Thursday, December 15, 2011

What Britain could start to do next

The problem with British government policy is that the civil servants are still working to the New Labour Playbook. "Eye-catching" announcements are made, usually with recycled, rather than new money which are supposed to give the impression that the government is purposefully shaping the agenda rather than simply waiting on events. Almost always these announcements involve spending, and whenever any idea of restructuring is mentioned, the necessary retrenchment is typically ignored.

Except, of course, that Britain needs retrenchment.

The reason why so many voters now believe the welfare system needs reducing, is because they have seen that it doesn't work. Often it has created a skivers charter, and placed innumerable bureaucratic obstacles in the way of those who actually wish to get work. Huge amounts of money have been wasted.

The core of British bureaucracy, ironically enough, lies not with the spending departments but with the Treasury. As I have noted before, the over 11,000 pages of the British tax code is five times larger than the German code. It is also a make work project for tax inspectors and accountants- with billions now at stake in vested interests. Yet the cost of tax collection is nearly as bloated as the tax code itself. Over £18 billion is spent on simply collecting tax. That represents about 8% of revenue, and does not account for the roughly the same amount spent on benefits and tax credits. Essentially 15% of our taxes are squandered on the spectacularly inefficient way we collect and distribute them. This cost does not count the cost of compliance for individual tax payers and companies and the army of accountants that they need to hire.

Meanwhile the regulatory burden on small businesses is decimating our spirit of entrepreneurship. People who can not find work find it even more difficult to set up on their own.

This has got to stop.

If the coalition does one thing, it must break out of the New Labour mindset so beloved of civil servants. The tax code must be radically reformed: tax simplification would be a start, but if the UK is genuinely going to restore its competitiveness, it should seek a tax code that can be understood and complied with by simple individuals. Supply side reform is now a critical part of stimulating recovery.

In my view, the British people are increasingly cynical of government programmes that do more for the civil servants administering them than for the supposed targets of those programmes.

A radical tax overhaul will show people that they can take back control in their lives.

That is the message that Liberal Democrats should be putting across in coalition and in public.

1 comment:

Anonymous said...

Cicero, while I agree with a lot of this, I was startled by the following:

"Over £18 billion is spent on simply collecting tax. That represents about 8% of revenue"

That implies total tax revenue is around £225 billion. Surely it is closer to £550 billion?

While I agree entirely that £18 billion is far too large a sum, and needs reducing, it doesn't strike me as very likely that it would produce the percentage scale economies you imply. Although in net terms it might do so by increasing tax take due to the reduction in tax evasion and increased economic activity resulting from reduced bureaucracy.