On Taxation

With the most recent Conservative Outrage being the upending and reduction of working and child tax credits, an often heard argument is that if the government were serious balancing the books and creating an equal society, that they would go after tax evaders, rather than the defenceless working poor. One of the most interesting facets of this argument is the idea that the government is owed some £120 billion in dodged taxes. Jeremy Corbyn has been quoting this figure since he came onto the public scene in a meaningful way, backed up by Richard Murphy from Tax Research UK (who writes a good blog here, for those that are interested in government expenditure and taxation).

Interestingly, two days ago, HMRC released their own analysis of the UK tax gap, and came to the conclusion that rather than the whopping £120 billion owed, the figure is actually closer to the region of £34 billion, which represents just 6.4% of total tax liabilities, as well as a continuing fall in total percentage owed and a more gradual decline in the absolute value of the sum.

Mr Murphy responded to these figures by quoting various reports by HMRC on other facets of our tax system, including the percentage of our economy attributed the rather dubious title of the ‘shadow economy’ – that is, the section of the economy not declared to avoid taxation (cash in hand jobs etc.)

This section of the economy does not include tax avoidance or default by tax payers, and should therefore be smaller in size than the total owed in lost taxation. According to HMRC however, the shadow economy stood at 10.3% as at the end of Q3 2015 (page 224, second paragraph of the quarterly report from the Bank of England). Now, if the shadow economy represents around 10% of the economy, and this doesn’t include defaults and all avoidance, how can the tax gap only represent 6% of total tax economy?

I’m not sure what the answer to that question is, but one thing I’m certain of is that questions like this could be answered by the reduction and simplification of our national tax code. Whether the government is losing £30 billion, or £120 billion, it could be reduced if the number of exceptions, reductions, credits and subsidies was reduced from the hundreds of pages of our national tax code to a simpler, flatter, easier to understand tax code. Part of this simplification is the removal of tax credits, but if combined with a tapered subsidy for national insurance contributions and council tax  awarded to low earners to counterbalance the reduction in income from tax credits, the impact should be less severe on the most disadvantaged in society.

A continued push for a reduction in the burden of local and central expenditure, along with the  growth of the economy should further reduce the load on those of low incomes, allowing improved focus on the services that matter most to us – education, healthcare and infrastructure. One thing is for certain however; neither this government, nor any other, should be wasting tax payers money by  borrowing money to subsidise existence long-term. Investment in education can pay dividends, money for public health can help to reduce the welfare bill, simplification of taxation can reduce the burden of administration and tax avoidance. Naturally, the government must be prudent with reforms so as not to damage genuine beneficiaries of existing policy, but not all claimants, whether corporate or individual are equal.

Paying people to have children, winter tax allowance for the elderly (regardless of income), the subsidy of trades unions by awarding facility time and office space, a Christmas bonus of £10 (not enough to make any difference to the individual, but a luxury which costs the country millions of pounds a year), golden handshakes for public officials, obscene quango payouts, jobs for the boys; we’ve all heard the examples of waste by central government, and we’ve got to the point where it can’t go on. This country does not have the means to continue extensive handouts by our government, and all of us; rich, poor and those in the middle, have to make choices about what we value.

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