One of the things that the pandemic has highlighted is how complicated our taxation and benefits system is in the UK. Could it be simplified and made fairer? I think it could and so do many think tanks and economists. Here is a round up of ideas that appeal to me.
Basis for Taxation
In the UK we need to move to a taxation system that leans more to the ‘Who uses it should pay approach’ than we have today where taxes are collected from a variety of sources and then pooled and spent by the Government.
Tax revenue 2019/20
Published by D. Clark, Nov 3, 2020
In 2019/20 the value of HMRC tax receipts for the United Kingdom amounted to approximately 634.64 billion British pounds. This represented a net increase of 319 billion pounds when compared with 2000/01. Since that year, the total value of tax receipts showed year-on-year increases except in 2008/09 and 2009/10 when it the value declined.
Tax revenue sources
During 2017/18, of the 594.3 billion pounds collected by the taxman, over 181 billion of this came from income tax receipts. Tax collected from National insurance accounted for 130 billion pounds of tax revenue, while the United Kingdom’s goods and services tax; Value-added Tax (VAT) amounted to 12.5.3 billion pounds.
Government spending
For the fiscal year 2019/20, the UK government has budgeted 256 billion pounds for social protection, which includes spending on pensions and welfare. Health and education were the second and third largest spending categories, amounting to 166 billion and 103 billion pounds respectively.
How we pay Taxes
Most taxes are collected by HMRC and go into a national pot from where they are distributed by the government in grants, loans and government expenditure like benefits and to manage the public sector.
Although the government collects £36bn from Vehicle taxes, this amount is not necessarily spent on Vehicle related expenditure; it could be more or it could be less.
Even the figures shown in the table are complicated, because the government shows total VAT receipts, but not the precise source. This makes analysis difficult because an amount collected by HMRC may be reflected in different figures than is at first obvious. A simple question like how much do we raise from Vehicles, is not clear.
How could tax collection be simplified?
If you take the various categories of receipts, they can be grouped as follows:
Infrastructure
VAT
Personal Taxation
National
Local
Business Taxation
Tax on Government Benefits
The other observation I’d make is that quite a lot of tax receipts are then taxed as income when they are paid out in benefits and expenditure to the public sector. If you receive a pension from the government then you have to declare it and if you need to pay tax on it back to the government.
Why not make these items, tax free and adjust them accordingly.
Revenue Tax versus Profit Tax
We all know about the stupidity that exists in our taxation system that allows so-called ‘global companies’ to avoid tax by deploying various schemes.
Any businessman will tell you that minimising profit is one of their primary goals. Wealth is derived from the profit being allocated through dividends and profit sharing schemes.
We currently collect VAT on all receipts, why not revenues?