And now for something completely simple…by
The Imprudent Accountant loves Liz Truss’s idea of cutting taxes. But why stop there, when simplification is the obvious next step?
I am hardly a Monty Python addict but can’t help feeling that our country is trying to re-run some of the team’s most popular sketches.
Surely no one could have missed the antics of the Upper Class Twit of the Year, while the current contenders for his job seem to have found themselves in a race to the bottom reminiscent of the Four Yorkshiremen sketch.
The fact that the top tip was briefly an accountant, and meets every required boring criterion except the bowler hat and pinstriped suit, is a bonus, while both contenders seem to be trying to flog us that great rarity, the Norwegian Blue Brexit, when all most of us can afford it is Spam.
Today though, the column is all about the hot favourite’s hot favourite topic.
Hit the ground
Liz Truss is determined to hit the ground running when she becomes prime minister and set out her stall early by proclaiming that she would cut taxes, regardless of cost.
Even though the aspiring PM is an accountant and should therefore understand the subject intimately, her inaugural Chancellor of the Exchequer may not be that pleased at the consequences of implementing this policy. Taken to its logical conclusion, if cutting taxes a little will boost the economy a bit, then abolishing all taxes should make us all millionaires. Not only that but we could also cut the size of the civil service significantly, since most of the Treasury could disappear along with the whole of HM Revenue & Customs.
Come to think of it, many accountants might initially applaud such an outcome but, in the longer term, could realise that they no longer served a purpose.
However, if Ms Truss really is adamant about a radical change to the way in which we pay taxes, then perhaps she might like to consider this modest proposal?
My starting point is exactly as posited above. Let us scrap all current taxes overnight. One consequence will be the elimination of thousands of pages of tedious legislation. Given the difficulty that the poor and elderly will find in trying to heat their homes this winter, all accountants and officials retaining hard copies of legislation could pass them on to fuel fireplaces and, in doing so, save countless lives.
Next, we come to the rebuilding side of the project. Simplicity has to be my primary objective, obviously accompanied by an attempt to bring in enough cash to keep the wheels of government operating smoothly.
Do we really need income tax and value-added tax? The answer is a resounding “yes”.
When it comes to corporation tax, capital gains tax, inheritance tax, national insurance contributions, revenue duties and pretty much everything else, we can quickly come to an equally resounding “no”.
Corporation tax is a relatively new kid on the block, since for centuries the United Kingdom operated perfectly well by charging income tax both to individuals and corporations.
Employees’ national insurance contributions are merely a form of income tax and along with capital gains tax they can easily be ditched. That just leaves inheritance tax, which is unloved and burdens the grieving, taking up time that could be better spent mourning.
Duties are a pain and could surely be swept up within a new VAT regime.
While the government has taken additional people out of the tax system by raising the personal allowance and then unifying this with the national insurance threshold, I would love to take the idea much further, ideally having a starting point at around £20,000 or even £25,000.
In exchange, the rate of income tax will need to be realistic. Readers who are still awake might note that there will only be a single rate of income tax, to keep life simple.
At present, even though we pretend that the starting rate is 20%, by the time that national insurance contributions (NICs) are added in, we are already up above 30%.
Since this tax will apply to capital gains, profits and income of individuals and companies, the blended rate may not need to be quite as high as one would imagine. May I throw out an opening bid of 35% and see where that gets us?
For the avoidance of doubt, we would chuck away all of those stupid rules relating to non-doms and introduce an American-style system where all UK residents and citizens are expected to pay tax in this country and can claim reliefs for taxes paid elsewhere – subject to an aggressive tiebreaker to determine who gets first dibs, ideally the UK in almost any situation.
This leaves an open question about some kind of employment tax to replace employer’s NIC. Any suggestions welcomed.
The balance of payments can then get balanced by a new, simpler VAT system. There will be no exemptions and the rate might need to be 25% or even more.
In case any reader has concerns about what might happen to those on the breadline, the quid pro quo for ditching most tax issues will be an obligation to provide proper income support to the poorest in society.
Clearly, this proposal will need a bit of tweaking but, if we were starting from scratch, isn’t this roughly where you would expect to end up?
Any suggested refinements will be gratefully received and, once we reach a final version, perhaps the Chartered Institute of Taxation might like to take up the reins and push this project through to fruition.