Cicero's Songs

George Osborne's budget was an incoherent collection of gimmicks. It was not designed with any other purpose but the promotion of its author and a certain faux stability ahead of the EU referendum in three months time.  So, easy to criticize, but the fact is that at the moment, no political party in the UK is prepared to suggest the kind of reforms that are needed. The political cycle is too short for any government to reap the reward of the kind of radical changes that are required, but not long enough for the same government to avoid the negative consequences that such radical reform will inevitably bring with it. So, successive governments merely tinker with the system, knowing that to do more carries greater risks and limited rewards in the short term. The cost of tax administration in the UK continues to increase, and the ever more complicated system imposes greater fiscal drag and ever more distortion of the economy. Incomes remain heavily taxed, while land is barely tax...

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,...

Yet another tax catastrophe is unveiled by the incompetents who control Her Majesty' Revenue and Customs service: over seven million people are paying the wrong level of tax . Though the story is reported as though it is a good thing that 4 million will get a repayment, the fact is the cost of fixing the problem will be in the millions. The British taxation system is totally broken. As I have noted before, it is now 11,250 pages of mostly contradictory regulations. This is five times longer than the German tax code. I is incredibly expensive to administer, and the costs of compliance- even a simple individual tax return often requires an accountant- are now running into tens of billions of Pounds, on top of an administration cost that is already around £ 20 billion every year. This can not go on. It is quite clear that simply tinkering with the system bequeathed by the OCD tinkerer, Gordon Brown will not get us anywhere. There most be a wholesale reform. Huge areas o...

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. W...

In most Western countries, the rich are taxed less than the poor. This is even though most Western politicians demand that the rich should pay more tax than the poor, both in absolute terms and also in relative terms. Yet the fact is that these same politicians then enact policies that precisely fail to bring this about. They enact more and more detailed tax codes in order to "close loopholes" and to promote some specific social or political benefit, and with every regulation that they put into place they increase the burden on the the low and middle income earners, but not necessarily on the high income earners. Indeed some, rather self-serving, rightist politicians deliberately reduce tax rates on the rich "in order to promote incentives", as though becoming wealthy was not incentive enough. As your economics text book will tell you, there are essentially three components to creating wealth in the modern capitalist world: Land, Capital and Labour. Of these, ...

The release of the comprehensive spending review in the UK focuses attention on the expenditure of the government. However, if there is to be real progress in improving the state of health of the UK economy, then the revenue- tax- side of the equation must be considered too. This is not just the rates of taxation, but the costs of collection too. The UK spends roughly 1.15% of net revenue on the administration of its tax system. For comparison, the USA spends 0.52% of net revenue: that is to say that Britain spends roughly three times more on administering its tax system, per Pound raised, than the US does per Dollar raised. This is before we discuss the return of revenues via tax credits and especially benefits. Benefits, which may be taxable, are counted as part of the social security budget. It is safe to say, then, that the UK has an extremely expensive cost of administration of taxes and benefits combined. According to Alan Johnson, the Labour Shadow Chancellor, the cuts that the...

Over the past few weeks in the UK we have seen several stories about mistakes being made in tax calculation. These are not just the possible small discrepancies of a few- but a fundamental miscalculation of what is due by the revenue itself 1.4 millions are said to be due to pay more. Yet this morning, it is reported that over 10 million may now qualify for refunds. Reduced to essentials, it is clear that the tax system is now so complicated that even the revenue themselves can not understand the system. It is a matter of urgency that the UK simplifies the tax system. Apart from anything else, the mistakes that are being made cost millions, even billions, of Pounds to put right. There are plenty of models out there, but speaking from an Estonian perspective, the simpler the tax code, and the easier it is to calculate and to pay, then the more tax revenue is raised. Of course, that then allows the rates of taxation to be lower for any given level of revenue.

Last night Cicero attended a talk given by Steve Forbes , the American publisher and former presidential candidate at the London Junto- a discussion group for financiers, loosely modeled upon Ben Franklin's original Junto . Ben Franklin famously said "Certainty? In this world nothing is certain but death and taxes.". So it was particularly appropriate that the leading American advocate of flat tax should be speaking to the group. Cicero has been involved with the Baltic countries since he first discovered the Estonian Legation in London in 1979 and Estonia has been in the vanguard of the flat tax movement in Europe. Following Estonia, Latvia, Lithuania, Romania, Russia, Slovakia, Ukraine, Serbia and Montenegro have all adopted modified flat tax regimes, with new countries joining the list quite regularly. So far, no Western European state has adopted flat taxes. A major benefit of a flat tax is that since there are no deductibles, it becomes extremely simple to calculate-...