It is hard for us (as libertarians) to understand just how radical even freezing government spending in real terms is. The UK Independence Party policy on government spending is, by modern standards, very radical [pdf document].
The UK Independence Party will tomorrow (3rd October) announce a 33 per cent flat rate income tax for all, including National Insurance contributions, as part of a sweeping tax policy review. The review includes increasing the level that can be earned free of tax to £9,000, scrapping the loathed inheritance tax altogether and reducing Capital Gains to 33 per cent. Party Leader, Nigel Farage MEP, will throw a challenge to Tory Leader David Cameron by setting a clear tax cutting agenda that will attract many members of the Conservative Party.
[…]
UKIP Economic spokesman, John Whittaker MEP, said: “The country does not accept the argument that improvements in ‘front line’ public services require ever-increasing Government expenditure. Huge sums of money have been poured in but have not improved services proportionately to the amount taxpayers have paid and have a right to expect
The last time there was anything like this was 1976-1977 when, under IMF orders, the brakes were put on UK government spending. The situation by the time of the next General Election will be similar (vast government spending and an exploding (13.7% ‘broad money’ growth at the moment) money supply, or in ‘modern’ language an ‘expansive fiscal and monetary policy’, having undermined the economy) – so the UKIP is being farsighted. Clearly they think that economic breakdown can still be avoided (and in technical terms they are correct – although the culture may have decayed to such a point that avoiding collapse is not ‘practical politics’).
As for unifying the income tax and ‘national insurance’ systems – Australia and New Zealand did this long ago. National Insurance is a tax, it is not a ‘contribution’.
A flat rate income tax makes good administrative sense and getting rid of the top rates of income tax would indeed stimulate the economy and benefit everyone bar tax lawyers. Getting some poor people out of the tax system would not boost revenue – but it is a political price one has to pay for getting rid of the 40% rate. Of course I would like to see a lower overall rate than 33% – but one must remember that there would be no ‘national insurance’ tax anymore. Also, if the poor no longer paid income tax, there would be no excuse for Mr Brown’s wildly complex and expensive ‘tax credits’.
Getting rid of the inheritance tax is a logical move already done in Canada and other nations. Inheritance tax just encourages people to spend their capital (and then live off the state) – rather than invest for the long term in the hope that their children will see the benefit.
It is sad that the absurd Capital Gains Tax is to stay – cutting it is good, but it is a mad (and hard to administer) tax that causes great harm.
Converting the wildly complicated and open to fraud VAT into a sales tax is a good idea (and they are correct that this is not lawful under EU law). However, making the new sales tax a local tax would mean an end to the Council Tax (which would be popular) and one could get rid of all national government subsidies to local government as well (which would allow a reduction in the combined income and social security tax).
Overall a ‘good as far as it goes package’ – certainly vastly better than the increasingly ironically named ‘Conservatives’ whose shadow Chancellor said on BBC Radio 4’s Today programme that it was “unlikely” that he would put UP taxes… but would consider it.
They even have ‘spokesmen’ rather than ‘spokespersons’. Bliss.
I left the Conservative Party several years ago (though in truth, they left me) and started voting for UKIP last year.
I’m not terribly well informed about this, but didn’t the Conservatives increase the overall tax take not long after 79 “in order to reign in inflation”?
Isn’t it slightly possible that some such measure might be necessary again since, as Paul Marks says, money supply has been increasing (a good deal the same thing as inflation) by over 10%, and for several years now?
But perhaps the context is different now, or they didn’t really *have* to increase taxes in the 80’s. I don’t know. Any thoughts?
Getting some poor people out of the tax system would not boost revenue
Is this a correct assumption? The poor have to spend the money somehow, and given that there are a lot more poor than rich, the economic stimulus would be greater due to Hayekian effects.
The growth effect might be enough to raise revenue. In comparison, if we are to the left of the Laffer Curve, the revenue would be less after cuts to the top rate.
“Broad money” (i.e. credit money – what, in Britian, is still measured as M3 I believe) is indeed expanding at a high rate (13.7% the last time I checked) – the “independence of the Bank of England” has not been the success that a lot of people say it has.
To concentrate on the “price level” and ignore the credit money bubble is a mistake that has been made again and again in history – most importanly by the Federal Reserve Board in the late 1920’s.
As for the Conservatives after 1979 – actually the money supply was allowed to carry on growing quite fast (to blame the recession in the U.K. on the restriction of credit money is a mistake – there was a world recession but it was made worse in Britain by factors I will mention).
The late Enoch Powell was one of the few politicians who I remember pointing out that neither the money supply nor government spending were cut after 1979 – indeed both increased greatly (government spending increased because Chancellor Howe and others decided to honour the spending promises, mostly on government pay, made by the previous Labour government).
Chancellor Howe also, indeed, greatly increased taxes (there was a cut in income tax, but V.A.T. was increased from 8% to 15% and there was, I seem to remember, an increase in “national insurance”). This tax increase did nothing to reduce inflation (although it may have done in Chancellor Howe’s mind) as this is a matter of the money supply (not of taxes).
Also Employment Secretary James Prior failed to do anything serious about labour market reform (basically the unions were allowed to continue to be above the law of contract and other such).
The tax increase and the failure to reform the labour market led to the United Kingdom having a much worse recession that other Western nations and millions of people being tossed on to the scrap heap of unemployment – which led to some people turning against the Conservative party for ever.
Some increase in unemployment (with the world recession and the decline of the nationalized industries) was going to come whatever policy was followed – but not the vast increase of unemployment that did happen, and not mass unemployment that lasted year after year (because the market did not clear – due to union control of wage rates).
The success of the later Thatcher years was in no way linked to the folly of the first couple of years (the idea that it “laid the foundations for later success” is a demented notion of Mr Cameron’s people). Although some good things were done (such as the getting rid of exchange controls – for which Chancellor Howe must be give personal credit).
The Conservative party was saved in the general election of 1983 partly by the Labour party going mad under Mr Foot (with an almost Soviet set of policies) and partly by the Falklands War – although it is true that by 1983 policy was starting to get a bit better (as were world economic condidtions).
Looks to me like the outline of a very good finance package; it gets my support. Maybe UKIP could add later: school vouchers and independent examinations plus abolition of central and local government interference in schools. Additionally, closing the DTI and a bunch of quangos would produce a truckload of savings.
Pity that the Tory party has not had the guts or initiatve to come up with some of UKIP’s bold proposals. I know they are worried Brown might steal their thunder, but there’s zero chance he would copy such a tax cutting and simplification scheme.
On Kit Taylor’s point:
Yes if poor people do not have to pay income tax they will have more money to spend, which may indeed mean more sales tax revenue. And if poor people do not have to pay so much tax their productivity should go up – for example some people may try harder to get a job if they can keep more of what they earn.
However, a hard fact of life is that reducing taxes on the poor does not tend to raise more revenue than it costs. This does not mean that it should not be done – government spending should be held down (indeed I would CUT government spending not just freeze it), and taxes on the poor reduced or got rid of. But if you want to increase revenue it is cutting the top rates of income tax and such things as capital gains tax that are most likely to do the job.
One of the many silly things about British politics is that the Liberal Democrats think that increasing Capital Gains Tax will get them a lot more revenue – this proves they are away with the faries.
There is one area of government spending that has been held down for many years – military spending.
Although billions of Pounds have been wasted on the Euro Fighter (and a lot of other money wasted by the “buy E.U.” policy agreed in 2000), overall the budget has been held down.
As we are now fighting two wars and have other commitments this is causeing some concern.
There are three options: Either we pull back, or increase military spending, or trust to the skill of the armed forces – and to luck.
The government has gone for option three and is trusting to luck. I pray our luck holds – a lot of good men will die if it does not.
@Paul Marks
“costs”? Not a very libertarian choice of words, is it? 😉
Might I suggest “reducing taxes on the poor tends to lower rather than raise the value extorted from them”?
Criticism of the Tory party from the right is silly. Has it not occured to many posh and/or idealogue Tory doubters that the party is saying what it is saying in order to get elected, and for no other reason? I don’t want a chance of a Tory government ruined by posturing from the minority of nutty Tories who won’t really suffer whoever is elected next time.
Yes it has occured to a great many people here and been laughed at with the derision it deserves. To think that Dave Cameron is really going to roll back the state is nothing less than delusional. Please present some evidence that indicates Dave Cameron really intends to do the opposite of what he says.
Follow the links found in the article here, and here and here and here and here for evidence that Cameron has been laying the ground work for being a Big Government Tory in the image of Tony Blair.
I guess some of you may not have seen:
http://www.youtube.com/watch?v=D8gLYZV6Z4g
(from webcameron.info & Time Trumpet).
Good point Giles – I apologize. Although I would use the word “money” rather than “value”.
As for Pete:
Sorry Pete I am not posh (wish I was).
State school, council house, no job (living off savings I earned as security guard) – sound posh to you?
As for Mr Cameron and co saying statist things to get elected and that then they will go pro freedom.
First this will not get them elected. Not only do Conservative party members not like this stuff (a decline of 10% in membership over the last six months or so according to Conservative H.Q. stats, and only 1 in 4 of the membership even bothering to vote on the statement of “principles” Mr Cameron put in front of them – if things go on as they are there will not be a question of “whether the Conservatives can win the next general election”, because there will not be a Conservative party by the time of the next general election), but the Conservative minded voters who stayed at home over the last few elections do not like it either.
The Labour party vote has not gone up (that is the great myth) it is exConservative voters who are staying at home – they do not believe that the Conservatives will bring any powers back from the E.U. or will cut taxes (and they have been right on both counts).
How to rebuild the trust of these voters is a difficult question (it would take years of work – not just a few promises near the election which is what has been tried before) – but having a dishonest P.R. man as leader will not work (people are already seeing through him), besides Mr Cameron is “posh” (inherited money, Eton, Oxford – and then married more inherited money) and therefore, by your line Pete, is ruled out.
However, there is also the basic point that someone can not campaign for statism (ever more government spending, total submission to all the powers to regulate that the E.U. already has…….) and then turn on it all once in office – unless you prepare the ground in advance there is no mandate for that (and the media, and the public, would tear you apart).
Also (let us not forget) a liar does not tend to do GOOD things when in a position – a liar tends to be a BAD person and such people tend to do BAD things when they have a chance to.
In the very unlikely event (as he does not even have a poll lead in midterm it is about as likely as snow in Hell) that Mr Cameron ever becomes Prime Minister he would be second Edward Heath (although Heath only pretended to be “posh” – he was not really).
Let us not forget that Heath was worse than Blair – not just a big increase in government spending and lots of insane administrative reorganizations and destruction of old counties, but price and wage controls, the three day week, friendship with Mao (the biggest mass murderer of human history), and putting us in the E.E.C. – E.U. in the first place (on “any terms”).
Not “nonideological” – just an evil ideology rather than a good one.
To follow up on Paul Marks comments — if the “major” parties are engaged in a race to the Big Government left, whither Britannia?
One view is that everyone everywhere gets the government they deserve. E.g., the Palestinians. Maybe the modern Brit does not deserve anything better than a prancing Tony Blair knock-off?
Another view is that “democracy” in the West has become diseased — a rotten structure of bureaucracy, incompetence, selectively-enforced laws, Ponzi-scheme social security, and craven multi-culturalism. This is a system which is losing the trust of its peons. Eventually, some new Cromwell will appear and wash away the excesses of the current political elite in blood.
So will things get worse before they get better? Or will they simply get worse?
Has it not occured to many posh and/or idealogue Tory doubters that the party is saying what it is saying in order to get elected, and for no other reason?
Not a chance. This would make him the single most dishonest Prime Minister in UK history and would guarantee his being shredded by everyone, both his putative friends and enemies. No man who did this could be trusted in anything.
As I remember it, the left were hoping the same thing of Dear Leader prior to 1997, but even he, despite his all consuming mendacity, stuck to the basic principles he outlined prior to that election. To the disgust of his core supporters.
I have just discovered that there is no Inheritance Tax here in Oz.
Hence simply emigrate out here on your retirement, enjoy the sun and give Gordon and George Osbourne the finger on your way out.
pommygranate,
Inheritance tax is paid by the inheritors, not the estate, I believe, so you also need your heirs to be domiciled or at least resident outside the UK whenever is relevant.
The sales tax proposals are insane.
Australia moved from sales tax to VAT (known there as GST) because the sales tax regime was so open to fraud.
As for making it vary by local authority to local authority – this is insane. You mean it might be cheaper to buy a can of Coke in Wandsworth than Putney? Utter madness.
Local taxation is a good idea but the best proposal so far is from the LibDems in the form of a local income tax.
Guy
My inheritors still wear nappies so i suspect that they too can give the one-fingered salute to the Treasury.
Great speech, by the way, by Johnnie Howard at the 50th anniversary of Quadrant last night.
You couldn’t dream of Tony, Gordon or Dave making such a robust defence of liberty.
In time, the world would luckily see the emergence of three remarkable individuals whose moral clarity punctured such nonsense: Ronald Reagan, Margaret Thatcher and Pope John Paul II. All of us here tonight owe a particular debt of gratitude to these three towering figures of the late 20th century.
Today, free and open societies face a new tyranny: the tyranny of Islamist terrorism, one with at least a family resemblance to the great struggles against forces of totalitarianism in the past.
Which other Western leader is fit to even piss in his dunny?
You need to travel more because local sales taxes works in the USA and many other places too. Moreover it introduces tax competition which will tend to act as a brake on local politicians urge to spend.
The biggest concern I have is that they intend to levy VAT/Sales tax “at the wholesale point”. One would then suspect that no claims can be made by companies as to do so one would need to know the sales tax levy at the wholesale point if the goods were purchased further down the line.
If claims were possible, I suppose then one would need to be a registered company to purchase from wholesale points. This would need to be made scam-proof if a new form of Carousel is not to be created.
One “could” transmit/communicate the wholesale tax forward to the final point of sale, but anyone could then work out the margins being made which would cause great resistance. Maybe this would be a good thing, creating a new environment of “wholesale counters” where tradespeople and those who form a company can buy sales tax deductable goods. One would notice a huge increase in companies…
Even so, if sales tax was levied at the wholesale point it scuppers the power of it becoming a replacement of Council Tax as the wholesale point may be (erm…will end up) in a low tax borough while the goods are sold retail in the high tax area.
I’ve found the UKIP interesting before and this makes them still more interesting… I have never felt the slightest affinity to the Conservative Party and obviously none for Labour.
So here’s hoping the UKIP ‘eats the Tories lunch’!
And the tories remain ‘puzzled’ why they are not doing better in the polls!
While they are whoring after ‘Waitrose Man’ perhaps they should start looking after ‘Bromley Man’. The UKIP just gave him a few more reasons to hitch his wagon to their star.
The human oil slick torycameron now wants party funding from the tax payer. We call that chutzpah round here….
guy herbert
I’m not a tax expert, but I understand that UK inheritance tax is actually payable by the estate.
Probate is not granted until the tax has been paid. If the tax is not paid within 6 months of the death (eg, where a house might have to be sold) the estate has to pay interest at 3% on the sum due.
Although the estate pays the tax, a will can be drafted in gross sums so that each of the inheritors effectively only gets an after-tax sum.
Please check with your solicitor before relying on this info.
Just one other thought on Cameron. He is clearly afraid of being called a destroyer of state-provided services if he were to offer tax cuts. However, I regard such an approach as a bit condescending to those who would see through that kind of NuLab ploy. What he should realise is that 50% of the population is above average intelligence — and that’s all the votes he needs.
To answer ‘Freemans’ previous post further up, UKIP has an education policiy which you can download from here:
(Link)
“I’m not a tax expert, but I understand that UK inheritance tax is actually payable by the estate.”
This is correct, the UK’s misnamed inheritance tax is the remnants of the “capital transfer tax” introduced by Labour in the mid-70s. The idea was that any and all lifetime transfers of wealth were to be taxed on a cumulative and progressive basis, with a “top-up” charge upon death.
The Tories eventually brought in an exemption for transfers more than seven years before death and removed the lifetime charge on most transfers. The system is it now stands is very similar to the former and more aptly named “estate duty”.
Labour have recently tightened up the regime somewhat by extending the ten year charges that were formerly payable by property held within discretionary trusts (so that it would otherwise escape the charge upon death) to most trusts.
On the subject of CGT, simplification in the form of a general rebasing of asset costs to their 1998 values would appear to be the most straightforward reform short of abolition, perhaps together with a harmonisation of business and nonbusiness rates of taper relief.
PS your estate still have to pay UK IHT on your UK _situs_ assets even if you were domiciled in Oz or NZ.
So you would need to sell these UK assets (_after_ leaving the UK, and during a period of absence of at least five compete tax years, so as to avoid UK CGT) and take the realised funds to the Antipodes in some form.
On the CGT point, there could be a charge in Oz on the sale of your UK assets if you were resident in Oz, but not in NZ since AFAIK they don’t have CGT there.
niconoclast: “The human oil slick torycameron now wants party funding from the tax payer. We call that chutzpah round here….”
I have a suspicion that the taxpayer political party funding thing originates in Brussels and so any party that wants to remain viable and even “in Europe but not run by Europe” will have to be compliant.
http://www.democracyineurope.com/directive.htm
Can anybody confirm that this is in fact the case?
Has it not occured to many posh and/or idealogue Tory doubters that the party is saying what it is saying in order to get elected, and for no other reason?
I’m sure Dave is coming out with this stuff because he thinks it will get him elected. Sadly for him, it won’t. And if it did, so what? We have a choice of three main parties, all of which are now resolutley statist. That’s not much of a choice at all is it?
John K
Sadly for the British there is a realistic chance that the boy David will be elected, albeit with even less than the 25% (38% of a 61% turnout) Bliar attracted. That will then convince him and others he is doing the right thing!
To PaulT
I find the notion that V.A.T. is not wide open to fraud rather amusing.
As for local sales tax – well no tax is good (“to tax and to please is not given to man” as Edmund Burke put it, or “tax DOES have to be taxing” as I would say), but allowing people to “vote with their feet” by shopping in the least taxes areas might help keep taxes down.
As for a local income tax. Would only local income tax payers have the vote? As in the old days with only ratepayers having the vote in local elections.
If non income tax payers had the vote, in those areas where such people (who include myself at the moment) are the majority (or even a large minority) taxes and spending would tend to be pushed up without limit (especially as things would get worse and worse as taxpayers left such areas – smaller tax base and fewer and fewer people with a direct interest in resisting tax-and-spend) this would carry on till such areas went bankrupt.
I do not see the Liberal Democrats restricting the vote to local income tax payers (and making sure that the local income tax was a flat rate of course). And if they did not the system would not work.
Of course some nontaxpayers would vote with some thought (“it is wrong for me to benefit at other people’s expense” or “if I vote for tax-and-spend I am signing this town’s long term death warrent”) – but it is too much to hope that most of them would see past the “argument” that “you can have what you like without having to pay for it – just vote for us”.
“The rich will pay” and “social justice” are popular con tricks (they lead to economic collapse – but not before the next election, which is all most politicians care about). And, of course, one must remember that some well off people will vote for tax and spend policies (for example senior local government officers), so saying “well a majority of voters in this area are taxpayers so the system will work” is too simple.
One virtue of a local sales tax is that voting does not need to be restricted. Everyone pays – so everyone can have the vote.
As for Mr Cameron “the old policies are not comming back”. He implied that the “old policies” were ones of restraining government spending growth and trying to reduce taxes – so as these policies are not comming back I rather doubt that the millions of people who used to vote Conservative and now stay at home will come back either.
I gave the UKIP money about a year and a half ago… logged on and donated $35, which I think was 20 pounds at the time.
However, I question how well organized they are, since they’ve never sent me a request for more money. First rule of fundraising: the most likely people to give you money are the ones who’ve given you money.
But it’s clear to me that for anyone who values “Englishness”, the UKIP deserves a lot more support and money than the Conservatives or the LDP.
I suspect that BadLiberal is correct about the U.K.I.P.s lack of organization.
Perhaps it is time for Perry and certain other people to get involved.
Yeah their lack of organisation is a bit of problem. We shall see what happens in the local elections things year. If they can’t take advantage of the clusterf*** that is Cameron they have no hope.
Guy Herbert,
IHT is chargeable on the (qualifying) estate of the deceased where the deceased was UK domiciled or where the deceased was non UK domiciled but had assets in the UK.
The residence or domicile of the beneficiaries is irrelevant.
I agree with Paul Marks – local income tax is dysfunctional unless voting is restricted to those who pay. Restricting it that way is unlikely to gain political class supprt.
A local sales tax has more potential but, unlike UKIP for the reasons I gave above, it has to be POS to uphold democracy and keep council spending in check.
Council funding would be greatly simplified in my view if Health and Education budgets did not pass through their sticky fingers, masking all manner of horrors (I suspect).
Paul Marks,
Why are you going off on a tangent talking about voting rights? The question is solely whether a local sales tax that varies from local authority to local authority is sane.
It’s clearly insane, no where in the world has sales tax varying from one city borough to another. It’s just loopy-loopy doollaly. The only reason that UKIP has it, is to make a point about it being illegal under EU law, which it would be; it is an impediment to the single market.
What UKIP also don’t mention is that local sales taxes are illegal in other countries as well, notably Australia, because there anything that restricts the movement of goods between states is illegal. That’s why Australian GST is a commonwealth-wide tax and can’t be implemented on a state-by-state basis.
The state sales taxes in the US are dumb too (although not quite as dumb as UKIP’s proposal) as they cause difficulties in inter-state trade.
Of course, I don’t expect you accept this, because, well, UKIP supporters need any excuse they can dream up to throw their votes away.
PaulT
Come visit us some time. It’s perfectly normal here to pay tax according to local jurisdiction. You can easily go across the street and pay less (or more) taxes.
It does wonders for keeping local taxes in check.
Only if you’re a tax collecting authority upset about illegal competion from other jurisdictions via telephone, catalog, internet sales.
When sales go down in a jurisdiction due to outside competition, merchants vote and donate to campaigns against the taxes. Helps all of us, see?
@Paul Marks – you’re right, “money” is much better.
Re: restricting local votes to payment of local income tax, while I agree in principal (no representation without taxation?), is the situation not just a smaller-scale version of the one we have at a national level? The only large difference I can see is that people can move to a new borough much more easily than they can move to a new country, and that should tend toward making boroughs less rather than more likely to be profligate.
Giles,
You sort of make the point.
National tax rates = competition for taxpayers not possible.
Local tax rates = competition for taxpayers is possible.
National tax rates = no incentive for gov to lower taxes.
Local tax rates = incentives for gov to lower taxes.
@Midwesterner – yes, exactly! Paul Marks seemed to me to be saying that local government funded by income tax was particularly unsuited to a system of governance where non-taxpayers have the vote; I was saying that the same arguments hold for national government, perhaps to a greater degree.
I must be clear that local sales tax is an idea of mine (and others) I do not know whether the U.K.I.P. like the idea.
As for Paul T. and “insane” – well Midwesterner and others have dealt with this. On this matter I can not say anything better than they have.
Of course the Lib Dems want different rates of local income tax in different areas – so I guess they must be “insane” also.