Before we all rush to agree with Nick, is it in fact fair and right to increase the personal tax allowance to £10,000? Is it, as Tim Montgomerie suggests, ‘One Nation’ for Britain to be split so markedly between the taxed and the untaxed? Why, indeed, hasn’t this been done before?
Raising the personal allowance is not a new idea. Lords Saatchi and Blackwell have campaigned for many years for the threshold to be £10,000. You might say Nick agrees with Maurice and Norman. But there are reasons not to agree that shouldn’t be overlooked.
Paying income tax is a stake in the income tax system. If you don’t pay tax you have little or no interest in the tax rate (paid by others). Nigel Lawson found this in practice. According to his (utterly brilliant) autobiography “The View From No11″ he started off believing that he needed to take people out of tax. But he found when he did that they then wanted to know what they’d get next. Frustratingly for him, “But you’ve been taken out of tax” wasn’t an adequate reply. There was a danger that not only would some people no longer contribute tax to the state, they would actively want more spending from the state.
So Lawson started cutting tax rates. Because the rates became ludicrous numbers (31% or 29% or something like that) it was clear that they would be cut in a process to a more easily calculated figure (25% or 20%). The nation could buy into the target and process and have a stake in it. The psychology worked.
Gordon Brown Mark 1 drew this lesson when he introduced the 10p rate. It made work pay within a stakeholder society. But Gordon Brown Mark 2 forgot all that and was quite taken aback by the venom with which the abolition of the 10p rate was opposed. It’s like those low-effort cake mixes. Ad men found that people didn’t want to buy complete ready-mixes. It didn’t feel like cooking; you hadn’t done anything. “Just add an egg” was born.
The 10p rate, I think, was ‘just add an egg’. It’s low effort, not no effort. It’s a small but satisfying contribution you feel better for making. You get involved in a Big Society, if you will. Need a tax goal No10? Bring back 10p!
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New blogpost: @Stuart_Barrow expands on his “just add an egg” theory of taxation http://t.co/c2KMiAAe #fb
“@PlatformTen: New blogpost: @Stuart_Barrow expands on his “just add an egg” theory of taxation http://t.co/L2oatAE2 ” > a must read
New blogpost: The “just add an egg” theory of taxation http://t.co/95e4HNAr
Stuart, I see what you mean about having a stake in society… But I disagree on this (well – obviously I’d like the 10p rate back as well!).
It is stupid, as I’ve said many times, to take money off people, move it about the system, lose great chunks of it, and then give them some of it back.
If we think that just under £12k is the bare minimum to survive, what on EARTH do we bother taking some of that away in tax for – though, yes, I know, there are all sorts of returns afterwards.
I want to see a tax system that taxes EVERYONE as little as possible, and does the most it can with the money it takes. Endless moving about of small sums at the bottom end of the income scale is just pointless and demeaning.
A bit more of me!> “@PlatformTen: New blogpost: @Stuart_Barrow expands on his “just add an egg” theory of taxation http://t.co/x7J6Sg2J“
Thanks for the comment, Fiona, but why limit your logic to income tax? What about VAT? Tobacco duty? They all take money that is then given back.
Before the abolition of the 10% tax band in 2007, Brown had already abolished the 0% rate of corporation tax for profits up to £10K and marginal relief for profits between £50K and £300K in 2005.
This was an insidious and damaging move because by stripping cash flow out of small and medium sized businesses both investment and new jobs suffered. By all means increase personal allowances but the consequences of this (one of many) barrel scraping exercise by Brown needs to be revisited.
Sorry for the delay in answering, Stuart…
Because taxes on good things should be low to enable people to spend their own money the way that best suits them. Taxes on bad things (consumption – I know I’m simplifying enormously) are better than taxes on good things (work, savings, investing).
I do have concerns about how this will be funded; as I’ve said before, the government should seriously address what it does and doesn’t need to spend our money on. But in principle, taxing people less – particularly those people who work, save, invest, do the right thing, and particularly those who are towards the bottom end of the income scale, but one of the attractions of this idea is that EVERYONE benefits a certain amount – is the right thing to do.