Everybody likes to moan about tax. ‘Rip-off Britain’ we say as we look at payslips and see the amount deducted in taxes. Then we moan again when we are shopping, particularly filling up our car the fuel pumps, or having a beer at the pub. We are taxed to the hilt. Benjamin Franklin said and we all seem to agree,’in this world nothing can be said to be certain, except death and taxes.’ It is true that we do seem to have a complicated system of taxation in this country. It involves payments to two different levels of government: the central government (HMRC) and local government (councils). Central government revenues come primarily from income tax, National Insurance contributions, VAT,excise duties, corporation tax and fuel duty. Local government revenues come mostly from grants from government funds, business rates in England and Wales, Council Tax and increasingly from fees such as those from on-street parking.
The principles of taxation seem pretty reasonable. We should all contribute to raising money for government spending on, for instance, local authority grants, the NHS,the police, schools, the defence of the realm, the welfare state, including the state pension and public sector pensions. Local taxes also have to be levied to help pay for libraries,the road network,bus passes, housing benefit, maintaining local parks, local policing and paying for the local council administration. Governments can use taxes to force businesses to produce the optimal level of lifestyle required by the public. We all know about the tax on petrol. Some items that are thought of as ‘good’ may be exempt from taxes that most other goods attract. A few goods are zero-rated, meaning they attract no Value Added Tax (VAT). Books are a good example.Tax on cigarettes and alcohol some believe is a good public health measure.
The principles may be good but what really annoys the public is unfair taxation and profligate spending such as foreign wars and foreign aid.Margaret Thatcher’s so-called ‘poll tax’ caused riots because ordinary people thought it was grossly unfair; whether you earned £100,000 a year or £10,000 a year, the tax was the same flat amount. It was, therefore, very regressive-not to mention divisive. It was certainly not based on the ability to pay and in the same way the new ‘bedroom tax’ is causing just as much distress (but no riots yet, just massive arrears in rent). The other problem about taxation is that the super-rich (who usually take great care in avoiding paying tax at all) aren’t paying what many see to be a fair amount. For instance, the top rate of income tax peaked in the Second World War at 99.25%. It was slightly reduced after the war and was around 90% through the 1950s and 60s. In 1971 the top-rate of income tax on earned income was cut to 75%. In 1974 750,000 people were liable to pay the top-rate of income tax. Margaret Thatcher, who favoured indirect taxation (unfair to the masses as this affects everyone), reduced personal income tax rates during the 1980s. In the first budget after her election victory in 1979, the top rate was reduced from 83% to 60%. No wonder the rich loved her.It was cut again to 40% in the 1988 budget and was raised briefly in 2008 to 50% and reduced back to 40% in 2013, thus allowing the rich to retain a greater share of their income. None of this of course includes National Insurance which effectively adds a further 11% to the tax we pay.
Total taxation raised from a PAYE worker including indirect taxes is approximately 42% of gross income. This in spite of recent increases in the basic single person’s allowance, £10,000 from April 2014. Despite the changes, net income tax receipts are falling owing to the increase in the number of working families requiring tax credits because of low wages. This situation being brought about at a time when more people are employed in the UK is nothing short of an absolute scandal which can be blamed fairly and squarely on greedy employers and the need to create profits to satisfy shareholders.We are in dire need of a complete overhaul of our taxation system based on fair wages. Unless this happens,we will continue to see a taxation deficit that will get bigger not smaller.