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<b>Opinion:</b> The alternative budget. A reply by Michael Jerrom

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30th Mar 2006
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Last week AccountingWEB published an alternative budget. The article prompted Michael Jerrom, a director with accountants and business consultants Cooper Dawn Jerrom, to send us his version. It is not the first time Michael has prepared an alternative budget. He performed a similar exercise an advisor to the Heath administration in 1974. Unfortunately, Heath lost the election and Michael's budget disappeared into the mist

Mr Speaker

The British economy has enormous potential, which is not being realised because of red tape, the monstrous complexity of the Tax system and the creeping tax burden, which has now reached 47% of earnings. This is very near the point at which there is no return from descent to a totalitarian regime, because too many people depend on the state apparatus for their livelihood. If the history of the twentieth century has taught us anything, it is that this is a path to be avoided at all costs.

I outline measures which are designed to free the potential of British invention, improve the lives of the people and make Britain a very attractive place to live and work in. They will also concentrate on giving value for money from public services and address decent provision for the disadvantaged.

Firstly, I turn to the tax system itself. It is overcomplicated and outdated. No amount of tinkering can correct this ' it's akin to tackling the M25 in a Model T Ford. It is time to scrap the lot and start again.

A good tax system must be:-

  • Easy to collect
  • Easy to understand
  • Fair and seen to be fair. If a significant proportion of the people don't understand it, it won't be seen to be fair and it will be difficult to collect. In modern, global conditions, it is almost impossible to audit cash business or barter and the problem becomes intolerable where international boundaries or e-commerce are involved.
  • I therefore propose to abolish direct taxation, excepting certain asset taxes, and place the weight on indirect taxation, principally VAT, which is more difficult to evade. Out go income tax, corporation tax, capital gains tax and inheritance tax and in come inherited tax, planning gains levy and extension of VAT to all goods and services at 15% with no exemptions and zero rating only for registered charities and exports out side the EEC. A lesser rate of 5% will apply to rental of real property and sale of second hand capital goods. Rentals and hire of labour will be accountable on the consumer; other goods and services on the supplier. All businesses will be registered for VAT.

    Stamp duties will be 1% on all conveyances, leases and investment transfers. Inherited Tax will be payable on all estates at 40% after deductions of any amount passing between spouses/ civil partners or to charities, £ 250,000 each to any child or grandchild and £100,000 each to any person [not corporate] under the will. Gifts without reservation will continue to be treated as at present

    Turning to real property, 30% of the deemed enhancement on grant of planning permission [PGL] will be paid to the local authority, which will hold a charge over the property until the debt is cleared. This enhancement is fortuitous and the levy will enable provision of enough affordable housing for key workers and the disadvantaged. Land registry values will be the basis for charging rates at 0.25% of value.

    Such radical changes will take time to implement, so I propose to introduce them on 6th April 2008, except for PGL and the abolition of CGT , which will come into effect immediately . Current measures will remain in force meanwhile and transitional arrangements will be published in the summer.

    Tax credits will be abolished, but house holds with income less than £15,000 p.a. will receive benefit of £3,000 p.a. per child under the age of 18 or in full time education to 25. Total personal and corporate debt will be restricted to 75% of proven assets and four times the proven annual income. It will the duty of lenders to take reasonable steps to prove assets and income. These measures are part of a general drive to reintroduce a culture of responsibility, rectitude and respect for others to our country.

    All fiscal thresholds and limits will track the RPI and variances of more than 5% adjusted at the next budget. This will prevent stealth tax on fiscal drag.

    Excise duties will be reviewed over the next 2 years, but remain in force for the time being. Turning to transport, it is intended that vehicles with low pollution emissions will be free of duty. Ten pence in every gallon of fuel will be placed in a fund to provide third party insurance for all road users. Penalties for driving unlicensed or unfit vehicles will be increased as part of the drive for disciplined behaviour. There will be massive savings from elimination of work concerning "allowable" items and the multitude of tax regimes, reliefs and thresholds, NGO`s, committees, etc, which will make armies of clerical and professionally qualified people available for productive work, giving a welcome boost to the pool of skilled labour. I intend to use these savings to modernise public transport systems, particularly in and around the capital, which is not competitive with other major centres. In order to encourage work to remain in Britain, integrated rail and road improvements will be put in place alongside those already planned for 2012. An enquiry will be set up to examine the effects of using some of the savings to subsidise commuter systems. If London prospers, so does the country and there is a green agenda in this thinking.

    The grey workforce should be viewed as an opportunity. Increasing longevity demands that people should retire later and there cannot be double standards here. All under 45's will be pensionable at 70. The safety measures to protect private pensions will be shored up so that benefits are 90% covered. The audit regime around providers will be strengthened. Measures will also be introduced to outlaw discrimination on grounds of age alone.

    Turning to education, I propose to introduce a voucher for each child of £5,000 p.a., which can be cashed at a school of the parents` choice. Contrary to the hyperbole in certain quarters, standards haven't been improving, and healthy competition between schools of different types is a way to correct this. It is vitally important that respect for teachers and discipline are restored so good people are not lost to the profession. A commission will be set up to monitor standards.

    Moving on to health, I propose to introduce a voucher of £1,000 p.a. for health connected purposes. Healthy competition between public and private sectors is a proven way to improve service. It will be a central theme to reduce the size of the public sector, while increasing the ratio of skilled personnel in relation to administration.

    Defence of the realm, external and internal is the prime responsibility of government. I propose a Royal commission to report on minimum requirements in modern times. I believe we have allowed our armed forces to become woefully under strength and ways should be examined of efficient combination of civil and military services. It seems wrong that in this area any strike action be permitted. We should also continue efforts to restore a human, user-friendly dimension to policing.

    Energy is scarcely less important and it is vital that we lead the way in moving away from dependence on fossil fuels. This means in reality developing more nuclear facilities, whilst prioritising research on renewables and energy saving devices. Again, there is a green agenda here.

    Water and its conservation is also vital; so we propose , in line with commitment to reduce tiers of government to abolish county councils and replace them with authorities based on 8 or 9 water sourcing areas, we deem it wrong to interfere with municipalities and parishes as these retain an essential human dimension.

    Taken as a whole, these measures will reverse a trend for corporate HQ's and wealth creators to leave the country and in a short time I hope to reduce the VAT rate to 10%. Britons understand tithes! I commend this budget to the house.

    Michael Jerrom is a director with Cooper Dawn Jerrom. He qualified in 1968 with Thornton Baker, and has spent most of his working life in line management with property management and development companies. He went back into practice on the back of tax avoidance measures associated with assets. He has been an AccountingWEB member since February 2006

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