Friday, 19 September 2014

Tax Devolution - the first step

To give effect to Cameron's promises (which of course he never breaks) it will be necessary to devolve taxation - both setting taxes and collecting them - down to 'Tier II" authorities. Tier II authorities are:
  • Scottish Parliament
  • Welsh Assembly
  • Northern Ireland Assembly
  • Greater London Authority (see below for City of London)
  • Metropolitan Supercities
  • Counties - sole or consortia
As for which taxes to devolve as an easy first tranche, I suggest that these must be either (a) already collected, but not set, locally (b) self-assessed, where change would be initially limited to where to send the money. VAT must remain a national tax, and I suggest to start with that Income Tax remains set and collected nationally also. As for the City of London, Corporation and Business Tax here is a unique case. City taxes need to pay for infrastructure improvements in London and the South East - our Victorian infrastructure is straining at serving a population of over 10m in the region. But the City must also be free to set globally competitive tax rates to ensure we retain our world class financial hub status. That's one to debate. As for taxes that meet the 'easy' criteria - i.e. that won't need massive new offices or hordes of new staff, just a change of  BICS and IBAN numbers, I suggest

£bn % of UK
National Insurance 104.60 19.0%
Corporation tax 51.30 9.0%
Fuel duty 25.70 5.0%
Council Tax 24.90 5.0%
Business rates 23.70 4.0%
Stamp Duty 13.50 2.0%
VED 6.10 1.0%
Capital Gains tax 5.00 1.0%

254.80 46.0%

That's 46% of the UK tax take devolved at a stroke - and that 46% will pay for a commensurate devolved level of Health, Education, Police, Welfare services. It will be up to the Tier II authorities to balance the books locally based on their tax take. 

The Westminster government can continue to use their 54% share of tax to pump additional funds into areas where the tax base from devolved tax is too low to provide a 'basement' level of services.

This is achievable within two years. It also goes without saying that Tier II authorities cannot levy new taxes that they invent themselves - so no Jizyah, tax on people with posh accents, yacht tax, Pit Bull Levy or Irn Bru duty.  

Oh yes. And because we can't trust Cameron - he really is a lying hound - we need a Constitutional Convention. Now.  

NB - See recent GLA fiscal devolution report on devolution of land taxes - including those I've mentioned above - to London and other big cities HERE (.pdf)


Budgie said...

Raedwald, there is no good reason to retain VAT, which is an EU imposition and enormously wasteful since only the final retail customer pays it.

The obvious change to make is to scrap VAT and instead have a local (state, regional?) sales tax. It already works in America. Businesses could be merely registered with a licence number and thereby be exempt.

Raedwald said...

Agree completely. VAT - and all of the EU rules about the level, and what can or can't be exempt - is ripe for scrapping. Sales tax works well in the US where economic evidence suggests that differences between states need to be > than about 3% to cause significant cross-border shopping for e.g. white goods

G. Tingey said...

More than 5% certainly causes border-hopping, 3% or less gets ignored.