A healthy squeeze (II)

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Oh. THAT Compass, Ms Flanders. Compass, the centre-left pressure group is it?
My interest was piqued - because another company called - well Compass - was mentioned a few days days back on Radio Four - as being fairly successful at the moment. All over the world. I had brushed with them - the other Compass - in a previous life - using my limited catering expertise! Very limited expertise and "brush"!
So I will be pedantic and as it is NOT the second Compass - I and my middle of the road pressure group (that would be me!) will not comment. But note my No Comment was equally "brisk"!
Compass eh? Now. Where is "true north"? lol

More taxes, more laws, more regulations. That is all politicians do. The Welsh lot want the power to raise their own. Why? They have a bunch in Brussels doing it for them (as well as for and on top of those people in Westminster who do it)

Blood from stone comes to mind.

We live on a tiny mudspit an Australian told me. ' Could be right. The cheap energy has gone. Time to give up expensive foreign (ad)ventures. No more taxes.

so not only do the poor pay for the rich to have free banking they also pay a greater percentage of their income in taxes.

The statistics talk of the poorest 10% paying 46% of their income in taxes, loss of benefits if they earned more may also push up their effective tax rate if one looked at in terms of the increase in disposable income from an increase in gross income.

If we see other countries where the rich live of the poor i feel sure many would be very judgemental about such a thing.

Trying to buy the middle class vote seems to have lead to a completely injust society and a right old fiscal mess

It really would be helpful to know the scale of the spending cuts/tax increases that will be needed to meet the £90 billion structural deficit. For example, how much would a one year freeze in civil servants' pay yield, or the withdrawal of state pension from higher rate tax payers, or a 2.5% increase in VAT, or a 5% increase in the base rate of tax, etc. etc. Perhaps you could consider this for a future column?

It does appear that at present everyone is pushing their own particular proposals in the belief that they will be sufficient to close the entire gaping fiscal hole. I have not yet heard of any proposals that come anywhere near to providing the overall amount of savings we need in a realistic way.

This does not mean that all the savings have to be secured at once (that really would be suicidal), but the longer the necessary measures are postponed, the greater the spending reductions and tax rises will have to be.

I am more and more convinced that an intentional spell of high inflation is on the way to "shrink" the debt.

Ah yes, "the rich". That generic yet very vaguely defined group that everybody loves to hate, when of course when they say "the rich" they mean "people richer than I am".

First off we can leave aside the argument that on a global scale every single person in this country is very rich, and the ones we call poor would be unlikely to give up the heating in their home so that someone in Africa could have a home at all.

Then we can look at the idea of taxing "the rich". It's common knowledge that rich people can afford accountants, and accountants make their living by reducing peoples' tax bills. Every time the tax system is tweaked and more rules added, more loopholes appear that accountants can exploit.

Instead of constantly expecting certain groups of people to give up a higher and higher percentage of their income (thereby ensuring that the truly rich don't actually pay it at all), what we need is to massively simplify the tax system. Cut the number of exemptions, cut the endless pages of tax legislation and streamline it all. Not only do we save money by not having so many tax inspectors needed to ensure compliance (which in turn saves the nation money) we also provide fewer places for tax to be legally avoided.

I'd say the answer is to increase the personal allowance to something like £10,000 per person. Give couples the opportunity to file tax returns individually or jointly (couples being married or in a civil partnership, it doesn't matter for tax purposes). Then have a 10% tax on the next £10,000 per person and 25% tax from there on up. No ifs, no buts, it's very quick and simple.

....and people wonder so many people 'hide on the dole'.

I managed to break through the benefits trap - but I had some help. To do it on your own is virtually impossible.

The system is designed to ensure that there is an army of unemployed to 'motivate' those in work to accept lower wages and poorer working conditions.

The sad fact is that the more you earn, the less tax you pay - how do I know this? - because as I have earnt more my tax bill has fallen and fallen in proportion to my income.

The tax system is abysmal in this country - due to the number of loopholes (in there by design) - once your tax bill reaches a certain amount it's simple to employ a specialist to help you avoid tax. I know this because footballers, entertainers and even BBC staff are all playing the same game. The cost of such advice ensures that it's not worth it for the poorest paid - so their proportion is much, much higher.

There are so many ways to arrange tax - and many of them much simpler than our multi-tierd system.

The reality is that a simpler system would ensure that we could all see how much (or how little) tax we were paying - and that's when the fighting starts.
Tax is like banking - the more complicated you make it - the more you can get away with.

7. At 4:43pm on 26 Nov 2009, ThoughtCrime2008 wrote:

"Ah yes, "the rich". That generic yet very vaguely defined group that everybody loves to hate, when of course when they say "the rich" they mean "people richer than I am".

First off we can leave aside the argument that on a global scale every single person in this country is very rich, and the ones we call poor would be unlikely to give up the heating in their home so that someone in Africa could have a home at all."

I agree with your point about the relative wealth of everyone in this country on a global scale - but 5% of the worlds population owning 95% of the worlds wealth - is a pretty good indicator of who people really mean when they talk about 'the rich'.

I mean I earn a nice wedge, but compared to the CEO's of the discredited banks - I am a pauper, in fact my annual salary would probably get them a lunch!

...and this is how those self same 'rich people' behave.

https://news.bbc.co.uk/1/hi/england/london/8381141.stm

Now who's for extracting tax from the rich using pliers and hot tongs?

#9, so in fact when you point fingers at the CEO you're talking about "those richer than you". It's easy to see people who are rich by any definition but when we use generic terms like "the rich" we need to define how much money it takes to be considered "rich".

The CEOs of huge corporations earn more in a month than I do in a year. I have no problem with the size of anyone's remuneration - the problem is the rewards being given for failure rather than for success.

Perhaps it would have been better to fire the heads of the banks when the taxpayer took such a huge stake - that way the discussion over whether their huge incomes should be taxed differently would be as redundant as they were.

ThoughtCrime2008 - you are quite correct. But you also touched on the nature of the bureaucrats job creation scheme. What is also needed is a system of bureaucratic employment which has absolutely no impact on the rest of us. Although this would have a cost it need be no more than current employment costs for bureaucrats and would save the rest of us and the economy all the costs consequential of their current activities. I believe this was once successfully tried at a major failing multi-national company in the USA when by isolating the HQ function from the rest of the organisation profits soared. Needless to say the directors didn't like it!

Those that are rich enough can afford to duck most of their tax bills (it costs a certain amount of money to do so, but if the tax bill would otherwise be hefty enough, it makes it worthwhile). Not that I mind soaking the rich a little more to help me in paying less, but its much easier said than done.

I'm curious about these figures indicating that the poorest 10% pay the highest proportion of tax. That doesn't actually sound very likely; people in this group usually receive a substantial amount of money in tax credits and other assorted benefits. Far from paying any net tax, the very poorest would actually be receiving money.

Call me cynical, but selectively ignoring such income sounds like an effective way for a suitably inclined pressure group to make the system look unfair and whip up additional support.

Sadly we have in the UK proved pretty conclusively that when top rate tax is set at 60%+ it actually generates in the long term less tax than when the top tax rate is 40%. It is possible that by increasing tax from 40% to 50% (it actually goes up to a net 61% for incomes between £125-150,0000 under proposed rules) govt might generate more tax but I rather doubt it.

Our tax system is way too complex and I fail to see any govt that is willing to cut through the complexity. The problem is that the population views progressive tax as "fair" and politicians like it because they can introduce tax reliefs (which become loopholes) to support the latest fad.

Whilst radical I would instead simplify tax to a single flat rate payable on both income and capital gains. There would be a nil band of sy £15000 a year and everything else would be taxed at say 25-30%. There would only be 3 reliefs. No capital gains on main home, no tax on charitable donations and no tax on pension contributions. I would also put a maximum cap on tax payable by anyone at say £5m per year - lets face it above that figure those people would probably leave the country to avoid the tax bill so it is unlikely to cost govt much but gives the message that we want rich people in our country.

The very simple nature of the tax system would allow HMRC staff to be reduced and re-deployed to fight tax fraud (they are having real problems coping with VAT fraud at the moment) which would save govt money.

Sadly my system has no chance of being implemented as too many political minefields and no party will pass up chance of giving tax credits or reliefs to their favourite people.

RE: 5. Michael

"It really would be helpful to know the scale of the spending cuts/tax increases that will be needed to meet the £90 billion structural deficit."

It would, but unfortunately that only scratches the surface of the problem. Bear in mind that Brown's recently announced plan to "halve the deficit within four years" would bring the deficit down to around £90 billion per year in 2013. However, by then we will owe about 90% of GDP or around £1.2 trillion and the debt will still be growing at around 6% of GDP per year.

The savings you are looking for - around £90 billion in either spending cuts or tax rises - represents about 12% of current government spending, and even if implemented instantly would only get us to the point where the accumulated debt stopped growing. We would still owe £1.2 trillion. In reality the structural deficit won't be cut instantly; if it falls at all, it will do so slowly, over a period of years, with the result that the total debt continues to rise, certainly over 100% of GDP, and probably more. Indeed until (or unless) the deficit falls below about £30 billion then the total debt will continue rising relative to GDP - and that assumes that the economy returns to its trend growth of 2% or so per year. By the way, if interest rates are only 3% at that point we will be paying around around £45 billion per year in interest alone. Personally I think Richard Murphy's £47 billion tax rise is a fantasy (and I think he knows it too) but even if it were real, within 5 years it will be barely enough to pay the interest on the total debt.

"It does appear that at present everyone is pushing their own particular proposals in the belief that they will be sufficient to close the entire gaping fiscal hole. I have not yet heard of any proposals that come anywhere near to providing the overall amount of savings we need in a realistic way."

Yes, spot on. My fear is that there isn't a way at all. Certainly it is clear that the Labour party intends the accumulated debt to become permanent and at best they hope to erode the deficit until the total debt stabilises relative to GDP at some point well north of 100%. It's not at all clear what the Conservatives plan to do.

Denizens of the Accounting Web website will be familiar with Richard Murphy and his approach to taxation. To call it "redistributive" is like calling Simon Cowell "fairly well off". His opinion poll sounds a little dodgy. The question "The overall tax rate for the richest 10% is 34%; for the poorest 10% it is 46%. In principle, do you agree or disagree with this statement...?" is ambiguous to say the least. Are respondents being asked to say whether they think the statement is factually correct or whether they approve of the situation as described. As for asking people if they would like a tax cut - "restore the 10% band" - to be paid for by increasing tax on someone other than them, well, I'm surprised it only scored 59%. Who wouldn't vote for that. It just demonstrates how careful you have to be with poll questions if you want meaningful answers.
Since the poorest 10% of households will include many that exist entirely on benefits, I'm surprised at the figure of a 46% tax burden. Does he mean the poorest 10% of employed households? In either event, I do actually agree that low earners pay too much tax. The tax credits scheme is an expensive to run, inefficient nonsense. Just put up the personal allowance to £10k - so much simpler. The cost will have to be spread across all taxpayers, though. Trying to get the top 10% (in other words, somebody else) to pay it just won't work, for reasons that have been spelled out on this blog many times before.

'The overall tax rate for the richest 10% is 34%; for the poorest 10% it is 46%.'

I think jadedjean would have described this as intensional. Designed to make us think 'Oh dear, the poor people'.

If you earn 100,000 per annum then your direct taxes and NI are about 30,000. Putting some aside for mortgages and heating and food, you might pay vat on another 30,000 so that's another 5,000. And this doesn't account for council tax or petrol tax.

Lets say 40,000 per annum on average.

So how much would someone earning 25,000 contribute to government spending. Quite alot less yet they too have their kids educated and child benefit, bins emptied, streets cleaned, their health care for life etc.

Poverty does not exist in the UK. Needs are met even if all wants aren't. Do you see barefoot children begging or scrabbling about in landfill or working in sweatshops. NO you don't. That's why people want to come and live in the UK.

This is no reflection on whether I think any given individual is worth their hourly rate.

Its too easy to say that its hard to find savings

I could find plenty of savings. You start small and build up. If government imposed a 10% cut on all government budgets for three years running, that would be a start. This happened in a local authority I once worked for. Very few lost their jobs. They'd be allowed to look at increasing income for some services.

A teeny example of waste, in more ways than one.... My local authority produces at least 4 glossy magazines per annum which end up in recycling, of course. They tell you its paid for from advertising. ALL the advertising is for another government body. It is, as JJ would have said, narcissistic nonsense, in any event. Look at us we are very clever and you all like what we do. Actually we eve got a copy of the mag for the over 50s which was full of the over 75s being pleased they got the last copy.

Multiply this nonsense up and you'd probably be talking half a billion a year. It wouldn't be difficult to find 100 examples of this type of nonsense. We do not need I am so sorry you are a victim' letters from the police. We do not need to give money to babies and children to be locked up in bank accounts with RBS for the next 18 years. Ridiculous nonsense we can't afford. Working, well paid 60 year olds getting free bus travel and cheaper train travel - ridiculous

All lights out and all electronic equipment off after 6pm. No mobile phones for public sector workers. No taxis. You want a taxi, you pay. No conferences. No hotel bills. No taking people to lunch. No consultants, especially image consultants. No more SAP. Turn off the street lights after midnight and before 6am.

Its not difficult. The big stuff isn't difficult either. You just need some balls.

Oh and by the way, 10% for three years gets us back to spending levels of about 2004/2005.

Things weren't that desperate then, were they?

And as a simple example of the nonsense that has happened over the last 5 years...

The BBC director general's expense list published on the BBC website was 3 pages in 2004/2005. In 2008/2009 it was 15 pages. So it ain't difficult at all to find areas of savings that aren't jobs, is it.

Comment 19 looks odd without comment 18, sorry

Someone doesn't like the concept of budget cuts of 10% for all government spending or the examples that showed simple examples of where to start

Perhaps it was my second reference to jadedjean in two entries

Hey ho

yes tax the rich, there were some rich people in Germany that they demanded to be taxed more. The goverment there could collect 45 Bil EURO a year from taxing about 2% of the population more. The same could be achieved here and it would not hurt anyone one. People worth more than half a milion a year would still have plenty of money left over to eat and holiday even if they have to pay more taxes.

Poverty may not exist in the uk by your standards but misery certainly does! And we know how to pile it on. Goodbye fella who fell alseep in the dustbin and was crushed to death in the trash! Second one this year. Well it was his own fault he was stupid! I do not believe that a person would deliberately choose that fate if they could choose to live in a palace or to be less extreme, a modest accomodation centrally heated. you do not have a choice in a situation where you must rely on others you are at their mercy.

There is no good in arguing about the mathematics of it all when there are incessant demands flooding through your letter box if and you do not have enough money to meet them you can be pursued to the ends of the earth for the sake of a penny because it's the law. They are zealots for principle no matter how petty the matter may be.

your house can be leaning over the cliffs and about to fall in the sea but you are suitably housed until it does not exist any more and you escaped by the skin of your teeth.

And the other thing that doesn't exist in the uk are liars. there are no liars here!

Lots of claims are made (especially the likes of Murphy) and I even make them myself as to what the 'majority of people might want' - but the truth is at the moment is that the majority of ordinary people are in fact very confused when asked about a subject like 'tax rises' in isolation.

My impression is that most people are really confused, concerned and downright bewildered by what may happen and are far more concerned with the big economic picture and in trying to relate this to their own circumstances.

The other issue is that there is a lot of cynicism about paying more taxes not because people think that the well off shouldn't pay more - but because they think that there government is going to leach more money to Dubai, India, Pakistan or somewhere.

I think that Murphy's website is a real good laugh - 'confused eco-hypocritical analysis' may be a new form of economic behaviour for those who like throwing stones in their glass-houses!

The issue that the low and average pay far more in taxes overall than the 'fairly well off' or 'rich' has been covered on here and other blogs - I've certainly mentioned it - but trying to get Joe Public to vote for tax rises 'per se' for anybody is, I think, politically naive, due to the two issues of 'confusion' and 'cynicism' for the majority?