Editorial: Tinkering with taxes will not boost the economy

The way to improve Britain’s taxation system is to make it simpler

Share
Related Topics

The longer the economy stagnates and the less money there is to go around, the shriller the demands for changes to the tax system. Indeed, with all the indicators pointing to more years of economic pain, and the Chancellor forced to admit that spending cuts will run on beyond a single Parliament, the debate is already hotting up.

Both sides of the political spectrum cling to the fallacy that a tweak to taxes here or there is a sure-fire way both to boost growth and fill the yawning state coffers. For those on the right, swingeing tax cuts would immediately release the commercial sector's pent-up animal spirits. For those on the left, it is significant tax rises that are needed: lift government revenues, slacken the austerity drive and – bingo – renewed economic dynamism will follow.

Unfortunately, both arguments are too simplistic to be useful. Not only are the sums involved simply too small to make a real dent in the vastness of the public finances. Both, in their different ways, ignore the "Laffer curve" relationship between taxation levels and the money flowing into the Exchequer. Set taxes too high, the oft-misquoted theory shows, and avoidance becomes so prevalent that the state's receipts go down: hence the (ill-explained) abolition of the 50p tax band. Set rates too low, however, and the Exchequer also suffers – a fact that escapes the raucous Tory right.

In fact, the issue is less the level of taxation than its complexity. While the political imperative is always to make changes – whether to address perceived injustices, to curry favour or simply to be seen to be "doing something" – every adjustment causes trouble elsewhere. Gordon Brown was the arch-tinkerer, of course, but he was far from alone. Thanks to decades of fiddling, Britain's tax code now runs to a heart-sinking 17,500-plus pages.

It is by this test that any new plans must be judged. The first priority must be to move to a system that is simpler, and thus both cheaper to administrate and trickier to game. The second must be to focus on economically unproductive wealth tied up in static assets, rather than on income or jobs. Amid the general hubbub, there are two good ideas on the table, and they are both from the Liberal Democrats.

First, the mansion tax. This newspaper has long made the case for a scheme targeting unearned wealth accrued from the arbitrarily rising property market. By creating an extra council tax band, the plan avoids adding to the complexity with a whole new levy. And this week's suggestion from Nick Clegg – that those whose housing wealth far outstrips their liquid assets could defer payment until after death – irons out one of last wrinkles. All that remains is to manage the logistics of working out which properties are affected.

Labour's sudden support for the proposal is an encouraging development. But where Ed Miliband would use the money raised to pay – in part – for a reintroduction of his predecessor's highly complicated and largely ineffective 10p tax band, an altogether better way to ease the burden on the least well-off is to take more of them out of tax altogether.

Progress has been made, it is true. The income-tax threshold is on course to rise to £10,000 by the end of this Parliament. But even that can only be the beginning. That those on the minimum wage should be taxed at all is an absurdity, even more so when some are both paying tax and receiving state benefits. Here, then, is the junior Coalition partner's second good idea: a 2015 manifesto pledge to raise the threshold to £12,500. Simple and progressive, the proposition merits unqualified support.

There are, then, tax changes that can justifiably be made. But they are no quick route to economic growth, whatever some might claim.

React Now

Latest stories from i100
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Laser and Router Operative

£18000 - £22000 per annum: Recruitment Genius: A Laser and Router Operative is...

Recruitment Genius: IT Support Technician - 1st Line

£15000 - £20000 per annum: Recruitment Genius: They have been providing local ...

Recruitment Genius: Field Sales Executive / Trainee Managers

£6000 - £50000 per annum: Recruitment Genius: They are looking for smart, orga...

Recruitment Genius: Receptionist / Sales / Customer Service Assistant

£8 per hour: Recruitment Genius: The role is likely to be 4on 4 off, days and ...

Day In a Page

Read Next
 

Daily catch-up: immigration past and present, in Europe and in America

John Rentoul
 

Syria's Kurds have little choice but to flee amid the desolution, ruins and danger they face

Patrick Cockburn
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones