How making the rich pay their taxes would halt spending cuts
There is no need for spending cuts. The public finances could be brought into balance by raising more money through fairer taxation. A wealth tax would make a good beginning.
The total wealth held by individuals across the UK is £9,000bn. The richest 10% own almost half of this. A once-off wealth tax of 20% - graduated so that the super-rich paid more than those of merely extravagant means - would raise £800bn. This would pay off the national debt. And since interest on the debt is a major factor in Government spending, the deficit would be automatically reduced. We could protect pensions, refurbish schools, restore cuts in arts funding, etc.
Implementing the tax would not necessarily mean dispatching squads of bailiffs in protective gear to storm gated communities in the Home Counties, entertaining as such a spectacle might be to the non-gated begrudger community.
Making a case for the tax last week, Professor Greg Philo of Glasgow University argued that the wealthiest among us would not have to ante up a fifth of their riches but only assume liability. They could pay a low rate of interest over a number of years on the amount owed, or make the debt a charge on their property when they die - the way student loans work. One significant advantage of the measure in these days of ominous disconnect between the Government and the governed is that it would be enormously popular. Crowds might even assemble in public spaces chanting - "What do we want? More of the same!" and showering effigies of Treasury ministers with confetti and bouquets of blossom.
A YouGov poll revealed 74% support for the tax, with only 10% disapproving. Citizens who have been around a while and know a bit, the over-55s, emerged as the most enthusiastic supporters of the measure.
If a once-off wealth tax were accompanied by a more rational system of income taxation, we could not only cancel the cuts programme but plan for the expansion rather than the contraction of public services.
A TUC pamphlet published earlier this year calculated the amount of money lost to the public finances annually through taxes going uncollected. The report, 'The Missing Billions' by tax consultant Richard Murphy, estimated a shortfall of £25bn from tax avoidance - £13bn avoided by individuals, £12bn by big corporations. This isn't far short of the total amount by which the Government aims to cut growth in public spending.
The main forms of individual tax avoidance highlighted involve switching income from the person who should be paying the tax to someone else, usually a relative, liable for less tax; moving taxable transactions outside the UK; representing an individual as a limited company in tax returns; and changing the designation of particular transactions to bring them within the remit of capital gains rather than income tax.
These are all legal manoeuvres under existing tax law.
Companies can avoid tax more easily than individuals mainly because they can more easily operate across borders, distributing income and expenditure, profit and loss, in the most advantageous pattern. One result is that the 50 largest companies "almost always" pay 5% less tax on average than they declare in their accounts. The average tax rate paid by the top companies fell by more than half a percent a year over the seven years studied: thus, their de facto rate of corporation tax for 2006 was 22.5% - compared with the 30% rate set by parliament. (If this proves a continuing trend, smaller companies will, in practice, be paying higher rates of tax than larger companies next year.)
By the end of 2006, Murphy reckoned, the accounts of Britain's 50 biggest companies held £47bn 'saved' by avoidance of tax. The coffers of the state were by the same token £47bn light. One conclusion is that the whingeing of 'the business community' about the burden of tax it shoulders should be treated with scorn.
Recovering half the amount lost annually to tax avoidance would fund a 20% increase in the state pension or a 3p reduction in basic income tax or the construction of 50 new hospitals.
In light of all this, it might be assumed that the Government would be working flat out to plug the loopholes through which all this revenue is gushing out. But instead, HM Revenue and Customs is currently looking to close tax offices and cut 20,000 staff positions to save the state money.
There is no truth in the suggestion that there's no alternative to drastic cuts. The truth is that the alternatives would be regarded as outrageous by a section of society which flatly refuses to pay its way and which no mainstream party, in or out of government, is willing to confront.