October 2006 Archives

Following on from my post about Government plans to levy council tax according to the value of your home, we now hear that the charge will also be based on the area in which you live; the nicer the higher. Some of the factors to be taken into account are crime rates, the condition of the surroundings, and how good the local schools are. Also important (apparently) are the size of phone bills, where the neighbours go on holiday, what sorts of pets the neighbours have, and the number of professionals who live in the area.

This is a tax blog, so we tend not to go into the human rights aspects of things. It must however be stated that if these proposals are implemented, they would constitute a gross breach of privacy, an unacceptable intrusion into the lives of the citizens by the State.

As a tax policy, this is a crazy idea. What, for example, have all the above factors to do with when, and how often, our bins are collected by the council? And if nicer areas are taxed more, their local councils will have more money to spend on making those areas even nicer, thus leading to higher taxes. The reverse is true for poorer areas. How does this help the poorer areas? Perhaps the Government is planning to raid the coffers of the richer local authorities and give the money to the poorer ones. Redistribution at local authority level? Nothing would surprise me.

And what sort of incentive is this for people to improve their surroundings? Set up a Neighbourhood Watch, take care of the local park, and the taxman comes calling with a higher bill. On the other hand, if you don't care about your surroundings, and the local youths run riot every night, smashing every window and bus shelter in sight, you are rewarded with a lower tax bill.

At the lowest level, this is nothing but a tax on aspiration shot through with socialist spite and class envy. The aim is to penalise poor middle class folk who have, through hard work and sacrifice, enabled themselves and their families to move to a better home in a better area. What are Government ministers thinking? This policy is electoral suicide, which, come to think of it, is no bad thing.

The Health Secretary, Patricia Hewitt, has come up with one of the daftest tax ideas a Cabinet minister under this Government has ever put forward, that in itself no mean feat. She wants alcopops and other such drinks to be even more highly taxed, so as to deter teenagers from drinking. This is her answer to the binge-drinking problem.

What Mrs Hewitt seems not to have taken into account is that there is nothing intrinsic in these drinks that makes the youngsters drink them. They are attractive simply because of their price. If the price shoots up because of higher taxes, the teenagers will just drink something cheaper. In her ideal scenario, a hooded teenage youth, on seeing the price of alcopops is now beyond his reach, will just settle for a Fanta instead. The woman is deluded.

No chance of such a tax being introduced, though. Even Greedy Gordon realises that there are limits. The Treasury has since slapped down the plans.

Plans are afoot to levy council tax according to the value of the property. In other words, if you carry out improvements to your house, thus increasing its value, you get to pay a higher council tax than your profligate neighbour who spends all his extra income on booze. And don't forget that your home's increased value may well take it outside the inheritance tax nil rate band, so the improvements get a tax hit twice.

As far as council tax is concerned, this new regime will first be trialled on the good folk of Northern Ireland. (No (publicised) plans to introduce this in England for the time being. The official word is that the Government is waiting for the Lyons Review of local government finance to submit its findings.)

But how is the local authority to know that you have made improvements to your home in the first place? Apparently the Government is secretly drawing up plans to allow local inspectors into our homes to check out the improvements. Obstruction of these inspectors will lead to a £1,000 fine with a possible daily fine of £200 for continued non-co-operation.

The Government is denying this. Always the way; first a denial, then a qualified admission (eg 'it will only be done on a voluntary basis, such as if the householder allows it'), and then it all comes to pass as was first rumoured.

The Duchy of Cornwall has come under the sharp scrutiny of the Public Accounts Committee (PAC). Its members want Prince Charles to open up its books for inspection. The Prince has, not surprisingly, refused. His stance can be summarised as follows:

'I already pay income tax voluntarily on my income from the Duchy, what more do you want?'

''We want to know why you don't pay corporation tax and capital gains tax.'

The taxman has finally conceded defeat in the long-running tips battle. This battle has been between the taxman on the one hand, and restaurant owners, hairdressers and other parts of the service industry that receive tips from customers, on the other hand. It has been the practice of many such businesses to pay their employees below the minimum wage, with the expectation that this will be topped up with tips. The widely held (and correct) belief was that in most cases, no national insurance contributions (NICs) were payable on the tips. However, the taxman was never really happy with this arrangement. His belief was that tips used to make up an employee's pay should be NICable. He therefore pursued many businesses unpaid NIC on this basis, with at least one going bankrupt.

He has however now seen sense.

The first in my series of articles explaining the report of the Conservative Party's Tax Reform Commission.

An interesting chart showing the corelationship between the tax burden and economic growth.

Interpretation: the higher the tax burden, the lower the economic growth.

High taxation affects:

1) labour supply. It reduces the incentive to work, as the more you work, the higher the tax. People (mainly higher income earners) then choose to work fewer hours. This is known as the 'substitution effect'. At the other extreme, people (mainly lower income earners) may decide to work longer hours just to earn the amount they were previously earning. This is the 'income effect'.

2) investments and saving. If the growth in value of an investment is subject to a high tax rate, it becomes an unattractive venture, and potential investors may decide not to bother. Similarly, if the tax rates on savings are high, people may decide that it is better to spend the money on themselves.

So far, so uncontentious.

If uncle Gordon was expecting undying gratitude from the City folk he was meeting yesterday, he will have been disappointed. He announced a cut in 25 per cent of business regulations, plus a few other blandishments. And their response? To set up an independent group to ensure that the tax burden is not increased; in other words, to keep an eye on Gordon.

This time around, he will have to take notice. David Cameron has also been wooing the City, and Gordon is getting desperate.

The Fisherman's copy of the Tax Commission report has arrived. So far, seven pages read out of 176. The Fisherman is in broad agreement with the executive summary. Also, plenty of material in there to support the assertion that lower taxes are good for the economy. Just to point out that the £21b figure does not take account of a reduction in the higher rate of tax. This is made clear in the report. So it's not (as some would report) all about 'helping the rich'.

The Tax Commission set up by the Conservative Party to advise on tax policy has submitted its report. The Commission, chaired by Lord Forsyth of Drumlean, has identified £21bn worth of tax cuts. Reports of proposals of tax cuts of £19bn (see my earlier post) were not that far off, after all.

The press conference is due to take place tomorrow. Unfortunately, some bright spark put the report on the internet earlier today. It was taken down within an hour, but not before it had been viewed by the 'wrong eyes'. The eyes in question belonged to uncle Gordon's right-hand man, Ed Balls. He made a panic-stricken appearance on the Sky News, trying his desperate hardest to rubbish the report. The arguments are predictable: 'where is the money going to come from?' 'what services will they cut?' 'only 5 per cent of people pay inheritance tax, so this is a tax cut for the rich', 'same old conservatives', etc etc.

Not strictly tax, but here we go.

In a bid to deliver British companies currently being strangled by red tape, Gordon Brown has pledged to revoke at least 25 per cent of business regulations.

Much sitting on hands over here at the wharf. The Fisherman is unmoved.

One may ask who created these business regulations in the first place.

On the day Gordon Brown tries to repair his battered reputation in the City, the Shadow Chancellor, George Osborne reiterates the Conservative Party's proposal to abolish stamp duty on shares.

The Tories are expected to adopt the Forsyth Commission recommendation to abolish this tax, but why stop there? It is rumoured that the Forsyth report, which will be published tomorrow, has identified over £19b worth of tax cuts. Expect David Cameron to back away from the fight.

Some harsh words from Irwin Stelzer on Greedy Gordon's tax policies. He ends on a forlorn note:

There you have it. Gordon Brown, a disciple of the great Scot [ed: Adam Smith], violating all his principles of tax. No amount of speeches professing love for entrepreneurs and concern for the average citizen can explain that fact away. Sadly for Britain, the Tories have no alternative on offer.

Apparently, Gordon has been listening.

He has launched an effort to boost the profile of the City of London as a place to do business.

Yes, yes, but what about the heavy tax burden and the stifling regulatory regime?

Following HSBC's warning that the unfriendly tax atmosphere may force them to move their headquarters out of the UK, dark warnings from another place.

The Investment Management Association has published a report finding that many fund managers are choosing to domicile their funds outside the UK. Reason? High levels of corporation tax and an aggressive tax assessment regime.

'In the mouth of two or three witnesses shall every word be established.'

I wonder if Gordon Brown is listening.

The taxman is at it again, driving taxpayers to the brink of insanity.

Robert Bradfield used to claim some tax credits, but following an increase in income, ceased to be eligible. Being an honest fellow, he notified the taxman, and thought that to be the end of the matter.

Not quite. The taxman continued sending him cheques. He tried to return them, but they were sent back to him. At the same time, however, he was receiving letters from the clearly schizophrenic taxman, telling him that he was receiving tax credits to which he was not entitled. So harrassed was poor Mr Bradfield that he has even considered emigrating.

HSBC have warned that they may be forced to move their headquarters out of the United Kingdom as a result of the unfavourable tax regime. If indeed they go, I suspect many will follow them through the exit doors. And there will be no shortage of low-tax countries to receive these loaded refugees with open arms. In the end, it will be the UK's loss.

We are informed today of some bizarre effects of the complicated tax credit system. Generally, it has ensured that it pays more to stay at home than to go out to work. In some cases, up to half of the extra income (from tax credits etc) is clawed back when the recipient gets a job. As the new job is unlikely (in the case of lower paid workers) to compensate for the reduction in income, some recipients conclude that they are better off staying at home and keeping the tax credits.

This finding was contained in a report published today by the Institute of Fiscal Studies. According to one of the authors of the report,

“Two strategies that governments have to help people on low incomes – providing them with financial support directly, and encouraging them to earn more – generally conflict. There is no easy solution to this trade-off. Ultimately, governments need to decide how much they want to redistribute income to low-income families, and how much they mind if people work less as a result.”

Good point.

Today brings the disturbing news of a builder facing bankruptcy because of a mistake by the taxman. There was a 52-day delay by the taxman in processing a crucial form, and this has led to all sorts of problems for the hapless Neil Martin.

That is not the worst part. The builder sued the taxman, and the judge ruled that, unlike other public bodies, Revenue and Customs are immune from prosecution. This means that they can make as many more 'mistakes' as they like without being sued.

Revenue and Customs are happy with the decision. They say that if the judge had decided otherwise, many other cases would have been brought by people who felt they had a case. You can therefore imagine their relief. Who knows how many more such mistakes have been committed?

Our builder is not taking this lying down, however. He intends to go to the Court of Appeal. This blog wishes him all the best. We shall be watching as this case develops.