Tax. That annoying deduction on our pay slip every month. But it is only fair to pay it if we expect medical treatment, education, protection from criminals, and roads and railways that work, and pensions in our retirement. But the question is, how much should we pay?
The current tax levels in the UK are the highest they have ever been in peacetime. That’s measured as tax contribution as a percentage of our economic output, and it’s around 38.5%. Personal income tax levels have been much higher in the late 1970s, but we are paying a lot more on things like VAT, duties on fuel, alcohol and cigarettes.
Our tax code, at 13,000 pages, is the most complex in the world and it costs us all a huge amount just to get advice to comply with it. And the reason it is so complex is that we don’t just use tax to pay for the good stuff, we use it to persuade behavioural outcomes. For example, we want entrepreneurs and inventors to come here, so we have entrepreneurs’ relief and allowances for new patents.
But here’s the really important bit.
Tax responds to the basics of economics – the price / demand curve. Increase a price and demand goes down. That is why we have such high taxes on cigarettes – to price people out of smoking. The same with sugar, strong alcohol and fuel (trying to incentivise people to swich to electric vehicles).
This is important because last week the government decided to tax your staycations in the UK. Local mayors have been given the opportunity to tax you to stay at Butlins, or an AirBNB, or local guest house.
Of course, you already pay tax on your holidays. UK VAT on holidays is one of the highest in the world.
Last week, we lost our third biggest income tax payer. Hedge fund owner Chris Rokos finally decided enough was enough. He’s moving to Athens. Last year he paid an astonishing £330 million in income tax. Now he won’t pay anything to the UK government at all. To put this into context, it will take 38,000 average earning taxpayers to make up for this loss.
The more you tax, the more you disincentivise people from doing the right thing. And the PM said he will not prioritise national security over social security. No wonder our entrepreneurs are fleeing.
