Pre Budget Report 2009: VAT increases - the government can’t win

of course to go for a policy of taxation that produces the lowest volume of squealing, the chancellor could leave VAT alone and introduce a 99% rate of tax for bonuses in the financial & banking sectors and deal with two problems at once.

£6billion bonuses at 99% equals £5.94billion in tax revenue, cheering from the ordnary tax payer, and no need to introduce dubious legislation that would attempt to outlaw bankers bonuses.

The argument that "Most will start with public sector cuts, at a time when this can only make matters worse in the real economy" has flaws.  Public sector spending is a drain on the economy it produces little except employment.   The cost of public sector employees is inflexble whaereas the private sector costs are determined more by market rates.

No one feels that the public sector is without considerable waste -so here is a good opportunity to review excess expenditure.  I read that Margaret Thatcher did not cut public sector jobs except by not allowing replacement of natural wastage.

Puting up VAT hurts those at the end of the chain, the consumers ie you and me.  If it was such a good system we could have lower direct taxes and greater indirect taxes.  This would benefit savers.

The current government has overspent so it should now come clean how it hopes to repay its indebtness, just as many people up and down the country are having to do.

I would avoid increasing tax on income (even bonuses), which tends to suppress production.  Far better to tax spending/consumption; eg VAT.  Such taxation is paid by those that are spending and the more spending the greater the tax.

At the same time, basics like food, which is free of VAT, and fuel, which is low rated, are unharmed.  So the true poor are not put under extra duress, while those with enough income to spend on other items can pay some more tax.  This also impacts somewhat on the black economy -- there is little Gordon can do with that type of income but when they go to spend it, that cash will tend to be VATed. 

Separately, there is an issue regarding Banker's bonuses, and I think Mervin King covered that well recently by describing how to deal with it.  If I have it correctly, there are (very roughly) two parts to the banks: the bit which is the regular banking that must under any eventuality be supported by Government(us); and the risky bits where banks take big gambles and can make big money, for which they pay out their big bonuses.  The plan would be to separate out those two bits, so that the first is a low liability, possibly protected by Government/us, and the second risky bit is left to the bank as its own risk.  That way the bank takes a risk and if it messes up it goes bust, like any other business.

If a business is successful it should be able to pay the execs a bonus or higher pay, in order to become more successful.  (I am a little jealous of the size of their bonuses but if I want to move into that industry, there is still time for me to re-train.)  The rules have to be rearranged so the Bankers are not dealing/gambling with our taxes, just their own profits.

(It is interesting that 1-2 banks are practically owned by the Government/us.  The Government should control them and run them squeaky-clean without the risky business (they'd be backed by our cash/tax, of course, but not risky).  At the same time, let it be known that if one of the other gambling-Banks chooses to play risky and messes up again, they will have to sort it out themselves, unsupported by the gov/us.  Yes, financial messes, people loosing money and loss of jobs, etc etc.....just like any private company going bust.  That is not a strange consequence.  And, yes, savers would naturally switch over to the safe gov-banks.  All of this should force banks to bank sensibly and the bonuses would float to their natural levels, higher or lower.)

Why stop at 99%? What's wrong with 110%?

Alan Brown

Surely that's the rate for footballers - after all, that's what they all give !

That could easily be my nomination for the best reply to any question ever!!