James Max - James Max is a broadcaster, columnist and business expert

Our tax system is broken


Ask if someone who either earns a lot of money or has accumulated considerable wealth should be taxed more, often the answer will be yes. I agree with the general principle of taxation. I also agree with a tax system that asks our wealthier people to pay more. As part of a society where we have a range of jobs, talent, hard work, endeavour and enterprise, it’s important to raise money centrally to pay for the things we as a society want.

The debate starts with what government should be doing with your money. Defending the nation and protecting the peace is where I start. Educating our youngsters and caring for our old. Providing for those who need help and protecting people and businesses. Of course there’s plenty more from developing the law and ensuring it is upheld. It’s what it isn’t there to do, which I think needs re-examination. It’s not there to artificially equal out wealth for the sake of it.

Our government spends too much. It spends money on things we don’t need. On services we don’t want and on providing pay and benefits that on some occasions are unaffordable or encourage some to avoid making the effort themselves. Of course we need to look to balance the books. In doing so we should reduce what’s being spent too.

No one likes paying tax. However, when government comes knocking on my door asking for money. Whether it’s national or local I am generally in favour of coughing up. However there comes a tipping point. And we are at that point now.

I don’t know what they are buoyed by. However the Liberal Democrats at their conference seem to have an unusual swagger. Strange for a party that is languishing in the polls and has suffered significant blows at the ballot box in the recent local elections. Whilst I take my hat off them for joining the coalition, I don’t think much of their tax policies.

On occasion, I’ll interview our leading politicians. Sometimes they present their policies in such a way that it’s convincing. Sometimes not. Lord Oakeshott is an interesting interviewee. As the former Lib Dem Treasury spokesman in the House of Lords, he’s clearly bright and indeed articulate. He resorted to a range of personal comments and insults rather than answering questions in a recent encounter. For someone who has never been elected to office, I found his approach both arrogant and out of touch. So convinced that he is right and that his understanding of the word “fair” is gospel that engaging in any form of sensible discussion is virtually impossible. However not only are his opinions wrong, they are downright offensive.

In this country we have a progressive tax regime. The more you earn not only do you pay more but you pay a greater percentage too. Whilst our top rate of tax is 50 pence in the pound, add National Insurance and you are at 60%. Some might argue that if you are earning enough to be paying the top rate of tax, what do you need the extra money for? I’d argue that not only should the government be raising tax for things it needs to do but also it should leave as much as possible with individuals. However much they earn. I am completely opposed to a taxation system that imposes tax for ideological reasons rather than for necessity. Danny Alexander states that the removal of the 50 pence tax rate would be “morally repugnant”. I disagree. I disagree with a tax that doesn’t raise much extra revenue. I disagree with a tax that acts as a disincentive. I disagree with a tax that pushes the UK down the list of countries with a competitive tax regime. I disagree with a tax that panders to jealousy and envy rather than as a way of raising revenue. And yes, I know we have debts to pay. We won’t achieve those aims simply by increasing the general level of taxation. We must grow the economy; make cuts to expenditure and incentivise individuals.

Look at the economics. The Laffer Curve is a simple piece of economic analysis. It states that the higher the tax rate, after a certain level, the law of diminishing returns applies. It’s right. The politicians who believe the 50p tax rate should stay are those advocating it for ideological reasons.

Similarly with the Mansion tax. What a dumb idea this is. Why tax an asset where a profit isn’t realised? If you happen to own an expensive home, it is where you live. It shouldn’t just be plundered as a result of an ideology that states that because you live in an expensive property that you have more money. If you earned the money you used to pay for the asset, you have already paid tax. If that asset has gone up in value and it’s your main home, what rationale is there for taxing it other than jealousy? Or envy? Stating that this is a necessary tax to catch the mega wealthy is to punish many in pursuit of a few.

This isn’t the only argument against such a pernicious tax. It will cost more to administer than it will raise. Lord Oakeshott accused me of not knowing what I am talking about. Yet as a qualified surveyor, I understand how valuation works. It is expensive to maintain a national property valuation system. How often will valuation take place? Who will deal with disputes? I could go on. It’s unworkable, expensive and ideologically driven. Ultimately? It’s an unpleasant tax that punishes those who are fortunate in society. A taxation system should never do that.

Why should people pay even more of their income or reduce their personal wealth when there is so much waste and unnecessary expenditure throughout national and local government?

Meanwhile Vince Cable has gone off on one too. Some of what he says is very sensible. I don’t want to see rewards for failure anymore than I want to see disincentives to hard work and enterprise. However he too seems to like the Mansion Tax as a solution to the rising property prices in the UK. He wants to take away money from those who benefited. He showed his true colours. It’s capital gains tax on unrealised profit. What a disgrace. To even suggest, as he does, that its only pensioners and the less well off paying for the financial crisis whilst taking more in tax from those who earn and spend more is quite extraordinary. Everyone is paying for this. And so they should. To suggest it’s just the poorer in society is not only disingenuous. It’s wrong.

Politicians need to get this into their heads. More tax isn’t right. It’s not an ideological game and nor should it be used to socially engineer our society any more than is necessary. Furthermore they keep using the word “fair”. What is fair about taking money from those who have earned their money and invested wisely and giving it to those who haven’t? Of course I agree with a compassionate society. I don’t want to see people on lower incomes targeted or unfairly treated. I want to see government equal out some of the inequalities of life. Indeed I am prepared to pay for that work to be done. However I want to see a society where hard work and enterprise are rewarded and not punished. A taxation system that does what it needs to do rather than to try and equal out all the inequalities in life. Reward for endeavour. Help for those who need it. Not those who want it.

We have a huge debt to pay. It’s not because of banks or bankers that we have those debts. I know it’s popular to blame them. Don’t start on the whole “casino” banking argument. That is nonsense. The financial collapse was a symptom of a system that was broken. Broken by governments around the world that used debt to buy popularity. Using debt at government, corporate and personal level to give us growth and perceived prosperity. It was a charade. It’s politicians who spent money they didn’t have. Economies move in cycles. In the good times you should prepare for the bad. They didn’t. In bad times you need to encourage small business and enterprise whilst stimulating investment and growth. They aren’t.

It’s time to put the 50 pence tax rate, the mansion tax and the green taxes back into the jealousy and envy cupboard. Lock them up. And throw away the key.

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