In his first budget the Chancellor of the Exchequer had the opportunity to set a course for Britain’s prosperity post Brexit and to help Mrs May achieve her goal of making Britain a country that works for everyone, while reducing the budget deficit.
Instead the measures he proposed caused a storm of protest. Raising the National Insurance Contributions (NIC) of the self-employed, it was pointed out, would hit hardest those already struggling to make a living, while the revised valuations for Business Rates would drive many small businesses into bankruptcy. This would reduce economic activity, reduce tax revenue and burden the state with the cost of supporting more people, thus widening the deficit. The net effect would be counterproductive.
What might a People’s Budget look like? The first step would be to abolish NIC and the second would be to recoup the revenue lost by reforming the basis on which Business Rates and Council Tax are assessed.
Abolishing NIC would benefit the self employed, not just financially, but would also relieve them of the administrative task of reporting their earnings and calculating the tax due, an unproductive activity. It would relieve employers of a considerable cost of employing people, benefitting especially labour intensive occupations such as public services: nursing, police, military, civil service, catering and others. In fact the government, as an employer, would save millions, not just in tax saved, but in the administrative costs of collecting the tax.
It is true that abolishing NIC would also benefit the rich and well off, but reforming the basis on which Business Rates and Council Tax are assessed would address this by benefitting the poor more than the rich.
Currently property taxes are assessed on the market value of the site and any buildings or improvements. One unfortunate consequence is that the more investment in the site the higher the tax, which acts as a disincentive, when investment is what is needed to drive the economy forward.
The value of the site, on the other hand, is dependent on its location and natural resources, such as fertility and minerals. What they have in common is that their value is not created by the occupant of the site in contradistinction to the improvements which are the product of the work and investment of the owner or occupier of the site. There is, therefore, as Alfred Marshall pointed, out a public and a private component in property values.
Current taxation draws heavily on the private component leaving the public component largely untaxed to accrue as unearned income. Abolishing NIC would leave more earned income in the pockets of workers, reducing the need for tax credits and so tax revenue to support the cost. Reforming the basis of Business Rates and Council Tax would fund more government expenditure out of the public value of the site, reducing the need to tax private income, encouraging investment and the most efficient use of sites.
In The People’s Budget Geoffrey Lee describes two attempts made in Britain to move in this direction. The first was by the Liberal Government before the First World War. In his 1909 budget, the “People’s Budget”, Lloyd George included measures to raise extra revenue from the public value of land. This caused a storm of opposition from the House of Lords, then almost exclusively composed of large landowners, who rejected the budget, thereby challenging a convention that the upper house would not block bills of the lower house on matters of finance. The Lords eventually backed down and the Bill was passed, but the outbreak of the First World War put an end to the process of valuation.
The second occasion was in 1931 when a Labour Chancellor included a Land-Value Tax in his budget. With the financial crisis of the same year, the valuation of land was suspended and the measure later repealed.
Were Britain to reform its tax system in this way, abolishing in stages taxes that penalise work, enterprise and investment, such as Income Tax, VAT and Corporation Tax, and instead fund government out of the publicly created value of land, Britain would become a very desirable place for businesses to locate: a post-Brexit Britain which would work for everyone.
Further Reading: Ricardo’s Law by Fred Harrison (ed.) New Zealand holds a rather special status in that it was notably the first country to introduce a system of land-value taxation for raising revenue. This essay, by Ian Hopton, traces the fortunes of Land-Value...read more
Further Reading: Rent Unmasked by Fred Harrison (ed.) Rent Unmasked has been chosen for the Winter 2016/17 heat of The People's Book Prize for Non-Fiction. This competition is based purely on public votes - so we need your help. Successful books from the heats are...read more
BREXIT was a gift to the peoples of Europe by those in Britain who voted to leave the European Union, argue the authors of Beyond Brexit: The Blueprint. As a consequence of the referendum decision, the EU is undertaking a review of the crises facing Europe. At their meeting in Rome in March 2017, to celebrate the 60th anniversary of the Treaty of Rome, governments from 27 countries – with the UK absent – will receive a plan from Brussels on how to address the problems which, in large measure, were due to fundamental flaws in the way the European project evolved.read more
There were almost daily warnings following the shock Brexit result that Britain would be heading for a recession. Responding to this the Bank of England cut interest rates to a historic low of 0.25%. So fixated are economists on monetary policy to boost economic activity that little attention has been given to how tax reform could deliver better results. Two of our recent releases contain answers to the problem of the shrinking economy.read more
“You can become wealthy by creating wealth or by appropriating the wealth created by other people. When the appropriation of the wealth is illegal it is called theft or fraud. When it is legal economists call it rent-seeking”
John Kay, Financial Times 27th Dec 2009
“If a free society cannot help the many who are poor, they cannot save the few who are rich.”
John F Kennedy, Inaugural Speech, Jan 1961
“If science is defined by its ability to forecast the future, the failure of much of the economics profession to see the crisis coming should be a cause for great concern”
“Today we live in a world that is divided. A world in which we have made great progress and advances in science and technology. But it is also a world where millions of children die because they have no access to medicines… It is a world of great promise and hope. It is also a world of despair, disease and hunger”
Rent Unmasked explores the new economic paradigm that policy-makers need to solve global problems in the post-2008 era. With conventional economic theories discredited, the new model must equip governments with tools to re-stabilise societies in a dangerous world. Rent Unmasked explains why one paradigm only qualifies to serve this purpose: the dynamic model that reinstates time and space in economic theorising.
ISBN 9780856835117 | Price: £19.95