Skip to main content

The Real Tax Scandal

The news that 98% of FTSE companies use tax avoidance is being reported in the usual "shock-horror" terms of corporate greed. However those protesting are aiming at very much the wrong target. When even the HMRC itself- never mind the corporate sector- uses tax avoidance structures, it is clear that something fundamental needs to change.


The UK tax code is the largest in the world. It currently stands at an astonishing 11.250 pages. This is five times longer than the German code. Many of the provisions of this code  are contradictory. It is impossible for a single person to understand, still less comply, with all of the provisions. The creation of the Brown system of tax credits has also made it incredibly expensive to administer: an estimated 3% of revenue or an astonishing £18 billion. That, of course, does not include the costs to the tax payer in complying with the code, and even for an individual that can be several hundred pounds and for a company many thousands. We can see that the British taxation system is sucking tens of billions out of the productive economy. There is no added value in jobs enforcing tax compliance.


In Estonia, the simple tax code costs around 0.07% of revenue to collect and is so simple that 95% of people complete their tax return online. The burden on the economy is a fraction of that on UK.


There is a serious problem in the UK taxation system, but it is not that of corporate tax avoidance. The fact is that the current system has become so unwieldy as to be simply unenforceable. 


Fair taxes must start from the effective abolition of the current code and a return to a system based on Adam Smith's four principles of taxation: Equity, Certainty, Convenience and Efficiency. As the great man himself put it:


I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

II. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person.

III. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.

IV. Every tax ought to be contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.



Tax reform in the UK is now long overdue.

Comments

Popular posts from this blog

Concert and Blues

Tallinn is full tonight... Big concerts on at the Song field The Weeknd and Bonnie Tyler (!). The place is buzzing and some sixty thousand concert goers have booked every bed for thirty miles around Tallinn. It should be a busy high summer, but it isn´t. Tourism is down sharply overall. Only 70 cruise ships calling this season, versus over 300 before Ukraine. Since no one goes to St Pete, demand has fallen, and of course people think that Estonia is not safe. We are tired. The economy is still under big pressure, and the fall of tourism is a significant part of that. The credit rating for Estonia has been downgraded as the government struggles with spending. The summer has been a little gloomy, and soon the long and slow autumn will drift into the dark of the year. Yesterday I met with more refugees: the usual horrible stories, the usual tears. I try to make myself immune, but I can´t. These people are wounded in spirit, carrying their grief in a terrible cradling. I try to project hop

Media misdirection

In the small print of the UK budget we find that the Chancellor of the Exchequer (the British Finance Minister) has allocated a further 15 billion Pounds to the funding for the UK track and trace system. This means that the cost of the UK´s track and trace system is now 37 billion Pounds.  That is approximately €43 billion or US$51 billion, which is to say that it is amount of money greater than the national GDP of over 110 countries, or if you prefer, it is roughly the same number as the combined GDP of the 34 smallest economies of the planet.  As at December 2020, 70% of the contracts for the track and trace system were awarded by the Conservative government without a competitive tender being made . The program is overseen by Dido Harding , who is not only a Conservative Life Peer, but the wife of a Conservative MP, John Penrose, and a contemporary of David Cameron and Boris Johnson at Oxford. Many of these untendered contracts have been given to companies that seem to have no notewo

KamiKwasi brings an end to the illusion of Tory economic competence

After a long time, Politics seems to be getting interesting again, so I thought it might be time to restart my blog. With regard to this weeks mini budget, as with all budgets, there are two aspects: the economic and the political. The economic rationale for this package is questionable at best. The problems of the UK economy are structural. Productivity and investment are weak, infrastructure is under-invested and decaying. Small businesses are going to the wall and despite entrepreneurship being relatively strong in Britain, self-employment is increasingly unattractive. Red tape since Brexit has led to a significant fall in exports and the damage has been disproportionately on small businesses. Literally none of these problems are being addressed by this package. Even if the package were to stimulate some kind of short term consumption-led growth boom, this is unlikely to be sustainable, not least because what is being added on the fiscal side will be need to be offset, to a great de