Taxing Issues, reducing the tax burden.

CGF 2009pw

The Economy is clearly now recovering well, with more good economic news each week. In my day job as a Chartered Surveyor, I noticed this over a year ago as companies and individuals started to take longer term property decisions, a sure sign the economy is improving.

There are of course concerns for the ongoing recovery, instability in the middle east and the wider world economy are always present so the recovery cannot be taken for granted especially as there is still work to be done on the deficit.

One concern, as highlighted by Labour is “cost of living” as wages have for many fallen in real terms against inflation. Labour of course point to the cut in the top rate of tax from 50p to 45p, conveniently glossing over the fact it’s still higher than the 40p paid for almost all 13 years of their Government together with the work by the coalition in raising the income tax threshold for the lowest paid.

They do however raise the legitimate question of what measures could and should be considered to help those on lower and middle incomes with “cost of living”, I would advocate 3 policies of tax reduction which I feel would be of benefit, being the VAT rate for the Hospitality Sector, Excise Duty and Stamp Duty:

Firstly I feel a reduction in the VAT rate for the hospitality sector e.g. pubs, restaurants and hotels, would be of great assistance, this would give a boost to our High Streets and Tourism industry by helping to encourage more people to holiday in the UK both from abroad and British people. This policy would also help youth employment. Further details:  VAT

Secondly, I feel a reduction in Excise duty on both alcohol and tobacco products would be sensible as we have some of the most expensive rates in the European Union. Whilst the official reason for this is seen as promoting healthier lifestyles, the reality of the situation is that people do drink and smoke, regardless of their income and the current tax system hits the poorest hardest.

High Excise duty also encourages “white goods” smuggling by way of people legitimately purchasing goods in the EU and bringing to the UK where they then illegally sell them on. In this respect we are losing out on tax receipts, so I feel by reducing or freezing the Excise duty we help remove the smuggling incentive and will boost legal sales. The Coalition Government has made a modest start with alcohol duty but tobacco duty carries on rising. Further details see: Tobacco and Alcohol

This is not a new idea, William Pitt the Younger did this in the 1780s when a reduction in Excise duty was rewarded by an increase in Tax receipts. Between 1786-8 the amount passing through customs more than doubled whilst by 1790 the yield from wines, spirits and tobacco had all increased by between 29 and 63 per cent since 1783.
(FYI: Excise Duty is that levied on products bought within the UK, Customs Duty is that levied on imports from outside the EU over your “duty free” allowance).

Thirdly, as someone who works in the property industry, I often hear people’s complaints about Stamp Duty, not simply the level of tax but also the way it is levied, which creates “dead zones” between the relevant stamp duty thresholds, which apply to the whole amount not simply that which is above the threshold.  I would however advocate the “tax on whole amount” is kept for properties above £1m, otherwise the policy would be attacked for benefitting the richest most.

There are other reasons why housing in the UK is so expensive (see my Housing Issues article ) however Stamp Duty merely compounds the situations making it more difficult for first time buyers to get on the property ladder.  Due to the rising cost of housing the threshold levels should be raised to help first time buyers.
Further details see:  Stamp Duty.

I do not have the full costings for these proposals, hence why I have put links to the organisations which are proposing them however I feel all 3 of these proposals would be of benefit to reducing the “cost of living” especially for lower and middle income people.

Cllr Charles Fifield

1 August 2014