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Thoughts from the UK budget

Today is ‘Budget Day’, when the UK government lays before Parliament the amount of money it needs to raise to pay for its spending. Since the days of William Pitt, Robert Peel and William Gladstone in the late 18th and 19th centuries, the length of the tax code has grown at a terrifying pace. I came across this from a firm of accountants commenting on today’s performance by Gordon Brown:

Since 1997, the UK tax code runs to more than 8,300 pages, twice as long as it was 10 years ago, and the second-highest in the world’s top 20 countries apart from India , according to the World Bank and PriceWaterhouseCoopers

(Wall Street Journal, print edition)

No wonder accountants love Gordon. There is a sort of unhealthy symbiotic relationship between the whole financial services sector and Brown’s tax morass: the finance minister increases the complexity of the tax code; the accountants make money explaining this to their clients and helping some people to avoid it where possible. This in turn creates a whole industry of people with a vested interest in complexity. A flat-tax, for example, would put a lot of these financial whizzkids out of business and force them to do something more useful instead.

At a recent discussion with City types about this, this point was made very clear to me. Assuming we have taxes at all, they should be summarised on two sides of A4 paper, tops. The cost savings to business and individuals would be enormous.

Today, Brown grabbed superficial headlines by cutting the standard tax rate to 20p from 22p and cut the rate of corporation tax to 28p from 30p. It sounds like a good step and there will be some net winners from this. Good. However, as is always the case with this sly and driven character, the details are less flattering. The removal of the 10p rate for low earners, adjustments to National Insurance and corporate capital allowances means the overall balance is neutral rather than towards a smaller state. The state will take about 45-46% of UK GDP, compared with 37% in 1997 when Ken Clarke was in Brown’s job (it is worth remembering that Clarke is regarded as a leftwing Tory, but in certain respects his record is pretty good, or at least not as bad as it might be).

Watching the House of Commons debate on Brown’s speech, several things struck me. Tory leader David Cameron was plainly rattled by Brown playing the tax-cut card – however bogus a ploy Brown’s is. It might – just might – be enough of a shock to the Tories to realise that competing over which party can push up taxes the most and not get caught might not be a smart strategy with the voters. Brown is trying to pose as a tax-cutter. How odd it is that the Labour Party is now trying to make the running in this direction. Even though it is all hooey, it is interesting to see how Brown’s gambit may pay off.

The whole point of this budget, as far as I can see, is in Brown trying to squash Cameron: stealing some of his ‘Green clothes’ while also trying to persuade middle-income voters that Labour is actually more of a tax-cutting party than the Tories.

Even if this is utter rubbish – it is – the very fact that Brown wants to create such an impression is interesting. I am increasingly coming round to the view that libertarians and free-marketeer Tories should let Cameron realise that they prefer to keep in Labour than let the Tories win on a Big Government agenda.

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15 comments to Thoughts from the UK budget

  • Paul Marks

    Some tax rates went down (basic rate from next year – unless that get changed by the next budget, and a corporation tax cut).

    And some tax rates went up (lower income tax rate of 10% to go at the same time that the basic rate is cut from 22% to 20%, “national insurance” tax to go up for higher earners, and lots of “green” tax).

    People who have tried to turn themselves into one many companies (to reduce their tax bill) are to be hit. And there are going to be various other changes.

    One thing that did interest me (in that it makes a point about the sort of man Mr Brown is) was the change in goods and services sales tax (“V.A.T.”).

    It is has long been pointed out that it is daft to charge people tax everytime they get repairs done to their home – it is a lot of paperwork and nonsense and just leads to people breaking the law, or not getting their homes repared (so they get worse and worse over time – and end up having to be knocked down).

    So Mr Brown has acted. But he has not just said “we are not going to charge V.A.T. on repairs anymore – after all we do not charge it on the sale of new houses”.

    He has introduced a new rate of V.A.T. (5%) on house repairs – as long as the owner is over 65 years of age.

    The urge to make everything more complicated (whilst saying that he is making things more simple) – he just can not resist it.

    As for the budget overall.

    Well government spending is going up again (health, education, help for the old, and [for once] defence).

    Whether (after all Mr Brown’s changes) the overall tax burden is going to stay much the same (as his people claim) or increase a bit – well I will leave that to the experts to judge (once they have gone through all the fine print).

    One point I would make is to be careful about judging the budget on the basis of the Thursday morning papers.

    Whether one is talking about the national newspapers or even experts in the city – they are still going to need a few days to read and think about all the changes.

    I would gues we will not know the truth till about Sunday.

  • Brad

    There is a sort of unhealthy symbiotic relationship between the whole financial services sector and Brown’s tax morass

    As a Certified Public Accountant I wish I could argue that you are wrong, but I can’t.

    I have to attend several “continuing education” courses throughout the year to maintain my certification. I get the distinct feeling that the vast majority of my peers either enjoy being know-it-all nabobs, in touch with the inner-sanctum of government bureaucracy, or DO see it all as silliness, but one that keeps the kids in braces and funds college educations. By and large, most are moribund folk who are merely marking time at such seminars because they have to, and have little or no desire to examine just what the hell it is that they are doing.

    In two generations, accountancy has gone from a leading profession, competent and willing to speak out on issues of the day, to one filled with brain-dead semi-bureaucrats fitting happily in their box. Perhaps there still some leading lights in the large international firms, but I certainly would hope that peers are the “shallower” end of the pool would have some desire to comprehend the corrosive effect interventionism has. But then again, why should one think that the product of socialist education, bereft of economic realities, should turn out accountants any differently than the rest of the population? In fact, I see economically illiterate accountants as proof that socialist education has all but won in its effort to stupify rather than educate.

  • “I am increasingly coming round to the view that libertarians and free-marketeer Tories should let Cameron realise that they prefer to keep in Labour than let the Tories win on a Big Government agenda.”

    But the Tories have promised to get rid of ID cards, for me this is of overwhelmingly more importance than a few fractions of % points more of less in the tax take.

  • Bernie

    A flat-tax, for example, would put a lot of these financial whizzkids out of business and force them to do something more useful instead.

    The complete abolition of all taxes would would still leave real financial whizzkids with a valuable job but would force the leaches to do something useful. Gordon and the rest of them as garbage truck crews would be a massive step up in their value to society.

  • Midwesterner

    I just heard discussion on National Public Radio here in the US of discussing dropping the entire tax code except for the Alternative Minimum Tax, which is a flat tax! I had to double check and make sure what station I had on. They argued against that solution because A, it is inflation adjusted and would creep upwards, and B, it penalizes married couples. Like I said, I had to double check the radio station. I thought those guys were supposed to be on the left.

    The world is getting rather curiouser. I do think if I was over there I would rather Gordon than David. David would be a vindication of all that is bad; it would read as a mandate. Gordon would just be same old … Therefore, vote UKIP. You’ve nothing to lose.

  • The Last Toryboy

    I have to agree with Midwesterner, I plan on voting UKIP.

    I actually think that despite such advice, Dave will beat Gordo and is going to get elected anyway. But the bigger the UKIP vote the more the Tories will take heed that there is support for UKIP policies.

  • guy herbert

    It is worth noting that the WSJ is mistaken. We don’t have a tax code.

    The US does. You can even look it up on the IRS website. You may not be able to understand it, but you can read it.

    What we have is an accretion of decades of Finance Acts and related legislation, which accountants and other specialists attempt to condense into “Tax Guides” and Tax Law textbooks.

    Attempts to measure the size of our tax law are usually measures of the thickness of one of the more authoritative guides, usually Tolley’s. But they aren’t a code nor are they a full statement of the law. HMRC won’t tell you what the law is. Its attitude is, “If we don’t like your forms we might prosecute you, and anything we say you can do is most probably an extra-statutory concession we don’t have to let you get away with.”

    You can only find out what UK tax law is on particular points. The way you do it is to pick a fight with HMRC, and take it to the courts. Provided you are prepared for appeals all the way to the House of Lords, and to bear the cost of Treasury Counsel if you lose, then you may find something out. Only if it affects a very large amount of your own tax bill is doing so likely to be useful.

  • guy herbert

    I am increasingly coming round to the view that libertarians and free-marketeer Tories should let Cameron realise that they prefer to keep in Labour than let the Tories win on a Big Government agenda.

    That’s simply mad. Have you been hanging out with Trots, Jonathan? No libertarian revolution is coming, however bad things get under Blairism. There is no crisis to be provoked.

    ‘All politicians are bad, don’t vote for them,’ and ‘Vote UKIP, they are much better’ or ‘Vote UKIP, and force the Tories to be more liberal’ seem to me to be tenable positions. But they don’t amount to a preference for the present Government. Even Cameron as he is caricatured by his enemies on the right would be a marked on the (increasingly less soft) soft-fascism of New Labour’s natural totalitarians.

    A democracy always gives us a choice of evils. You need a much better argument for dancing with the Devil than that you don’t like the current Pope.

  • MarkE

    You need a much better argument for dancing with the Devil than that you don’t like the current Pope.

    I shall be voting UKIP at the next election for exactly that reason; I’d rather stick with a bad Pope than give the devil a spin round the floor. If Cameron wins (and I fear he will), he will claim his statist policies and dragging the former Conservative party to the left are vindicated. We will then get a “Conservative” government committed to NuLabour policies and no choice at the following election. If he loses we will be stuck with four or five years of Labour, but the Conservatives might ditch the boy and replace him with a Conservative leader, or UKIP might have gained critical mass and the momentum to give them a realistic chance of power.

  • Johnathan

    It is not at all, Guy. If the Tories win the next election – as they look as they will – on the grounds of not changing anything about the balance of the individual to the state, then Cameron and his colleagues will conclude that Big Government policies win elections. It is vital that this idea is destroyed.

    Last night, Alan Duncan, a relatively sane Tory MP, was defending the proposed tax on cheap flights. These Tories still don’t realise how far they have slid from their previous Thatcherite tax-cutting agenda. Or maybe they don’t care.

    The person who argued that Cameron is better on the grounds of throwing out ID cards is an extreme optimist. I don’t trust Cameron on this score one iota.

  • Actually after the stuffing he got from Brown I am not sure he will win. He just looked like some jumped up teenager against a statesman during the Budget debate it was pretty dire.

  • It’s interesting to hear people say ‘If Cameron wins – and it’s increasingly clear he will…’

    Not that I was really old enough, but I’m sure in 1989 I can remember people thinking that it was ‘increasingly clear’ that Labour would win the next general election. Even moreso after the Poll Tax riots in 1990.

    Not that I’m saying that these people are wrong (although I’d suggest they take a close look at which constituencies they think are going to change hands), but just that they seem hugely confident to think it is clear who is going to win a general election three years before it happens.

  • guy herbert

    …on the grounds of not changing anything about the balance of the individual to the state…

    I’m trying to recall whether Blair in 1997 said explicitly that he was going to conduct a revolution. I suspect not; since many, perhaps most, on the left seem (still) to be completely sold on the bizzare idea that he is “continuing Thatcherite policies”.

    (Even Thatcher in electoral communications was not a “Thatcherite” until her second election. The 1979 manifesto was stabilizing, the centre-piece topics: no more nationalization, cutting top tax rates (from 87%) to the European average, and above all curbing the Unions.)

    We will have to see what Cameron does (if, as Nat Tapley points out, he gets the chance). But there are some points on which I do trust him, and some on which I know that almost the entire shadow-cabinet has its heart in the right place (kept in petto not worn on its sleeve). Even stabilising at the current level of statism without any rolling back at all, would be preferable to continuing acceleration into the abyss.

  • Johnathan

    Guy, I am afraid we will have to differ. I do not trust him. If the anti-ID cards campaigners have detected a deep, pro-liberty commitment and sense of value from Cameron, I haven’t.

    It is true that Mrs T. did not disclose much of her radicalism before 1979, but the parallels are not quite right. From 1975 onwards, Mrs T., Geoffrey Howe, and above all, Keith Joseph, made radical, controversial noises about the role of unions, the need to suppress inflation, monetarism, the role of the state, and much else. If you listened to the overall tone of those speeches, the intent was unmistakable: smaller government.

    No such parallels – yet – exist. If Letwin, Hague, Davis and other key shadow cabinet ministers had been making speeches arguing for a return to the Common Law, mass repeal of police state powers, etc, I might be more sympathetic. But as Thaddus Tremayne pointed out last week, the very fact that Cameron can even contemplate a draconian measure like tax on flights shows the sort of mind at work. It is not a mind that is friendly to aspiring working people.

    I have been told over and over again that Cameron’s approach is all part of a cunning plan to con the dippy, liberal English middle class, and once elected, the “real” David Cameron will emerge.In other words, the Tories will lie and cheat their way to power. How noble.

    It is all like whistling in the dark to sustain one’s spirits, Guy. You are trying to convince yourself.

  • Paul Marks

    If Mr Cameron says “I will take back all powers concerning security and crime from the E.U. – and if they object I will tell them to go jump in the sea” then I might believe him.

    However, he is not prepared to take back (and I mean TAKE back – not have a friendly chat) any power from the E.U. – not over fishing, not over anything.

    So there is no reason to believe him over I.D. cards – or over getting rid of regional government (another E.U. policy).

    In office a politician is under great pressure to “make a deal” (i.e. give up). So unless a politician is totally clear in advance (speaks and writes in a clear and strong way) there is no reason to believe him – there must be no “get out room”.

    This is true of all politicians – not just Mr Cameron.

    Nor is it a matter of him being upper class.

    I have met many upper class people – and quite a few of them have spoken in a clear and direct way (not this “I am your friend” soft tone stuff), so it is not a class point.

    As I have said if Mr Cameron lists the powers that he will take back from the E.U. – and says this in a clear and strong way, I may well give him the benefit of the doubt.

    But as long as he does not do this, I will not give him the benefit of the doubt.

    Any more than I will give Mr Brown the benefit of the doubt.