Tax (FTT) at a rate of 0.1%, applicable to all transactions. This would raise a further £4.2 billion.

8. Immediately scrap a number of government spending programmes (including ID cards, Trident, new aircraft carriers, PFI schemes), reforms totalling £15.1 billion.

9. Urge that all current small limited companies be re-registered as limited liability partnerships to simplify their administration and reduce opportunities for tax avoidance.

The proposal to amend the Council Tax is worthwhile as a temporary measure, pending reform of the system, but the other measures would be worse than useless.

Income tax levied at less than 20% is not worth the trouble of administering it that this causes. In fact, multiple rates are generally a nuisance as returns have to be exact. It is better to raise tax thresholds to a minimum based on 35 hours work at the national minimum rate, and then come in at a rate of around 30%, with a higher rate of not more than about 40% for the top 10% of earners. More than this just encourages avoidance.

Too much is raised from income tax. It sounds fair but is not, and is a major cause of job destruction as the burden actually falls on employers. Thus the main victims are people with low qualifications who are effectively locked out of work opportunities. I find it strange that an organisation that claims to be on the left should be promoting a tax system which clobbers the poor and lets the rich - country landowners, for instance - get away with not paying their
share.

Council Tax and the UBR need to be reformed to exclude buildings and improvements, whilst agricultural land should be subject to UBR - that is an elephant in the room. The proportion of revenue raised from property taxes needs to be drastically increased so as to get rid of opportunities for avoidance altogether, then it ceases to be a problem.

There is useful scope for increased taxes on "bads" such as alcohol and tobacco - the former is far too cheap to the point that it is a public health hazard.

To deal with the problem of youth unemployment, it is worth considering putting the under-20s on the same tax code as over-65s, with an NI exemption - the latter is a real job killer.

Naturally, John Christensen of the Tax Justice Network (which is advised by Richard Murphy) has commented approvingly, These people obviously have little interest in thinking more widely about the issue. The tragedy is that the main victims are those whom they affect to be concerned about.

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