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UK tax return 2016
istock_paulmaguire_ss

Why we need taxes

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28th Feb 2017
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They tell me there’s a Budget coming. Will it be austerity or austerity-lite? Will it be “climate change means lots more nuclear power stations (if we can find anybody willing to take our money to build them)”?

Without coming over all UKIP, I remember the 1950s and 60s (a little bit early, but you can castigate me as one of those baby-boomers all right). Since then we have had a constantly expanding economy (they tell us) so obviously we are all richer.

So how come in those days we could fund the NHS properly, earn wages sufficient to buy houses, and run proper pension schemes? And nobody lived on the streets, either, and unemployment was very low. And we built the motorways, and built schools and hospitals without the madness of PFI.

If there are four things everyone wants, it’s a job, somewhere to live, decent healthcare and decent schooling. Even the DDR managed those. And they had the Stasi, mind, and even our surveillance state (nearly all the CCTV in the world!) hasn’t got there yet. But, like the DDR, we see a world full of enemies trying to bring us down, and justify more and more draconian security measures because of that.

Since the 1970s we have seen a gradual process in which the extra wealth and income produced by the economy gravitates to the rich, aided by low taxation, tax avoidance, and the compliance of those voters who have been fooled into thinking that tax reductions would redound to their benefit. We now have a caricature of this process going on in this country and the USA with scarcely a whimper of protest.

Europe has managed at least to slow the process and hold off the extremes of the free market. We – the British – are now in a process which threatens to break Europe, but nobody in this country has a thought about that.

Once we remembered that we pay taxes so things will run properly. It was a bargain with the state, not a burden. Until we can get that back (despite the screams of the tabloid press) we will continue to suffer.

Replies (9)

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By thegreatgrumbleduke
28th Feb 2017 12:42

You don't do yourself any favours sometimes Simon

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By Peter Cane
28th Feb 2017 14:31

Can I borrow a pair of your rose-tinted spectacles, please Simon? Because your description of life in the 1950's and 1960's just doesn't match up with reality. I was born in the early 60's and I just don't recognise your utopian vision of that period. I think the post-war years were a struggle for many, my parents and other family members included. My parents would have loved to have earned wages sufficient to buy a house, but my dad was made redundant several times before finally finding a more settled employment. I wonder if you felt the same in the 50's when MacMillan told everyone "you've never had it so good". I think the mood in the country was summed up by Tony Hancock when he said "you might have but we haven't!"

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paddle steamer
By DJKL
01st Mar 2017 11:42

I think you need to look at age profiles and survival post retirement to see where the real issues arise; the real issue is the health profession advances have outstripped our ability to currently fund their advances and the expectations of people re their lives have increased- hands up how many had a foreign holiday in the 1950s and 1960s, motoring of course was a joy back then, if one could afford a car, hands up those who had a car back then!

Now a grown up conversation about this issue, fine, but a harking back to a sentimental , fuzzy and warm, never had it so good 1950s and the white heat of technology swinging 60s Carnaby Street of the 1960s, with of course a judicious bodyswerve of the 1970s and its rubbish in the streets/unburied dead et al, is pointless, it is distraction from real issues viewing backwards an imagined utopian landscape.

The fact is the UK public has become like the spoilt children we have all seen and despised, no self reliance, needy and dependent, a must have it now instant gratification society.

Now the easy option, keep blaming someone else, taxing someone else (never me, of course, there always has to be a villain, Orwell tapped into the need for their always being an external menace), or grow up, face the music, have a mature conversation re what can and cannot be delivered and its real cost.

The latter is a forlorn hope instead it will all be okay, someone else will pay. (Until they don't)

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By Mike18
03rd Mar 2017 11:42

In 1917 life for most people was hard, uncertain and short.
In 2017 life for most people is not as hard, just as uncertain and long. In 100 years what progress has happened has depended on greater equality, and tax policy for all its faults, has played a part.

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By Michael C Feltham
03rd Mar 2017 18:40

Simon: You have conflated numerous issues and leapt to various erroneous conclusions, and I am afraid, a number of fallacious assumptions.

Any Socio-Economy faces a number of choices: it could base itself on the Marxist-Socialist Model; or the Capitalist Model (Not, please the mythical "Free Market" as beloved by ignorant journos and supposed commentators, since such a beast doesn't exist. What we suffer, today, is constant depredations from unfettered and wholly venal exploiters, invariably acting in cohort as cabals, coteries and groups.).

Or the various shades of Libertarian......

A socio-economy which opts for a sort of beneficial capitalism, expects probity, moral compass and a good "Bang for Our Tax Buck"!

It is worth considering Britain's fiscal history.

Here is the best web source:

http://www.ukpublicspending.co.uk/spending_chart_1900_2020UKp_XXc1li111m...

Consider `948 to 1960. Britain was: i. Paying still for WWII and WWI: ii. Funding its independent Nuclear Weapons: iii. Fighting in the Korean War; Malaya; Cyprus; Aden/Suez: iv. Researching and paying for a range of new jet fighters, etc. v. Building the World's first commercial nuclear generators.

YET Government total spend expressed as a % of GDP never exceeded 39%!

Today "GDP" is inflated by massive civil servant increase costs and government spend, internally.

"One of the wealthiest countries in the World!"

Hah Hah!

By 2004 (Source ONS) Britain's residential property value was over 60% of the TOTAL of UK's whole wealth!
This includes ports, docks, airports, roads, government, and all commercial buildings: everything.

In order to fund the last insane Brown inspired property boom, the capital has to be borrowed from abroad. Indigenous sources simply were not able to fund it.

Britain is now awash in personal, mortgage and government (sovereign) debt; with massive unfunded state pensions obligations etc.

Core problem? Government profligacy!.

Taxes: Always remember and take heed of Laffer's Curve. The Law of Diminishing returns.

On taxes, also ALWAYS the wise words of Judge Learned Hands:
"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant. ".

And: Lord Clyde:
"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue".

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By Knight Rider
06th Mar 2017 11:32

I don't remember the 50s and 60s but given that home ownership was lower than today it would suggest it is easier to buy a home today.
The NHS didn't have to cope with the range of treatable diseases that people simply died of back then.
There were fewer persons living on the streets because the UK controlled its borders and deported orphans to the colonies.
State spending has increased relentlessly since 1948 when Clement Attlee cut it. Even the Great Lady couldn't reduce state spending in the 1980's but lower tax rates increased economic activity and tax revenues.
Employers pension schemes could recover the dividend tax credit until Gordon Brown removed it and were not overburdened with legislation on unmarried partners,indexation and FRS 17 to the point at which they simply walked away leaving some naked protestors outside party conferences.
Of course we pay taxes so things run properly. The problem is once we've paid they still don't run properly and reforms are invariably blocked by the Bickerstaffes and McCluskies who are only interested in their own aggrandisement rather than the users of their beloved public services.

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Replying to Knight Rider:
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By Michael C Feltham
07th Mar 2017 13:08

Knight Rider wrote:

I don't remember the 50s and 60s but given that home ownership was lower than today it would suggest it is easier to buy a home today.

.

The core difference being, those who "Bought" their own homes, could mainly afford to!

Building Societies (BSs), the main cadre of mortgage providers, only granted a maximum of around 17 year tenor (life of mortgage); LTVs were sensible; Income Multiples relied only on the main bread winner's income, etc.

During Thatcher's rule, of course, the banks demanded equal tax treatment with BSs: enter the Dragons...

Thereafter a range of crazy esoteric mortgage products entered the fray; Endowment-Linked Mortgages, hitherto the province of the higher paid (Who could offset both Life Cover Element Cost and mortgage allowance against their tax arising), caused the problems after experienced. The main culprit being mortgage products linked to an endowment product which was allowed to include annual and reversionary bonuses. A bomb for the future!

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The NHS didn't have to cope with the range of treatable diseases that people simply died of back then.
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Mainly since it couldn't! Medical science hadn't advanced that far and thus treatment options were thus palliative rather than curative.

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There were fewer persons living on the streets because the UK controlled its borders and deported orphans to the colonies.

Tramps, prevalent in the 1930s and 1940s (Great Depression etc) were accommodated in "Spikes". Read Orwell's Down and Out in Paris and London and Road to Wigan Pier.

I can remember the odd tramp in the early 1950s.

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State spending has increased relentlessly since 1948 when Clement Attlee cut it.

Not quite correct! The huge spike in government spending, was a direct result of the sheer cost of WWII. Attlee's insanity over NHS etc, cost zillions.

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Even the Great Lady couldn't reduce state spending in the 1980's but lower tax rates increased economic activity and tax revenues.

Did lower taxes increase economic activity? Difficult one to quantify and assert with credibility.

Thatcher used to crow "We are the party of low taxation!"

Really... taxes overall increased rapidly; the only major difference was cutting the top rate of income tax from 80%. In fact holistic taxes increased!

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Employers pension schemes could recover the dividend tax credit until Gordon Brown removed it and were not overburdened with legislation on unmarried partners,indexation and FRS 17 to the point at which they simply walked away leaving some naked protestors outside party conferences.

Actually, whilst cancelling ACT caused certain problems for pension funds, excess management fees and equity market losses caused considerably more.

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Of course we pay taxes so things run properly. The problem is once we've paid they still don't run properly and reforms are invariably blocked by the Bickerstaffes and McCluskies who are only interested in their own aggrandisement rather than the users of their beloved public services.

Agree: if one considers government spending and borrowing and synthesises into this the massive exponential rise in GDP created by various drivers, then the bare total sum of government revenue wasted is appalling!

All skewed by social benefits: including housing benefit et al.

On the Thatcher inspired concept of "solving" a problem by accepting increasing levels of unemployment, and simply increasing taxes to fund the cost.

The insane housing market is perhaps the very best exemplar.

Read James Bartholomew's epic work, The Welfare State We're In.

http://www.thewelfarestatewerein.com/

(P.S. In softback. Mine cost me £3 from Abe Books!)

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Replying to Michael C Feltham:
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By Knight Rider
08th Mar 2017 15:42

Largely agree with you. You rightly point out correlation is not causation with lower tax rates spurring economic activity(it may have happened anyway with a changing culture). I don't think Mrs T accepted higher levels of unemployment (unemployment fell during the 80's). The initial rise was due to a worldwide recession and the clear out of inefficient overmanned nationalised industries.
I'm old enough to remember my parents applying for a mortgage in the early 70s and going onto a waiting list - (there's a term from the 50s that we don't hear much nowadays!)

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Replying to Knight Rider:
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By Michael C Feltham
09th Mar 2017 17:10

Knight Rider wrote:

Largely agree with you. You rightly point out correlation is not causation with lower tax rates spurring economic activity(it may have happened anyway with a changing culture).

As Regan et al the fascination for the siren's song of Supply Side Economics, Trickle Down etc, was fallacious.

Those earning serious amounts simply used the extra disposable income for mainly investments: i.e. buying what already existed. Not creating new activity and employment.

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I don't think Mrs T accepted higher levels of unemployment (unemployment fell during the 80's). The initial rise was due to a worldwide recession and the clear out of inefficient overmanned nationalised industries.

By failing to react correctly and generating an economic and industrial strategy with teeth Thatcher effectively consigned whole areas (Coal Mining; Heavy Industry etc ) to economic collapse. The benefit dependency and sink areas of today were thus created.

Britain today imports vast quantities of foreign coal; rather than focusing, earlier, on self-sufficiency. Mainly caused by an ego war between her and Scargill.

Joe Gormley would have handled things much more effectively and ensured he and Thatcher reached a modus operandi.

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I'm old enough to remember my parents applying for a mortgage in the early 70s and going onto a waiting list - (there's a term from the 50s that we don't hear much nowadays!)

Ah! You can blame Heath and his oppo as chancellor, Anthony Barber. Together they engineered the first contemporary Boom-Bust. Property (residential and commercial) collapsed; fringe banks, imploded; insurance companies exploded! The economy was thereafter on its knees.

Slack money and too much of it and until the Bank of England invoked "The Corset" ( Supplementary Special Deposit Scheme) and the government, tight controls on lending, the country faced utter disaster. Overdraft rates went from around 10% to over 20%, very quickly!

People were borrowing to buy houses, doing nothing and the massive weekly price rises meant a nice capital profit for doing absolutely nothing! Same with equities.

The borrowing was "Covered" as the market went insane.

In both cases intrinsic value was missing: no real wonder it all melted down.

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