The clear duty to argue for fair taxation arrangements

There is a compelling argument for changes to the present arrangements for taxation that would improve social justice and curb the acquisitive tendencies of the light-fingered, the sharp-elbowed and the caught-red-handed-in-dubious-activities.

In particular, it is worth examining at the case to change the arrangements for the taxation of retirement pensions, inheritance tax, property and income. A protracted period of austerity for those citizens who are currently well-heeled would help to make ours a better and healthier society, and provide a welcome boost to the British economy.

The Labour Party under Ed Miliband did not perform in an especially coherent way in the months leading up to the 2015 general election. As the election approached, there was a stream of announcements offering goodies to the electorate but with less detail as to who might foot the bill. This was confusing, but given that opinion polls were forecasting that Miliband could end up as Prime Minister, who was to say that this was mistaken? However, the polls were wrong.

Labour’s performance after its election defeat went from bad to worse, culminating in the shambolic arrangements for the election of a new leader and deputy leader. Some caustic commentators noted that a party unable even to organise its own internal elections is ill-equipped to manage the affairs of the nation.

Now some senior figures in the Labour Party, not especially committed to the ideas of Jeremy Corbyn, are adopting the stance of Hugh Gaitskell and vowing to fight and fight again to save the party they love. But Gaitskell was in conflict with the distrusted trade union block vote system, whereas Corbyn has been endorsed by a substantial majority based on individual votes.

So what might Labour under its new leader learn from the years 2010 to 2015? One lesson is the need to establish plausible policies well in advance of future general elections, and to subject these to ongoing scrutiny in the light of the developing political situation. Labour must be clear and credible on taxation.

In the simplest model, taxes are levied by the state in order to fund its own outgoings including the financing of the defence of the realm, the education of the young (and latterly of the not so young) and the care of the sick. In general, debate tends to be more lively and controversial on the issue of “who pays what taxes” rather than on the bills to be paid by the state.

“And it came to pass in those days that there went out a decree from Caesar Augustus that all the world should be taxed.”

St Luke 2, 1

You can’t say clearer than that, although the imperial decree, while global in scope, was notably skimpy in terms of who should pay what. St Matthew said nothing about this in his gospel and he was said to be a tax collector.

“’Shew me the Tribute money’ [said Jesus]. And they brought unto him a penny. And he saith unto them – whose is this image and super subscription? They say unto him –  Caesar’s. Then saith he unto them, Render therefore unto Caesar the things that are Caesar’s and unto God the things that are God’s.”

This was an adroit reply by Jesus in that it baffled the biblical equivalent of the modern media pack, but it failed to address the core question – who decided what was Caesar’s and who decided what went to God?

Levels of inheritance tax, income tax, the taxation of pensions and property tax should all be examined. There is a case for steeply rising levels of taxation at the top end of the scale with other levels remaining more or less where they are now.

The affluent will argue, as they have always argued, for very low levels of taxation in all these areas, and many of them put theory into practice by devising complex techniques to avoid or evade payment of any taxes.

On property taxes – council taxes to most of us – those with long memories will recall that it was this contentious issue that triggered the departure of Margaret Thatcher back in 1990. Thatcher, having tackled and defeated General Galtieri and Arthur Scargill, was looking for new fields to conquer and she selected the town halls.

Her plan was to put in place a new system of local taxation to ensure that rate payers would be made much more aware of what they were getting for their money and would vote for councils committed more to frugality and less to increasing both the numbers and living standards of council bureaucrats. The result: the poll tax.

Her defeat on the issue of local government reform and hence her political downfall was widely attributed to the antics of a handful of Spartists. Not so. It was engineered by the massed ranks of the local authority bureaucrats and local authority elected politicians who viewed with alarm the prospect of the collapse of their collective cushy numbers.

Since 1990, there has been some low key discussion about the case for a mansion tax, specifically targeted at those who have become very rich solely by managing to acquire the right houses at the right time. The logic of the case for a mansion tax, mainly but not restricted to London properties, is that enormous wealth has been acquired not by hard work but good luck, and that some of this wealth should be gathered in and returned to the community. A heavy council tax for more expensive properties would have the advantage that it would be difficult to evade or avoid.

It is unlikely that this would appeal to the likes of David Cameron, George Osborne and Boris Johnson – partly on principle and partly because they would have to fork out a lot of money.

Accordingly, Jeremy Corbyn should propose a review into just how much extra council tax can be squeezed out of those of the top end with some relief for those at the bottom. The news that such a reform was being actively examined might inhibit some of the more exotic subterranean projects in the centre of London.

A report in The Times on June 25 2015 noted: “It is hardly a surprise to learn that a home in Kensington and Chelsea costs more than a house in the Welsh Valleys, but the price gap between the two has widened exponentially over the past 20 years… the gap between the two is almost 1,500 per cent, up from 516 per cent in 1995.”

The report was accompanied by a photograph of a street in Blaenau Gwent where the smallest median house price was found at £75,000. I lived in the street in the photo for several years and this may help to explain my interest in a levelling of this particular playing field.

I concede that my proposal would entail a period of belt tightening among householders in the Park Lane area of London, but they might be consoled by the thought of the blessings that would result for the London poor, and by the thought that the capital would become a genuinely civilised metropolis rather than a haven for the fortuitously affluent.

George Osborne won approval in some quarters for his decision to raise the level at which inheritance tax would be levied, and the plaudits were especially generous from those who stand to benefit.

There is case to be made for the suggestion of complete abolition. Their assets will have been taxed throughout the lifetime of the owner and it can be argued that enough is enough.

On the other hand, there is a powerful case for the complete confiscation of all personal assets following the final call of the grim reaper to enable each generation to succeed or fail on its own merits rather than on inherited wealth.

Also, attitudes to the issue of the level of inheritance tax are strongly skewed geographically – given the steady increase in house values as we move from north to south in the UK.

Will the winners in the lottery that is the housing market sit passively by in the event of an adjustment which arranges that the affluent lose out and the losers emerge as winners? Of course not. Unsurprisingly, some commentators referred to inheritance tax as the most hated tax of all – and there is a lot of competition for that title.

Attitudes on this issue are likely to be determined by just one factor – anticipated assets following a bereavement. And the majority of people would be happy to see the level of inheritance remain at the pre-2015 Budget level.

This impoverished majority would be quite relaxed to see not only the retention of the previous level but also the imposition of a steeply regressive level at the top end.

How many would be upset if the legatees of the affluent of Kensington were required to hand over a much higher percentage of the value of the estate in the future than would be the case today?

The present system is socially divisive, and it could change if a political party inclined to change it were to find itself in power. The change would help to ensure that each generation had to stand on its own collective feet.

Another issue concerns the level of retirement income to be received by someone who is in the headlines in part because of a perceived gap between lifetime achievements and final reward.

The senior managers responsible for the collapse of HBOS in 2008 are said to be apprehensive about the growing public demand to revisit the scene of the bank’s failure with a view to ensuring that those responsible are required to pay for their errors and omissions with rather more than an emotional display of public penitence.

The imposition of a system linking pensions to actual working life performance would be widely welcomed. Accordingly, Labour should review the case to bring in a new pensions super tax. This should be steeply regressive rising to, say, around 80 per cent on pensions in excess of £250, 0000.

These particular old-timers don’t need the money, and it is unlikely that their contributions funded their inflated pensions. The reform would go some way to redress the imbalance between the financial interests of the aged and the young.

According to Labour MP Stephen Kinnock: “The Labour Party should look seriously at cutting the top rate of income tax to 40p or lower”.

He also suggests that the party should ban the phrase “the people with the broadest shoulders should bear the heaviest burden” – warning it would “put off people who are working hard and trying to do well”.

Is that really the case? Any review carried out by the Labour Party should indeed look seriously at cutting the top rate of income tax to 40p or lower – before rejecting it. I would go further and, for those at the top end of the scale, inaugurate levels of 80 per cent.

The top earners will argue that such a confiscatory approach will force them to seek their fortunes abroad to the detriment and subsequent impoverishment of the nation. We are regularly told by those at the top end that their huge rewards are in recognition of the risks that they take – with our money. Many of us would happily take the risk of calling their collective bluff.

As for “people who are working hard”, who are they? Which of us would not claim to be part of this group? And who are the people who are not working hard?

And who among us is not trying to do well? In so far as the phrase means anything, it means maximising our income.

As for banning the phrase “those with the broadest shoulders should bear the heaviest burden”, whatever happened to free speech? The phrase would actually constitute an appropriate working mission statement for the Labour Party in the next few years.

There are those who believe that many of the recently arrived affluent immigrants are treated far too leniently by the Government and HM Revenue and Customs. We are not talking here about asylum seekers and economic migrants, but the nouveau riche who have acquired sufficient knowledge about who pays what taxes, and, especially how to avoid paying any tax whatsoever. All are savvy as the seamy side of fiscal matters is concerned. And they are currently engaged in the purchase of much of upmarket central London.

Is this a healthy development and, if not, what measures might be taken to curb it? This group have opted to come to Britain because it is in their financial interest to do so. They will argue that in a competitive economy there will be winners – them – and losers – us. The losers in this particular race might reflect that the this country is more than capable of producing top quality exploiters at home, and that there is no case to add to the supply via imports.

Would-be reformers need to ensure that the precise targeting of the very rich did not and would not adversely affect their human rights. A lot of money can buy lawyers to argue that the super rich were being discriminated against, and we could end up with a Chilcot-style inquiry. Sir John Chilcot himself might be available to chair it in a few years’ time.

The need for Labour, then, is to recruit some talented thinkers to ensure that the sums add up. In today’s business climate, talented thinkers are presented with clear-cut career choices in which they will be paid sums beyond the wildest dreams of most people in return for ensuring that their paymasters get a good return for their investment. Those in this category can and do earn vastly more than the Prime Minister. They devise the myriad of wheezes to minimise taxation for their masters, to exploit loopholes in national and international law, and in general to ensure that efforts to control the sharp practices of their paymasters are stymied. And they do a very good job.

The question to be faced by any genuinely reforming party is: how do we get to recruit at least a few of these super bright individuals to put their cupidity on hold and work for the good of the rest of us for a while? Difficult but not impossible.

Labour needs to recruit people to counter the very effective propaganda tanks funded by the affluent sharp practitioners.

A closing point on tax credits. We should note the ease with which the seemingly intractable problem was solved when George Osborne apparently found £27 billion down the back of the sofa. Perhaps he had belatedly been made aware that even paupers have the vote.

HBOS update

There have been a few developments since my article on HBOS in the last issue of Tribune (January 8). They include the abandonment by the Financial Conduct Authority of a formal review of the contribution of the UK financial sector to the crisis of 2008.

Tracey McDermott, the interim chief executive of the FCA, has denied that she was put under pressure by the Treasury to take this step, but there were reports that her predecessor, Martin Wheatley, had adopted a policy towards the financial sector that was seen as too aggressive in some quarters. In particular, his alleged slogan of “shoot first and ask questions afterwards” was seen as contrary to the principles of natural justice.

Tracey McDermott is right. The shoot first approach was always going to create more problems than it would solve. I like the shooting metaphor provided that the questions precede the shooting. I would advocate the use of a precision rifle rather than a shotgun as being more likely to hit the target miscreants.

In the Daily Mail recently, city editor Alex Brummer wrote: “Fascinating to learn that a former Bank of England official, Megan Butler, now working at the FCA, had her fingerprints on the regulators New Years Eve decision to drop its enquiry into the culture of the banks. Even though the Treasury was not involved, the direction of travel was set by George Osborne in July 2015 when he argued that he time for banker bashing is over.”

But did banker bashing ever get started and, if so, which bankers got bashed and how much damage did the bashing cause to their wallets?

This article first appeared in Tribune on January 26, 2016

Image courtesy of fundstrategy.co.uk

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Author: holdenforth

50 years in management - mostly as a sharp-end man. Occasional contributor to Tribune.

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