Better late than never. Last Saturday was Tax Freedom Day (TFD), the point in the year when UK earners have raked in enough money to pay off their tax burden and begin working for themselves. Our TFD fell six weeks after America’s this year, while the typical western European has to work for even longer. The bad news is that 3 June marked the latest TFD in almost 20 years. No wonder: under Gordon Brown there have been 80 tax rises, and as Edmund Conway notes in The Daily Telegraph, at this rate the tally will pass 100 by the end of this parliament.
Fiscal drag – in which tax bands aren’t lifted in line with income growth, so the overall tax-take climbs – accounts for about half the increase in the tax burden, according to the Institute for Fiscal Studies. That burden is approaching record levels, according to Ernst & Young. Taxes on families and businesses excluding North Sea oil revenues (a measure deemed a key indicator of the tax burden) will comprise 37.6% of GDP this year, climbing to 37.8% next year and 38% in 2010-2011. That will eclipse the 37.7% peak of the early 1980s, when the top rate of income tax was 60%. Under Labour, the increase in the tax bill has been £219bn, or £9,000 for every household in the country.
Treasury raids are undermining our competitiveness. The average rate for corporate taxes, for instance, has climbed to seventh place in the 25-member EU rankings. As the Adam Smith Institute points out, with central European states adopting simple flat taxes, “the advantage Britain may have over the high-tax countries of ‘Old Europe’ is likely to be eclipsed by the radical low-tax, high-growth performance of ‘New Europe’”.
Our taxes are also too complicated. There have been three tax regimes in five years for the film industry, while car buyers have 21 different rates of vehicle excise duty, up from three a decade ago, says Graham Searjeant in The Times. Chalk all this up to Brown: “nothing he disapproves of must go unpunished and nothing he deems socially commendable must go unhelped”. Hence an emphasis on targets, which breeds complexity and mistakes – witness the £2bn of means-tested benefits paid out in error for a second consecutive year. Inheritance tax is another over-complicated levy; a government would collect more by cutting the rate from 40% to 10% and removing exemptions, according to Searjeant. Given all this, shadow chancellor George Osborne’s speech last week – highlighting the need to simplify taxes – was well timed.
Osborne also called for lower taxes, but as a long-term goal – no up-front tax cuts were outlined. Many Tories were aghast at this, but he was right to prioritise economic stability, says The Daily Telegraph. The Tories have yet to recover their reputation for economic competence and many voters worry they will be “cavalier” with public services. It would also be irresponsible to promise tax cuts now, given the state of public finances at the next election could be worse than forecast, says the FT. The best bet is to promise lower and simpler taxes than under the present government. “On this, the public should readily believe them.”