Reports in the Guardian this morning suggest that ministers and other Tories are demanding tax cuts as the price of their support for Johnson, and as their remedy for the cost of living crisis. They echo the Adam Smith Institute in making the demand, apparently.
It so happens that I too want tax cuts right now. But thereafter the common ground disappears.
My desire is for tax cuts on fuel and energy duty and on related VAT charges to bring down the actual cost of these items at present. The aim should be that the Treasury take no more in tax from these sources than it did in 2020. That protects the green agenda but by cutting absolute prices to business and consumers now three goals are achieved.
First, all business gets immediate support, and so far most small and medium sized entities are getting none right now, so this would be of direct help to them in their struggle to survive.
Second, the inflation rate is reduced at source by this move, reducing the pressure for wage rises and inflationary price increases in other sectors. The spillover effect of increasing fuel prices is reduced as a result, making recovery much easier.
Third, those in fuel poverty are helped most, meaning this is targeted.
Vitally, given that this would be delivered as a cap with duties bearing the bill of the cuts, this can be delivered quickly. As everyone knows, fuel duties can change within hours of a budget. But essentially, a sunset clause for this arrangement would also be automatically built in. When prices fall, as they will, the arrangement will cease. The arrangement would work in that case when nothing else can.
I have only one other immediate tax reform that is needed, which is increased tax on those well off as they still have the means to drive inflation and are doing so, as second hand car prices indicate.
The Tories meanwhile demand reduced income taxes and reduced corporation taxes. Neither can happen now. Neither help those in most need. Neither tackles the cause of inflation. Both most benefit the best off.
Corporation tax cuts have so far not stimulated the economy: in fact the Sunak super deduction for business investment has so far resulted in a decline in business investment.
And, most bizarrely, there is also a demand for a cut in inheritance tax, as if that helps the 93% or so if the estates of dead people that will never suffer the charge.
The Tory demand is then the usual suggestion that if only the richer were made richer all would be well in the world. Mine tackles the issue.
And where is Labour? Who knows? After the Tories stole the windfall tax, which has already been forgotten by voters, it appears to have nothing to say.
The Tories continue to act only for the rich. Labour continues saying nothing of consequence (and I do know about their VAT cut proposal, but it is inadequately thought through).
Meanwhile, the cost of living rises, nothing is stopping the threat to the viability of many employers, and the risk of ever deepening recession grows by the day.
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“I have only one other immediate tax reform that is needed, which is increased tax on those well off as they still have the means to drive inflation and are doing so, as second hand car prices indicate.”
Could you elaborate on how the price of second hand cars shows that the “well off” are driving inflation?
They are bidding the prices up
It’s really not hard to work out
Do you have any evidence that the “well off” are bidding used car prices up?
I find it hard to believe rich people are the main cause of increased prices in used family cars. For one thing, the rich are the most likely to buy new high end cars and frankly there aren’t enough of them to affect the price of the millions of used cars out there in the way you are claiming.
It looks to me that the reality is very different.
Also looks to me that you are just trying blame inflation on the “well off” because it suits your purpose to do so, not because you have any evidence that they are the cause of what is broad based inflation.
You really are out of touch aren’t you? There aren’t enough new cars – just look at the data and stop talking crap
the wealthy buy new cars. Those with less money buy second hand.. i can’t see the rich bidding up the price of a 5yr VW Polo can you? It really isn’t hard to work out..
There weren’t new vars available – so they bought second-hand ones – and drive prices up, dramatically
You entirely miss the point
This is from the ONS, in their April 2022 inflation report
https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/april2022
“The contribution from second-hand cars has also changed significantly since the beginning of 2020. It rose from a downward effect of 0.07 percentage points in January 2020 to an upward pull of 0.15 percentage points in October 2020. From October 2020, the contribution to the 12-month rate gradually fell back to an upward 0.01 percentage points in April 2021. It then rose again to 0.36 percentage points in February and March 2022, before falling back once more in April 2022, to 0.30 percentage points.”
So it doesn’t look like used cars are really the main driver of inflation. Or that the rich are driving used car prices.
They also say:
“New car production has been hit by widespread delays in large part because of a worldwide shortage of semiconductors, which are used in many features of new cars. Existing supply issues for semiconductors have been exacerbated by larger than usual fluctuations in demand during the coronavirus pandemic, including for personal electronics as more people work from home.”
“At the same time, over the last two years people have generally driven less than average, meaning that one- or two-year-old cars will typically have driven fewer miles than would have been the case before the coronavirus pandemic. As a result, second-hand cars are retaining their value more than previously.”
Which again suspiciously doesn’t mention rich people driving up the price of used cars.
Nor does it explain why everything in the inflation basket is seeing increases in prices.
Is this all down to rich people driving up the prices of used cars as well?
Or is the more likely explanation this:
You want to blame rich people for inflation, as it suits your purpose. The real causes, being a lack of supply in many things, increased broad based demand post lockdown, money printing and too easy monetary policy, mean you can’t attack the people you hate and also destroy your arguments elsewhere.
You also want to blame rich people for inflation so you can argue for even higher taxes for them.
Problem is, there is no evidence that rich people are driving inflation and you haven’t done any research and have no evidence to show otherwise.
Really really poor economics. It’s childish.
So, second hand cars have contributed significantly to inflation because new cars are not available and if you go to your local garage you will realise prices are so high only those well off are buying. All, exactly as I said.
Thanks for confirming I am right
Please don’t waste my time again
Come on JK – it has been widely reported in the media for ages that used cars have gone up in price.
And if you haven’t got your head around just how well dug in the rich are into most supply chains from used cars (and the car finance dealers too), oil, pasta and anything else that requires a middleman then you are ether naive , badly informed or perhaps just an apologist for the rich? Which is what I think you are anyway.
Please tell us what cash is being printed into the economy now that you speak of? Just what is ‘so easy’ about monetary policy at the moment?
Please tell us how any money released reluctantly by this stupid Government equates to that sucked out of the economy before Covid? By them. Answer – it does not.
Please tell us about the BREXIT effect on supply chains, rather than excessive demand for which there is no money that you talk of. Stop lying.
Why don’t talk instead about the inflation of the cost of credit eh? Who benefits from the interest rates that have gone up recently?
Why the rich investors of course who are giving their money to loan companies and banks to turn into interest bearing credit for nice little return on their investment.
There is nothing such as ‘broad based demand’ at the moment OK? Demand is in a narrow band of income that is much higher than the lower band of income where people are going to food banks and struggling – the sort of people who relied on old bangers to get around and now can’t afford them. The nation is split between those who can hack these economic problems and those who cannot. The country is divided like never before by 12-13 years of Tory incompetence and insouciance.
And you say Richard is being childish and bad at economics?!!!
The only person who hates anything BTW in this post is YOU.
And you hate the truth. The truth is that this country looks after the rich and does not know how to look after anyone but the rich. And that means that it has failed.
And that is Margaret Thatcher’s legacy JK. Her’s alone.
How does it feel JK to know that everything YOU have ever believed turns out to utter shit?
Yes, but the desire of Conservatives to reduce taxes when they insist they need taxation to stop spiralling debt, or on money we don’t have, is being richly exposed. But in Scotland we know how informed and intelligent Conservative leadership works. It follows the words of the old song: ‘send in the clowns’. They are hanging themselves.
🙂
‘The Tories continue to act only for the rich. ‘
You’ve said it all there really haven’t you?
And so will Labour unfortunately.
We are living in a capitalist country where capital will continue to trump democracy and Government because subjugates both to its demands.
There you go.
If the Conservatives want to tackle the climate, cost of living, and other crises, and cut taxes as well, they will be forced to either increase borrowing to a massive level or resort to a similarly large quantitative easing programme.
I think there is a case to be made for the rate of inheritance tax to be cut – the 40% rate has not changed since 1988, and before then there was a sliding scale up to 60%. As you say, the vast bulk of estate pay nothing, and then there is a slice of moderate estates that pay around 40%, but the effective rates paid by the largest estates are substantially less. For example, how much inheritance tax was paid after the 6th Duke of Westminster died in 2016? Substantially less than 40% of his wealth, I would hazard.
There is a case to be made for a package reform – which could, in principle, be revenue neutral, if that makes the political will easier to find – to cut the rate to say 30% or less, and simultaneously cap the amount of APR or BPR (and other reliefs) at say £5 million or £10 million, to protect family businesses and farms from being broken up. You might argue whether that is necessary to keep APR and BPR, but again it would make the reform easier to pass, and the result would be much fairer than the current system.
At the same time, you might want to increase the rate of capital gains tax to say 30%, as it was from 1965 to 1988, or more boldly to copy that notorious socialist Nigel Lawson and align the rates of CGT with income tax, as they were until taper relief was introduced in 1998. That still leaves earned income bearing NICs but you have to start somewhere.
Most people do not seem to understand that, as they pay 20%, 40% or 45% income tax, plus 13.25% and 3.25% NICs, and their employer also pays 15.05% NICs, that means the effective rates of tax on earned income are 42% or 51% or 55% once both sets of NICs are taken into account (a bit less if you take account of a tax deduction for the employer, but that it make much difference to the employee).
But the self employed don’t pay employer NICs, and there are no NICs on those receiving dividends, interest. rents or capital gains.
Personally I would charge CGT ion death, including on homes, at IT rates
And then consider a wealth tax for large estates (£2mn +) at a low annual rate
Duke of Westminster’s estate?
What a joke! One of the benefits of being wealthy is the ability to put all the valuable stuff into trusts that don’t suffer inheritance tax.
I have before now proposed a National Wealth Service, free at the point of use, to enable everyone to avail of all the little tax loopholes, off shoring etc enjoyed by the wealthy alone.
Not so much as a real thing but as a thought experiment that shows how iniquitous the tax dodging of the wealthy truly is. If it is bad for everyone to be doing it it should be bad for anyone to do it.
“One of the benefits of being wealthy is the ability to put all the valuable stuff into trusts that don’t suffer inheritance tax.”
Which is why Trusts suffer a 10 year tax charge which charges to tax exactly the same things as are taxed under IHT. This tax is charged at 6%. Originally set on the basis of the old “three score and ten years” lifespan, so over 70 years a trust suffers 7 x 6% = 42%. IHT is 40%,
You ignore time
I didn’t know about the taxation of trusts like that. Thanks.
But does that also apply to trusts resident in Jersey, Guernsey, Caymans, BVI etc? And trusts based in say Lichenstein or wherever else they can have hidden beneficiaries?
A properly functioning National Wealth Service would open all those types of tax “planning” and offshoring with shell companies up to everyone – schoolteachers, local hardware shops, opticians, coffee shops, greengrocers etc.
Helps to level the playing field with the Specsavers, Amazons, Boots, Starbucks etc
And of course if done well would show how nonsensical it all is…
I disagree on one aspect, I don’t think a reduction in tax on vehicle fuel would be helpful, taken in the round. A fairly high proportion of vehicle use has a discretionary element – individuals could use public transport or car-share, commercial transport uses lorries by default when many things could instead be transported by rail or even water – and under circumstances when the world need to use less fossil fuel a price incentive might facilitate change. And one way or another we are going to have to get used to paying more for things that emit CO2, and we might as well start get used to it now.
The same money ought to go to making sure alternatives will actually function as alternatives, for example that public transport is as cheap and frequent as it needs to be.
I think rather differently about energy for heating and lighting. We have much less opportunity for short term individual savings, and higher costs are going to disproportionately hit those who are elderly and of modest means. There is a good case to soften the blow, at least until structural changes can be made (better insulation, more renewable energy on stream), but it needs those actions to concentrate on those vulnerable groups. There is legitimate discussion about the best way to do that.
The other problem though is looming recession, well signalled on this website. There needs to be fiscal intervention to ensure the economy doesn’t collapse due to the majority of the population who are low or middle earners stopping expenditure on anything they can avoid in order to pay their energy bills and anticipated increased mortgage payments or rent. Again, the question is how best to target support.
Other suggestions seem to be about balancing the tax burden, most especially to include wealth. I agree with those in principle but think it hard to do with a single focussed new tax – what is needed is a revamp of the whole tax system which essentially means the tax bill is the same whether someone acquires money from paid work, rental or share income, business profits, capital gains, inheritance, etc.
I think you missed my economic reasoning – and the sunset clause to allow the green argument to survive
So climate change is not a real and current emergency. Even though high prices could deliver long term behaviour changes.
But when the sunset clause comes down, it’s back on. Down with CO2. And it’s an emergency again.
Until the next crisis that affects the necessities of life, water, housing or food perhaps. When AGW is not an emergency.
And then when whatever next problem subsides, the climate emergency is back on. Down with CO2 again.
Not a coherent system imv.
If you think bankrupting people is the way to deliver a climate change response you are seriously mistaken
I did spot that, but was sceptical. Short term changes to tax or benefits seem to be able to persist as fossils for decades. It seems bizarre to me that pensioners still get a £10 “Christmas bonus” a full fifty years after it was introduced as (I assume) an election sweetener.
And the tax system is full of fossil anomalies that no one manages to iron out.
I accept that
I also think we have to face the short term economic need too
Starving children is not the way to tackle climate change
Rather illustrates my point – when there’s a trade off between planet and bankruptcy, the planet can take a back step.
People go bankrupt all the time. Their costs exceed their incomes over a sustained period it will happen eventually.
Can you guarantee that a society that lurches between responses and which means people do not adjust their climate costs will have less bankruptcy.
I’m certain that you can’t.
So you want the poorest to pay for climate change?
Richard you are a hypocrite..either you are a climate change campaigner or not?..what is this thing you have about promoting incessant Econo ic growth? there has to be an enormous cut back in consumption to save the planet..you seem to have completely dropped that from your agenda?
I am entirely happy to cut back consumption
But not so that people starve
How about getting rid of VAT altogether now we are out of the EU?
It is highly regressive.
It costs money to administer.
It is a serious burden on small businesses.
How else would you withdraw money from the economy in roughly equivalent amount?
My starters for two:
1) a carefully calibrated highly progressive income tax
2) land value tax (if well done might remove almost most of income tax requirements)
How did we manage pre EEC membership? Purchase tax on “luxury” goods? I don’t know how that was collected and administered. Did it only kick in at the retail point of sale?
I do remember that changes to purchase tax were big news items every budget day.
I approve the idea of a loaned tax
But it would also have to replace £40bn from council tax
Really not possible
there is a useful site on LVT with some costs examples here https://www.landvaluetax.org/how-much-will-i-pay/how-much-will-i-pay
I haven’t looked through in detail to see how much extra revenue would be captured by LVT effectively stopping the avoidances, or even evasions, due to off-shoring etc.
I rather doubt their methodology, but that is based on a review a while ago