Behind Blue Eyes

I haven’t watched SoccerAid in previous years, it just hasn’t been on my radar. I chanced upon it this evening and I have been instantly impressed. Here we have a bunch of celebrities and retired millionaire footballers using their names and clout to organise a major event in order to raise money for their chosen good cause. OK so big events are nothing new, nor are even charity football matches but this is on a huge scale. At time of writing (half time) the even has raised £3m. These are “celebs”, retired footballers and ITV which would normally be expected to be looking solely after Numero Uno doing something a bit beyond the normal to raise money.

My Twitter friend @ShortTemperUK asked “did u not hear the “uk gov will match money raised part”? *grumbles*”. I had noticed it and my initial reaction was one of mild disappointment that the state had decided to spend some of our money when people were quite busily raising it themselves without assistance.

Hang on.

Assuming that the matching funds are coming from the general government charity budget (DFID) isn’t this actually quite a good idea? Instead of the usual civil servants and ministers getting around the committee table and deciding on our behalf who should get out tax money, isn’t it refreshing to say actually we’ll back what people want to back? This is money that would be spent on *something* whatever happened. It’s presumably part of the 0.7% of GDP invested in development goals, so we then only have to ask what is the best way of allocating those big numbers.

Clearly one has to be cautious of allocating all these funds on a matching basis because surely the point of state development investment is to provide cash for thing that aren’t already being done. But a bit of democratic input into government charitable spending has to be A Good Thing in order to ensure that not all of it goes on lefty bollocks that nobody supports. If matching funding encourages more people to donate then that’s also A Good Thing.

I don’t know how the DFID decisions are made, so I don’t know what proportion of its funding is used to match private donations. It might be tiny, with the vast bulk going towards high-minded projects which would never attract individual donors. The ultimate goal is to make sure that the money we give collectively to take people out of desperate conditions is directed to the most effective projects. If a certain amount allocated by “the market” helps achieves that goal then I am all for it.

Also, we should all respect hugely the “celebs” who have put themselves forward to play in the match. I can only imagine how many people turned down the opportunity on the basis that they feared making an ass of themselves.

And whole-hearted congratulations to Robbie Williams (who I normally mock) for setting the thing up.

One thing which the assorted Left always get upset about is any “regressive” change to the tax regime. If a tax change benefits higher earners then it is lambasted by the Left, even if it benefits lower earners too. This was very neatly explained two years ago by Mr Sharpe.

The basic idea which underpins this position is this: an increase in the personal allowance benefits all taxpayers above the old threshold. Those who earn more pay tax higher up the scale benefit more from the increase in the allowance because more of their income falls liable to income tax. Therefore for several years now when Chancellors have reduced income taxes at the lower end of the scale they have reduced the thresholds for paying higher rates to ensure that higher earners don’t benefit as much as lower earners. I think Gordon Brown introduced it but I am prepared to be corrected.

Even as someone who would embrace lower taxes and lower state spending overall, it’s hard to moan from a moral or ideological stand point about a tax change which benefits lower earners more than higher earners. Those of us in the middle aren’t very affected. One tweet I saw stated that those above £40k will make an overall gain from George Osborne’s changes of £42.50 a year.

The reason this is interesting is because of what Nigel Lawson did in the late 1980s. When he reduced the top rate of income tax to 40p, not only did the amount raised by income tax increase hugely, but the proportion of income tax raised from the richer end of the scale increased hugely. Income tax got more progressive as a result of cutting the rate. The “rich” suddenly became more responsible for funding state expenditure than they had before.

Some of New Europe went several steps further than this in the 1990s. Several countries went for flat tax regimes and saw their economies multiply. There has been a healthy flat tax lobby in the UK ever since. The challenge for any UK flat taxer is devising a scheme which doesn’t involve huge tax cuts for “the rich” without anything corresponding for “the poor”. The economics might make sense but the politics never would in the absence of a political revolution of the scale seen in Eastern Europe in the early 1990s.

But this is where Laffer economics comes in. Laffer states that there will be a revenue-maximising rate of income taxation. Above that rate, taking avoiding action or changing one’s lifestyle or plain old breaking the law becomes more attractive to those on high incomes. A Treasury report which I can’t be bothered to find right now showed that the civil service in the dying days of Gordon Brown’s government reckoned that beyond about 45p in the pound, the financially successful would start to reduce their exposure to UK income tax. Which is what makes the debate around the 50p rate so stupid. It was estimated to be a money loser before it was even introduced.

So what we seem to have here is a pincer: the highest rate of income tax set to the revenue-maximising level. The middle (“higher”) rate thresholds fiddled with and the lowest rate threshold increased to take people out of income tax altogether. The trend is clear: the UK is heading towards a flat income tax.

This is in my mind a step in the right direction. A big tax free allowance and a revenue-maximising marginal rate seems like a sensible way to raise a chunk of the money the state spends on providing the services that so many voters demand. But of course income tax is not the whole story. Maybe a future Chancellor will have the stones to touch the third rail of UK taxation: National Insurance.

Back, by popular demand…

Exclusive: here is what George Osborne will not say in the Budget in a few weeks time:

Many of my Conservative colleagues and many outside this House would love me to abolish the 50% income tax rate on those who earn at least £150k. However my LibDem colleagues believe, and the Coalition Agreement confirms that any reductions in taxes should benefit the lowest-paid. Further, my friend on the Opposition bench Mr Ed Balls will tell you that cutting taxes on the lowest-paid boosts the economy more quickly than cutting taxes on the rich because the poor spend more of their money than the rich do.

Therefore I am replacing all the income tax rates and both forms of National Insurance with a single rate of income tax. The rate will be 50% payable on all income earned above £15,000 a year.

Corporation tax and the tax on UK capital gains will also rise to 50%. The rise in corporation tax is offset by the removal of employers’ National Insurance “contributions” and VAT and leaves Britain in a very favourable competitive position.

The capital gains tax exemption for owner-occupiers will be abolished. All other income tax and company tax exemptions and tax breaks will be abolished from today. However, capital gains tax will reduce according to the length of time that assets are held. Gains on assets held for seven years or more will be zero rated for capital gains tax.

Stamp duty is abolished from today.

Inheritance tax is abolished from today.

VAT is abolished from today.

Fuel and booze duties will increase to offset the removal of VAT. Booze duty will be charged at a single amount per unit of alcohol.

All renewable energy subsidies will be phased out over two years. They will be replaced by a straightforward tax on carbon emissions. The tax will rise at inflation plus 5% every year. All goods imported into the UK will be subject to the same carbon tax rate based on estimates of the carbon emissions required for their manufacture and transport to the UK.

Over the next five years the central government grant to local authorities will be cut to zero. To replace these revenues local authorities will be given the proceeds of business rates raised in their authority area and within two years a new set of Council Tax bands will be introduced to enable local authorities to charge more to the residents of expensive properties. Each year as the local authority grant is cut, so shall the flat rate of income, corporation and capital gains tax.

This Budget is broadly revenue neutral. However the savings arising from a massive simplification will boost the economy at a critical time. Further, businesses and individuals will save a fortune in accountancy and legal fees. As the economy returns to growth and the deficit closes there will be scope to reduce the 50% flat rate.

I commend this very short and straightforward Budget to the House.

No burning issues and little time to spare before the big day, so I am taking this opportunity to wish my readers a Merry Christmas. Thank you for making this an enjoyable pursuit over the last twelve months!