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Fantasy Budget: Addressing elephants in the room

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After hearing that the fiscal plan has been postponed to 17 November, Rebecca Cave had a dream about the first Budget to be delivered by a female Chancellor. This is what she found on her notepad by her bed in the morning…

27th Oct 2022
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Madam Deputy Speaker, I am honoured to stand here as the first woman to hold the post of Chancellor of the Exchequer. The men have been in charge for long enough, it’s now time to clear up their mess.

I first want to address two elephants in the room, not the honourable gentlemen sitting opposite, but Brexit and national insurance contributions (NIC).

The Organisation for Economic Co-operation and Development (OECD) has predicted that growth in the UK economy will be around zero in 2023, which will be the worst performance of any economy in the G20, except for sanctioned Russia. 

There is a clear reason for this, and that is the damage caused to our economy by Brexit. The Office of Budget Responsibility has concluded that Brexit will cut the UK’s GDP by 4% in the long term. That’s around £100bn per year of economic activity that is not happening, resulting in around £40bn of tax revenue not delivered to the Treasury.

We need to take action to reverse this immediately. Today my right honourable friend the Home Secretary has agreed to lift all restrictions that apply to people coming to work in the UK from EU and EEA countries. We need these workers in our NHS, our care homes, in construction, hospitality and farming. Employers in nearly all sectors of our economy are finding it difficult to fill the roles they advertise, which is restricting their ability to grow. 

The UK government will immediately open negotiations to re-establish freedom of movement of UK and EU citizens between our countries, which is a necessary component of the UK joining the EU Customs Union and Single Market.

Second elephant

The second elephant in the room is the deadweight cost to employers of NIC. This is nothing more than a tax on employment. It distorts the labour market and drives workers and employers to use artificial structures to avoid this tax. 

Various governments have spent over two decades inventing complex rules to discourage the avoidance of NIC, so I have decided to grasp the nettle and abolish it.

I will ask the reinstated Office of Tax Simplification (OTS) to examine how all classes of NIC can be merged with income tax payable by individuals. 

The goal is to have one set of income tax rates that will apply to all types of income from earnings, trading, property, pensions and dividends. There will be no discount in the rates of income tax a person pays merely due to their age. 

Tax on capital gains will be paid at the taxpayer’s highest marginal rate, as recommended by Tax Policy Associates

The Scottish and Welsh governments will be given the powers to set income tax rates and bands for all income types for residents of those countries. When the Northern Ireland Assembly starts functioning again, we will consider what tax powers can be devolved to that institution. 

State pension

Payment of classes 1 and 2 of NIC allows the individual to build up credits towards the state retirement pension. After the merger of NIC and income tax, an individual will receive a credit towards their state pension if they have been subject to tax on an amount equivalent to the national minimum wage (appropriate to their age) for at least 60 hours per month. Individuals will be able to build up credits month by month, rather than having to accrue a full year of credits. 

Individuals who pay little or no UK tax will be able to pay a voluntary tax to secure their state pension credit for a particular tax month or year. 

Employers will be required to record the hours each employee has worked in the pay period, on the Real Time Information (RTI) return. Individuals will be able to view this information in their online personal tax account, which will automatically flag whether the taxpayer has been paid at below the national minimum wage (NMW) for the period.

Directors of personal service companies will no longer be exempt from the NMW rules. 

Employer’s NIC will be removed completely and the revenue will be replaced by higher rates of corporation tax. 

More simplification power

The OTS will be given more powers to initiate studies into simplifying the UK tax system. It will conduct audits of any new tax proposals, before they are legislated for, to assess their practicality and effectiveness. The government will be required to respond to the costed recommendations produced by the OTS within 90 days, and provide costed reasons for not adopting the OTS suggestions if that is the decision the minister takes. 

HMRC will move forward with the Making Tax Digital (MTD) project, but the requirement to report income and expenses quarterly will first be imposed on those businesses most able to bear the additional costs. Large companies, then smaller companies, will be required to enter the MTD regime before partnerships and sole traders. This principle of largest first worked well with MTD for VAT.

Finally, I have one more simplification measure. The high-income child benefit charge will be abolished immediately. This charge undermines independent taxation and was frankly a stupid idea. 

I commend this statement to the House.

 

Replies (52)

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By JustAnotherUser
27th Oct 2022 12:55

Likely a nice read but starting it with the commentary that its "men" being in charge that caused a mess is a little dated and unnecessary, any other word in the space of "men" would surely not make it past editorial review?

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Replying to JustAnotherUser:
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By Rammstein1
27th Oct 2022 13:03

I agree, I never made it past clearing up the men's mess. Another one of those occasions where sexism only goes one way.

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Replying to JustAnotherUser:
Danny Kent
By Viciuno
28th Oct 2022 09:35

Not to mention our current crisis was the result of a woman prime minister.

Clearly the take-away is that incompetence is not determined by what is between your legs, but your ears.

I did enjoy the rest of the piece though and would encourage you to read it (it's decisively less sexist after the first paragraph)

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Replying to Viciuno:
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By Winnie Wiggleroom
28th Oct 2022 09:47

I will probably be lined up and shot here and I realise this is a huge generalisation but it seems to me that the very qualities that one would typically associate with a female (for example compassion, care, lack of arrogance) are the exact same qualities that the world of politics and the world in general needs, but those qualities all seem to be missing from the females that reach a level of power where they can make a difference. I don't think I need to mention names.

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Replying to Winnie Wiggleroom:
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By lme
28th Oct 2022 09:55

Hear hear - and many men have these qualities but many seem to get disabled the further they go up the greasy poles. Ordinary people are actually all actually or potentially quite competent.

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Replying to Winnie Wiggleroom:
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By DavidWinter
28th Oct 2022 09:59

My view is that women are just like any other group - they have uncaring and caring alike. You can't get any more uncaring than Priti Patel. History has been dominated by men so it's very difficult to say what women in power generally are like, as we have such a small sample size. For me personally, some of the worst colleagues I've had have been women (the level of backstabbing/two face shenanigans was epic on occasion), but the best bosses have all been women - I've only ever ended a job on bad terms with a male boss. I don't think there's any conclusion to take from that, it's all random I'm sure and those patterns might have ended differently if I had taken other jobs.

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Replying to Winnie Wiggleroom:
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By DavidWinter
28th Oct 2022 09:59

My view is that women are just like any other group - they have uncaring and caring alike. You can't get any more uncaring than Priti Patel. History has been dominated by men so it's very difficult to say what women in power generally are like, as we have such a small sample size. For me personally, some of the worst colleagues I've had have been women (the level of backstabbing/two face shenanigans was epic on occasion), but the best bosses have all been women - I've only ever ended a job on bad terms with a male boss. I don't think there's any conclusion to take from that, it's all random I'm sure and those patterns might have ended differently if I had taken other jobs.

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Replying to DavidWinter:
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By lme
28th Oct 2022 11:23

I think it's fascinating because men are often the greatest outliers either way, when tested on specific skills. Perhaps men's best bosses are women and women's best are men - we are complements after all. Which is why we should have equal influence, besides that being fair. We do know that societies and organisations gain when they empower women. Which makes the continuing imbalance even more frustrating.

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Replying to Winnie Wiggleroom:
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By Paul Crowley
28th Oct 2022 13:19

The women who get to the top are no different to the men who get to the top
Both tend not to be the average person, because they take on more work, take risks, and are much more dedicated and confident.
They tend to be much more bright and tend to be experts in their field.

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Replying to Paul Crowley:
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By lme
28th Oct 2022 15:29

I respectfully disagree on the point about brightness! And about dedication. I think these are common misconceptions. Try visiting a hospital or well-run care home to get a picture of dedication and hard work.
Men and women are different. Those who make it to the top of politics are unique in their own ways which is not always a good way. They have slipped through an incredibly narrow fissure to even get selected as political candidates.

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By Trethi Teg
27th Oct 2022 13:46

The inclusion of "men" and "brexit" immediatley turned me off this article, which is a pity because the author is normally very good. Perhaps the author is having a Truss moment.

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By Truthsayer
27th Oct 2022 13:51

When people express their if-I-were-in-charge fantasies, they imagine they are showing the way to paradise, when really they are just making fools of themselves.

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Replying to Truthsayer:
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By Hugo Fair
27th Oct 2022 19:48

... and then she found it had all been just a dream (or a nightmare according to others)!

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Quack
By Constantly Confused
27th Oct 2022 15:18

Wow some super rude replies to what is clearly a light-hearted and optimistic article!

I can also 100% picture such a series of digs being made by a Chancellor as their opening remarks.

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Replying to Constantly Confused:
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By JustAnotherUser
27th Oct 2022 15:26

edit: removed - not getting into a debate with strangers on the internet about sexism, if the editorial team deem it ok fair play to them.

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Replying to Constantly Confused:
By ireallyshouldknowthisbut
27th Oct 2022 17:10

Constantly Confused wrote:

Wow some super rude replies to what is clearly a light-hearted and optimistic article!

I can also 100% picture such a series of digs being made by a Chancellor as their opening remarks.

Men being very mildly mocked! Outrage!

Brexit facts stated. Heinous crime!

I thought it was funny and exactly the standard House of Commons delivery.

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By Paul Crowley
27th Oct 2022 15:56

But seriously
NI is the source of so much tax avoidance
It needs to be killed off soonest
The rich just do not pay it, the person on minimum wage does.
Why should workers subsidise investors
Even RM identified the issue in his fantasy. He chose 15% investment income surcharge. No need if the NI falls into the tax rates

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Replying to Paul Crowley:
By ireallyshouldknowthisbut
27th Oct 2022 17:16

One flat tax on all sources of income is sensible for me the problem is moving from a "transactional" tax on periodic payroll to an annual tax which leave lots of winners and losers, but it would also stop general abuse of low paid workers who are often capped on hours so as the employer avoids NIC's. Its a real problem in many sectors.

I don't see why well off pensioners should pay less tax than working people, other than "they tend to vote", which of course make such a policy very risky for an elected official.

I think I would go one step further, abolish the chancellor as a political figure. Make it more like the bank of England, ie sitting outside of politics given 90% of the mess in tax is a result of political decisions and have tax rules better built. Obviously they would still need to be political decisions around 'who gets taxed?' but the 'how' should not be at the whim of the politicians.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
28th Oct 2022 10:25

No need to change PAYE or tax returns
But PAYE would be just tax at a different rate

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Replying to Paul Crowley:
the sea otter
By memyself-eye
27th Oct 2022 18:27

workers subsidise investors?
workers are paid for their labour - work an hour get paid for an hour (don't like it? quit and get another job, or not)...investors risk all to...err...invest with no guarantee of a payback. Without investors there is no growth.
Investing is about gambling on growth: No growth, no reward (it's called a dividend, or if you are lucky, a capital gain or if really lucky, both) The clue is that investors risk 'all'
The two methods of increasing wealth are not the same.!
Here endeth the lesson.
signed: W Buffet.

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Replying to memyself-eye:
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By DavidWinter
28th Oct 2022 10:03

Taxpayers money is being sent straight to the hands of investors in energy companies with all the handouts. I think that's what he's referring to, and that's clearly not what should be happening. A windfall tax is badly needed to stop this exploitation, and tax should be on services, not for dividends.

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Replying to DavidWinter:
the sea otter
By memyself-eye
28th Oct 2022 18:09

Rubbish - investors, like me, own these companies. Sometimes they make profits, sometimes losses. I doubt you would recompense those shareholders who invested in loss makers?
Yet you seek to penalise those who chose 'wisely'. The joint stock company (look that up on "economics for idiots" web site) is the foundation on which all modern wealth (used to pay for NHS, Police, Schools etc etc) is based.

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Replying to memyself-eye:
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By Paul Crowley
28th Oct 2022 10:28

Buy to let is not risking all. Income predictable.
A limited company is the exact opposite of risking all
It makes other traders and lenders risk their money

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Replying to Paul Crowley:
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By Ian McTernan CTA
28th Oct 2022 17:05

Clearly you don't seem to act for any BTL investors nor understand the blood sweat and tears many put into their Ltd company, including director's guarantees, mortgaging their house, etc.

Income predictable on a BTL? Made me laugh. Try reoving a non-paying tenant then see just how 'predictable' the income is.

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Replying to Paul Crowley:
the sea otter
By memyself-eye
28th Oct 2022 18:14

More rubbish - I did not mention BTL, although that has it's own risks. Anybody investing in BTL these days (voids, non paying tenants, rising interest rates, draconian legislation re insulation...) is a brave soul indeed.....

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By Winnie Wiggleroom
27th Oct 2022 16:14

Bang on! give OTS more teeth and make MTD for companies first, exactly what I have said on here a number of times

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By Hugo Fair
27th Oct 2022 19:43

Bit of a mish-mash ...

"After the merger of NIC and income tax, an individual will receive a credit towards their state pension if they have been subject to tax on an amount equivalent to the national minimum wage (appropriate to their age) for at least 60 hours per month.
Individuals who pay little or no UK tax will be able to pay a voluntary tax to secure their state pension credit for a particular tax month or year."

So the poorest-paid will have the opportunity to pay money (they don't have) to secure a SP !?!

The problem with having more than one elephant in the room is that they tend to crash into each other and trample on unexpected areas.

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Replying to Hugo Fair:
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By lme
28th Oct 2022 10:00

we could simplify further and just decide that we're not going to make pensioners struggle (and die). Instead, let people have nice jobs so they don't want to retire (as very many don't anyway, and as work helps keep us alive) and then once they / we get infirm why not just feed people, ensure they have a roof over their heads and some treats of sorts.

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By Trethi Teg
28th Oct 2022 08:24

This author is too good to be indulging in this nonsense. Leave comedy to the comedians and cover something useful.

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Replying to Trethi Teg:
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By lme
28th Oct 2022 10:01

I guess we can all sympathise with the frustration that drove her to it! And it was only a dream...

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By [email protected]
28th Oct 2022 10:04

When I last checked Liz T was a woman and Hunt a man, ironic that?

Might be best to keep politics and religion out of an accountancy website? I know accountants are just as well qualified as anybody else to mess things up, but perhaps its best to let someone else take the blame- after all that's what accountants do best- count the cost of everyone else's mistakes.

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Replying to [email protected]:
By SteveHa
28th Oct 2022 10:53

hugheswalker-AT-yahoo.co.uk wrote:

Might be best to keep politics and religion out of an accountancy website?

Hallelujah, finally God's own plan. I suggest an emergency motion in the Commons to ratify this.

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Replying to [email protected]:
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By Paul Crowley
28th Oct 2022 13:29

'after all that's what accountants do best- count the cost of everyone else's mistakes.'
A bit rich coming from the legal profession.

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By AndrewV12
28th Oct 2022 10:22

Well I don't need to dream about the next budget, I can tell you it will be tax collecting, lets look at who is going to Kop it,

Youngsters, full of debt, student, credit card ...... no point the chancellor looking here

20 -40 something's, full of mortgage debt, no point the chancellor looking here

40-50 coming to the end of their mortgages, less debt, the chancellor could well be interested in theses

50-65 - The chancellor will defnatley look here, good pickings

65 + - ahhh lots of well off pensions with cash in the attic and other assets , the chancellor will hit theses hard.

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By anthonystorey
28th Oct 2022 10:30

Oh dear, so many adverse reactions! Where has the sense of humour gone? I really enjoyed reading this. More please, more.

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Replying to anthonystorey:
the sea otter
By memyself-eye
28th Oct 2022 18:19

A horse walks into a bar. The landlord says:
"Why the long face?"
There is a new curry called 'Chicken Tarka'
It's like 'Chicken Tikka'
but a little 'otter.......'

Boom Boom.

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Replying to memyself-eye:
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By User deleted
02nd Nov 2022 09:13

We need a bunch of people to glue themselves to your keyboard with big orange signs saying "Just Stop Bad Jokes".

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By Aprid
28th Oct 2022 11:01

Nice article. NIC is clearly passed its sell by date.

From what I see if you don't have enough NIC for full state pension you often just get other benefits instead. Sometimes actually better due to linked access that gives to other benefits and exemptions.

To add ageism into the mix, if you are lucky enough to live into late 60's and onwards why really should you pay less "tax" than the rest of the population? The NIC cut off seems quite unfair to the youngsters.

I think when NIC was introduce life expectancy was mid 50's so a 65 cut off was probably never expected to be much of an issue?

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By evildrome
28th Oct 2022 11:03

HMG is the currency issuer.

When they want to pay someone, Treasury instructs the BOE to credit the reserve account of the bank of the payee and that bank credits the current account of the payee.

The creation of reserves is "ex novo". This is the prerogative of the currency issuer.

Therefore, the currency issuer does not require external funding.

It can pay any demand made in its own currency, of any value.

Therefore... and here's the mind blowing bit... the currency issuer does not need your tax money.

So, what would happen if we had no tax? There would be raging inflation.

Therefore, the (monetary) purpose of taxation is what?

Inflation control.

Not revenue.

This can be clearly seen in the tax revenue data. Tax as a percentage of GDP is more or less invariant.

What "extra tax" did we pay for WWII, Korea, Argentina, Iraq, Afghanistan and the Banksters Bailout?

And before anyone says "we issued more debt", Gilt sales have no fiscal purpose.

Gilt sales are monetary policy. The purpose of Gilt sales is the control of the Overnight Interest Rate.

For the last 14 years i.e. since the start of QE, HMG has net purchased Gilts.

If we're NET purchasing Gilts how can that be a revenue stream?

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Replying to evildrome:
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By Aprid
28th Oct 2022 11:50

Well said.

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By indomitable
28th Oct 2022 11:07

"The men have been in charge for long enough, it’s now time to clear up their mess."
Is sexism only applied one way? I didn't bother reading any further!

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Replying to indomitable:
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By Paul Crowley
28th Oct 2022 13:35

It was Liz Truss that broke the markets.
Kwasi did as he was told, cos Lix promised low tax to the party members

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By fozia
28th Oct 2022 11:21

Hear hear! Bring back the OTS!

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By mumpin
28th Oct 2022 11:54

I fell back asleep some time later on
And I dreamed the perfect song
It held all the answers
Like hands laid on
I woke halfway and scribbled it down
And in the morning what I wrote, I read
It was hard to read at first but here's what it said
Eid ma clack shaw
Zupoven del ba
Mertepy ven seinur
Cofally ragdah
Eid ma clack shaw
Zupoven del ba
Mertepy ven seinur
Cofally ragdah

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Guest speaker Brian Wright
By Brian Wright
28th Oct 2022 12:04

I'm not overly fussed about the sexist start, as it bears no impact on overall taxation. However, it is worth mentioning that any reference to "the first woman", "the first black", "the first [whatever]" simply exacerbates the unhelpful "we are different" monologue. Each individual brings a fresh, individual perspective to the job regardless of gender, race etc. We hope that individual's perspective and selfless approach will benefit the economy and its citizens at large.

I would agree with most of the points made above. They would appear to remove red tape and simplify tax generally, without any loss in revenue to the treasury. They would (or at least should) also reduce the costs of administration.

However, I am less certain about the wholesale transfer of tax raising powers to the devolved administrations in a short timescale and without significant thought, proper consultation, creation of the necessary infrastructures and possibly controls in the short to medium term to ensure that significant damage to these economies does not ensue due to lack of thought, lack of experience and lack of capacity.

The second area of major concern is the application of NMW to directors. Directors of most small companies (who are generally also shareholders) put in huge amounts of hours to get their businesses up and running without pay, let alone NMW. Applying the NMW in this category would be prohibitive at best and would destroy entrepreneurialism at worst.

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By Mallock
28th Oct 2022 12:34

I'm not sure about passing full tax powers to the devolved Governments. The fact that investment income remains under the control of Westminster is the only way Scots can get £50K and not pay higher rate tax.

I can't disagree with anything else though.

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By twohaporth
28th Oct 2022 16:18

I wouldn't disagree that there are changes which need to be made to the tax system but some of Rebecca's ideas do not impress and would be a licence for the politicians to just raise more tax to be wasted.
The core problem is the grotesque waste of money in government departments - always with their hands out for more.
Look at the NHS over Covid - so much money just thrown away on unused hospitals and phoney PPE contracts for certain unnamed people, money wasted having to compensate people for failures in the system and far too many managers in the system. NOT TO MENTION THE COST OF THE PFI.
Which doubles or quadruples some costs in the NHS.
Look at HMRC flinging money at MTD for no purpose that makes any sense at all while they fail to do their day to day job of tax collecting. Digital systems that don't perform now and won't be helped by MTD f ITSA which will cause little people no end of aggravation for no purpose.
The stamp duty office 2 months behind with their workload.
Companies House which is, by all accounts, the money launderer's emporium.
DWP which takes weeks to do things.
The list goes on.
What is needed is a root and branch re-organisation of all these but by people who actually understand the processes needed not some person from university full of woke ideas and nothing else.
One should be able to visit a hospital without coming out with Covid but their ideas of cleanliness would have been laughed at 50 years ago.
One should be able to renew a driving licence without having to wait months.
Inefficiency costs money and lost productivity and that is where the problem begins and ends. Not merely in Govt departments, of course, energy companies follow closely behind as do many others but the Government is a clear leader.
Message CUT COSTS and LOWER TAXES.
And stop HMG trying to tax inflation even more see CGT, IHT,VAT and so on.
So I do not entirely agree with the fancy dream of Rebecca.

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By Ian McTernan CTA
28th Oct 2022 17:24

Started off with sexist comment. Clearly dreaming/delusional and demeaning to men, but apparently it's OK as it's written by a woman. No, this isn't ok. It's blatant sexism by someone who should know better than to include it in any writing here.

Imagine the outcry if a man had written something similar, even 'in jest'. People have been sacked for less.

Then states OBR figures (their other figures get revised all the time, but apparently Brexit ones cast in stone)...100bn apparently lost from GDP (zero hard evidence and impossible to prove. Exports to EU reached a new all time record in July..just saying).

Total yearly GDP: 2.1tn 4% of that would be 84bn. And that's 'reduced over the long term'. Given no one has been able to predict next quarter's figures with an certainty and the OBR's record for predictions is about as bad as anyone else's, there is no actual way to prove that figure.

The only real evidence to date is record exports to the EU in July. So not so much a reduction, more like an increase.

Next up, a quote of 40% tax on the '100bn' lost. One does not follow the other. You could just as easily said 10bn extra tax, 25bn less tax, 85bn extra tax. Actual tax yield is wholly dependent on outside factors.

The problem we are having with people and jobs is much more to do with the huge increase in the 'economically inactive' within the working population. Yes, we could target certain sectors to recruit better but many of those sectors have issues in other countries too (remember the HGV driver shortage, worldwide issue not just here, even Germany had the same issue).

Rejoining the EU and paying 25bn + a year (net) in isn't the solution.

As for the rest, it's clearly laughable. Rebecca used to write sensible, well thought out articles. recently it's more like dementia has set in (if this fluff piece is anything to go by)

This one should have been reversed for April 1st.

Accountingweb seems to be losing it's way - used to be a good source of facts and reports and information, quickly turning into a parody.

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By Brodders
28th Oct 2022 18:14

Here here, what an excellent, sensible article.

Good to see the usual, humourless men cannot even take a light hearted joke. Get over yourselves! Heaven forbid there should EVER be a joke at men's expense!!!

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By Mr J Andrews
29th Oct 2022 10:44

At least there's no reference to mothers in law. Joking apart, a very sensible Statement. It's a shame , Rebecca , that you aren't party to instituting such common sense measures.

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