What do politicians want to do with tax? They want to raise revenue to fund public spending and they want to use tax policy as a political carrot. Clearly the two completely contradict each other.
Most people don’t like paying tax. It’s the nature of my work that a lot of people ask how they can “get round the system” or “isn’t there a way I can do this tax-free”? My answer is always that I will help them to ensure that they pay what is rightly due, that I will ensure that all reliefs and allowances are claimed, and that where there’s more than one way to do things, I point out the most tax-effective way. That’s where my tax planning ends.
Personally, I consider it a privilege to pay tax. Why wouldn’t I? And I’m going to risk my clients’ wrath by saying that I think I should pay even more tax than I currently do. Yes, I’d notice it. Yes, it would hurt. But equally, I can afford to do so, even if it means making some sacrifices. Many people don’t have that luxury, though.
So, where do our taxes go? As the economy has grown, so has the tax-take. In 1980 the tax receipts were some £69bn. This year the tax-take will be almost £770bn, an increase of well over 1000%, and well in excess of the compounded rate of inflation. The bulk of our tax comes from three sources: income tax, VAT and national insurance. Over 40% of our entire tax-take comes from taxes on personal income (income tax and NICs). This is somewhat higher than the OECD average and many of our key trading partners such as France and Germany.
But as the nature of trade and work changes, some of these taxes might be vulnerable. Self-employment, less spending on luxury items, a move to a more digital economy: all these could potentially erode our tax base.
I’m not a politician, but there’s much for the politicians to be worried about. There needs to be transparency, scrutiny, accountability, and most importantly a long-term view. At the moment a day seems a long time in politics. Should we be worried?…