A New Taxation System

The current tax system in the UK has separate rates for taxing earned income, dividends, interest and capital gains. It has a personal tax allowance that is less than the amount required for a person to house, clothe and feed themselves.  It has tax bands that increase tax in steps from 10% to 50%, the steps being uneven in size and income coverage.  It has a "National Insurance" taxation system that is utterly unfair and contains hidden taxes on employment such as "Employer's National Insurance".

A fair tax system would tax all sources of income as income.  National Insurance would be abolished and combined with income tax.  There would be no tax until income reached a living wage.  There would be a smooth transition from no tax to the highest rate, this transition being a relief to account for the fact that one person's living wage may not be the same as another's.  There would be a maximum wage because huge incomes are unlikely to be moral (they represent theft from shareholders, employees or taxpayers).  The way the new system would operate is shown below:

Capital gains are a special case because people may make an isolated gain such as selling their business to retire or publishing one successful book or some artistic or inventive endeavour.  Capital gains from individual transactions that exceed 10% of the median wage should be taxed as if they have been earnt over 10 years. (ie: in the year of the gain the tax is first calculated as if the gain were 10% of its value and this is then multiplied by ten to calculate the total tax due, each succeeding year for 9 years 10% of the gain is included as income but a tax credit given to account for the fact that tax has already been paid).

The maximum income would be thirty times the national median income (about £900,000 at present incomes).  Income in excess of the maximum would be taxed at 100% - this only affects about 12000 taxpayers in 2010.  People with such huge incomes would need to leave the excess money in their companies as shares, allowing entrepreneurs to control large companies.  These shares would not be taxed as income until sold.  Claiming foreign domicile and foreign residence, including changing nationality to avoid tax would be stopped.

Corporation Tax should be abolished.  However, companies' products, whether manufactures or finance products, would be taxed according to a "distance tax" and a "turnover tax".

The government would raise supplementary revenue from a "distance tax" on goods and services, property, duties and VAT.   The distance tax would be a sales tax calculated according to a formula such that products originating from or distributed from more than 1000 miles away are taxed at 50%, continuously reducing to 0% for goods from 40 miles away or less.  This might be supplemented with a turnover tax on UK sales, and only UK sales, so that large companies such as Microsoft are taxed at 50% but companies with a turnover of under £250m are taxed at 0%, companies with intermediate turnover having intermediate rates.  This tax regime would be within WTO and EU guidelines but would favour localities.

See also

Economic policies for recovery


The rebirth of British manufacturing - how to do it


EU membership and laying up treasure from overseas

Getting richer every day in every way: income and wealth

What is Socialism?

Is Labour any more than the Public Sector Party?