Income tax is an evil. It is an evil not because it is a tax, but because of the way it works.
First, it takes from the citizen the choice of how to spend his money. Indirect taxation, though often in the past tweaked to show the state’s displeasure at certain choices, still leaves you a choice; to spend or save, and whether to have booze, burgers or broccoli for lunch.
Second, it requires the tax authorities to enquire how you obtain your money and how you spend it. The existence of exemptions and allowances, of deductible business expenses, returns and taxes management is essential to the operation of a system that would widely be seen as unfair if it fell as heavily on the pauper, the producer, and the rentier drone. But the existence of allowances and schedules, and latterly tax-credits, means people rightly use their rights, and the Revenue is incentivised to regard everyone as a cheat, to treat careful self-management as a form of fraud, and press for more powers and more bureaucracy. The system becomes ever more complicated, by special pleading and anti-avoidance; the complication allows for ever closer investigation of personal affairs, ever more complicated and impenetrable forms, and ever harsher treatment of the negligent, confused or exhausted taxpayer.
The result tends to a system of brigandage, where the law of collection is as uncertain as the Tax Inspector’s patience, where the small taxpayer is as much prey as he has fat on him, and only someone rich enough to fight a case as far as the House of Lords will ever find out what the law is. Having made the travellers empty their pockets, the suspicious highwayman will resort to strip searches, then to probing body orifices. Anyone who has made tax or tax-credit returns for a few years has had a similar experience.
Third through PAYE and deduction at source, it takes and spends your money before you get it. You may never notice it has gone. And if you do, and your financial knowledge is small, you may not realise how much of it has gone, nor make the connection between your vanishing money and state spending. That makes it easy for tens of millions of people to believe that it is always someone else who is paying for political promises.
Yes, income taxation is great evil. It tends to destroy liberty, privacy, and personal responsibility.
It may come as a surprise to the House and the country, therefore, that I, as the first Samizdatista Chancellor, am proposing to increase the rate of personal income tax. There are worse things than high tax rates. My predecessors in this office have amply demonstrated what those are by their practice. They have each chased headlines by purportedly ‘reducing’ the rate of income tax from time to time. Meanwhile, inexorably, ineluctably, and invisibly to the average member of the general public, the burden of taxation has risen, with a few pauses and breathing spaces, for more than half a century.
This has been done in two ways. By the imposition of more ‘invisible’ taxation on the nation’s payrolls, and by the extension of the tax-man’s reach through complicating the system. My Right Honourable Friends have explained how we intend to slim the state; my task today is to reveal its weight, and start to reduce how heavily it rides the citizen.
Tax we must have both to pay for the necessary state and for the health-cure to sweat off the rest. Over the term of this parliament we will have much less state and much less tax. For now I content myself with trimming its girth, and taking away whip and curb.
Mr Chancellor Brown doubled the ‘tax code’ by one commonly used measure. It is less often noted that his predecessor, Mr Clarke, did the same. Calling British tax law a ‘code’ is to flatter it – HMIT will never, ever volunteer what the law is for fear that it may reduce his scope for manoeuvre. What tax you might owe is for him to know and for you, at your risk and expense to find out. But whatever it is we have four times more at least than we did a score of years ago. A radical simplification is in order; but also a structural change. I intend to reverse the malign spiral begun by Lloyd George, brilliantly augmented by Hugh Dalton, and capped by the last four living Chancellors. This government will uncloak the stealth taxes.
My predecessors have cut ‘income tax’ and pari passu increased ‘National Insurance Contributions’ paid by employees and employers alike. Staff cost their companies more than they think they do. Charities have been starved, as covenants from taxed income have attracted less recoverable income tax, but the donors have no more money to give. And there is a persistent legend that the ‘stamp’ has something to do with the National Health Service, whereas it actually has an obscure link to pensions. Mr Chancellor Brown created a minimum income guarantee for pensioners – provided they fill in a complex intrusive form – rendering the conditional element of the Old Age Pension nonsense built on nonsense. Nothing is insured by National Insurance except form-filling.
Let us have an end to that. From the start of the next financial year I am abolishing all classes of National Insurance Contributions, and increasing the basic and higher rates of income tax by 17% and 12% respectively. The Pension Credit will be scrapped. The Old Age Pension will be made unconditional and made up to Mr Brown’s minimum for all those who currently receive it. We will be announcing changes to future pensions provision in due course.
This will bring an immediate benefit to businesses through the simplification of payroll administration, and a reduction in total payroll costs. It will save the costs of administration and allow a substantial proportion of the HMRC and DWP establishment – the whole former Contributions Agency, and most of the Pensions Service – to be decommissioned. It will reduce the tax burden on everyone and the total tax-take on most employees.
However no tax change is without losers. I anticipate a baying for my blood from most parts of the house, when it sinks in to honourable members that this will hit the poorly paid, the very well paid and the self-employed hardest.
So before that can start, Mr Speaker, let me tell the House what I shall be doing for each of those groups to ameliorate the changes.
First the poor. Britain is extraordinary among advanced countries in levying income tax on those at or below on the official poverty line. Mr Brown’s tax credits, notionally counteracted that, but not only fudged the fiscal figures by appearing as negative taxation rather than benefit spending. It also ensured that marginally employed, perhaps marginally literate, people were expected to make a substantial part of their living by form filling and negotiating HMRC. However attractive that idea may seem to the statists opposite, most people would rather earn their money honestly in work they can understand. I am therefore raising the personal allowance to £12,000 and permitting those in declared civil partnerships to share their allowances. Family Tax Credit is also to be abolished. A Samizdatista government will not enquire into who you choose to live with or how, and as anyone can now undertake a civil partnership and marriage, gay or straight, is now just one form, this measure completes fiscally our withdrawal of the state from the bedroom. Other measures will increase employment opportunities for the poor, but this substantially reduces the poverty trap.
Now the self-employed. The Revenue has traditionally treated them with suspicion, verging on hostility. We wish to encourage them. I am extending the range of allowable expenses to both incorporated and unincorporated businesses by moving to the American approach to deductions. The new Finance Bill provides for expenses to be allowable if they are incurred ‘in the course of business and for a business purpose’, rather than ‘wholly and necessarily for business purposes’. Workers’ cooperatives and partnerships will also benefit from related changes.
We will also permit them to grow their businesses and incorporate them more freely. IR35 and the Construction Industry Scheme are to be abolished; we will not let the revenue arbitrarily pierce the veil of corporation or ignore valid contracts to increase its take. Mr Brown gave small companies a 0% corporation tax band for the first £10,000 of profit – then promptly took it away from them when they tried to use it. We will restore that, but at a slightly higher level, £12,000 to match the personal allowance.
I will also help small companies by scrapping the insane burden of P11D returns. Most honourable members will never have heard of these unless they are unusually curious about the content of the bundle of papers that appears from the parliamentary salaries office every summer while they are on fact-finding missions in tropical climes. However the incomprehensible regulations surrounding returns of benefits in kind for “directors and higher paid employees” have been around since the 70s, when marginal income tax was even higher than I have just made it, and the taxman was hot to hunt down perquisites of office used as avoidance. They are increasingly incomprehensible, which is especially hard small firms, and the fiscal function is now mainly to collect class 1A National Insurance Contributions. Which I have just abolished. A higher paid employee was someone on £8,500 or more when the return was introduced – equivalent to some £175,000 today – but the threshold remains the same. Bureaucracy endures. Or it did. We will introduce a simplified directors’ benefits return and stop putting a tax-price on a free cup of tea for the office girl.
Finally the rich. Unlike other parties, we do not believe in soaking the super-rich and driving them away from our shores. But we do think the treatment of non-domiciled residents is unfair to everyone else. That is a reason to treat others as well as non-doms, not probe and prod and fine the foreigners, however popular that may be with a certain xenophobic and envious section of the electorate. The whole situation is a consequence of Britain’s habit, shared with only a very few treasuries, of trying to tax individuals on their worldwide income. How would the British Empire have been built on trade and foreign investment had that rule run then, and the authorities hauled up Drake, Clive, or William Penn to produce accounts for their activities? Consistent with this administration’s policy of both repudiating extraterritoriality and ruling ourselves, the Bill before the house drops the purported power tax our residents, whatever their nationality, on overseas income that stays offshore. To the world’s wealthy, I say, “Come here, spend your money, enjoy our hospitality”. To our wealthy I say, “Start businesses abroad, buy up the rest of the world, and bring home the loot when it suits you”. We will be adding to this impression of hospitality by our institution of proper banking secrecy laws and our withdrawal from the OECD later this year.
For those thoroughly domesticated wealthy, well-off but not rich, the comfortable employed, this may not be enough, if they have heard my speech so far and imagine they will be paying 52% of their marginal income in tax. I sympathise. Some people will be. Even if it is not for long, while our expensive reconstruction of the public sector takes place, and we move towards our medium-term target of a state that consumes less than 15% of GDP, there will be losers. There always are.
However my last major changes will sugar the pill. They will benefit both those comfortable employed and provide unparalleled opportunities for employment in services, and maybe, even increase the revenue. I could see the articles in the broadsheet newspapers, when I proposed a marginal tax increase. “But how will I pay for nanny and for Tabitha’s and Johnny’s school fees now? It’s all out of taxed income and I make less than 300 a year from this column”.
I do not want to be the cause of such anguish. I want nanny to stay in work, and the Priory Prep School to keep Tabitha and Johnny off the streets. I would quite like the Columbian cleaner on the books and making a market wage, rather than fearing deportation. And I am desperate for the ‘coping classes’ to shut up about how hard their lives are, what with only two more holidays a year than I have taken in my life…
All in good time. We will be reducing the tax-burden on everyone. But for now, I will gladden the shade of my auld acquaintance the late Auberon Waugh by putting one of his few budgetary suggestions into practice. I shall make the cost of employed domestic servants and private education allowable against income for tax purposes. This is not just a sweetie for the wealthy. It will make a big difference to those hard-working poor people, cleaners among them, who currently work and work and save and save to get their children an education of their choice outside the rotten state schools in the socialist rotten boroughs.
We will make more work for people to do – or rather, we will let them afford to do it – and it we will move money faster. This will have a positive effect on the fisc as more money is spent and some of it is taxed… (those economic asses braying from the benches opposite should consult the master they betrayed, John Maynard Keynes on the velocity of circulation) .
Having made the biggest changes to direct taxation in a century I do not propose to do a great deal to indirect taxation. Though there is a panoply of levies, stamps and excise duties that have each their own administrations, each making a minor contribution to the public purse and the misery of man, they are on warning: We will see to them in another budget.
The house will recognise that the changes in the criminal law my right honourable friend the Home Secretary [Mr Pearce] has made will have a substantial effect on revenue from indirect taxation, and from some direct taxation. It will also substantially decrease the cost to the taxpayer of prisons, probation, and the courts service. This government is content with the anticipated rise in VAT receipts from sexual services and recreational drugs from zero under previous administrations to a projected 30 to 50 billions a year within the next two fiscal years. We will have no “sin taxes” in addition. Sin is the province of ministers of religion, not ministers of the crown.
There is one other change. It is an end to the absurd pantomime where diesel for farmers is free of duties and died red, bio-diesel subject to another regime and died green, and ordinary derv yet another. We have had customs men sniffing exhaust pipes in order to prosecute people for the frugal green ‘crime’ of re-using chip fat. This administration has been justifiably rude about the puritans who call themselves conservationists. But we are not against conservation. Diesel engines are the most efficient we have in regular use. It is stupid to subsidise farmers. It is stupid to increase the cost of flexible road haulage. It is stupid to punish those who make good use of resources. From midnight tonight HM Customs will no longer take any interest in derv.
I commend this budget to the House.