Business View: Figure it out, Mr Cameron: flat tax is no vote-winner

A flat-tax rate of 23 per cent would leave 90 per cent of taxpayers - or 27 million people - worse off
Click to follow
The Independent Online

The flat tax is dead.

"It took me 10 minutes to do the sums that proved it wouldn't work, and half of that was finding the figures on the internet. Don't they have any researchers?"

This damning analysis of the big idea stalking the Tory Treasury team doesn't come from the Labour camp, or anywhere on the left. It comes from Brian Reading and Charles Dumas of Lombard Street Research, a right-leaning economics think-tank. These guys should know what they are talking about. They are both former members of the Conservative Research Department and worked on flat-tax proposals for one of the great heroes of Conservatism, Iain Macleod.

The death of Macleod in 1970 killed off many bright ideas of the time. And in the intervening three-and-a-half decades the UK tax system has shifted from a position where the top marginal rate was 98 per cent, paid by hardly anybody, to one where it is now 40 per cent, paid by a decent chunk of the workforce.

The flat-tax idea - 2005 version - is proposed by the shadow Chancellor, George Osborne, subtly supported by leadership favourite David Cameron, and openly cheered on by other candidates, and legions wearing flat-tax wristbands in Blackpool last week. They point to its success in Eastern Europe - where they are creating tax structures from scratch - and its approval in the camp of Angela Merkel. However, the would-be Chancellor (German version) almost managed to pluck failure from the jaws of success in last month's elections, and flat tax may have been a factor.

Messrs Reading and Dumas point out that 10 per cent of UK taxpayers contribute about 50 per cent of the personal tax take, and the average contribution by households is just 18.2 per cent of their income. To get the same revenue, you'd need to charge a flat rate of 23 per cent if you kept current allowances. This would leave 90 per cent of taxpayers - or 27 million people - worse off. Even if you scrapped all but the most basic personal allowances, 22 million taxpayers would be worse off. And if you try to consolidate national insurance into your flat tax, pensioners would be worse off.

Now I am told Mr Cameron has a Rolls-Royce brain. This bears no relation to the famous description of Paul Gascoigne as a Rolls-Royce footballer - slow, expensive and drinks too much - so he should realise the figures do not add up to an election victory.

The Tories are casting around for a big idea on the economy and on tax. They have wasted eight years already and if they are going to come up with anything that might worry the BMW brain that is Gordon Brown, they need something much better than flat tax.

Boots' chemistry test

Sir Nigel Rudd went shooting a couple of days before news of the Boots-Alliance UniChem merger leaked. In snaring Alliance UniChem, the Boots chairman must have thought he bagged himself a good 'un.

But this deal is more like catching a giant marlin than shooting the odd pheasant. Sir Nigel's initial "in" was with Paolo Scaroni, who was chief executive at Pilkington when Sir Nigel was chairman, but the key was persuading 30 per cent shareholder and "executive deputy chairman" Stefano Pessina to sign up.

With Mr Pessina on board the next hump was selling the drugs-making business for a good price. That was achieved on Friday. Few can quibble with the £1.93bn Boots received.

The final leg is persuading the shareholders. The ones we spoke to were pretty agnostic. Few support the bid outright. Most hope that a private equity player comes in and pays a whacking premium. This might happen at Alliance UniChem, though Mr Pessina's 30 per cent must be a deterrent. At Boots there is little hope.

My expectation is that it will squeak through. But the UK business must be made to work this time, or I see trouble ahead at the chemist's counter.

j.nisse@independent.co.uk

Comments