Skeoch calls for tax on spending, not income

A TOP fund manager has called for politicians to consider replacing income tax with an "expenditure tax" to encourage people to save.

Keith Skeoch, chief executive of Standard Life Investments, says shifting the focus of taxation to what people spend would help to wean Britons off their addiction to debt.

"It would be much more sensible to levy a tax on the money you spendn rather than on what you earn," he said.

"It creates an incentive to save and is eminently do-able.

Abolition of the 200-year-old income tax may be some way off, but Skeoch's ideas are said to be winning favour among some well-placed government sources.

Speaking at a business breakfast in Edinburgh yesterday, he said: "The UK's long-term love affair with debt and its continued dependency on consumption to drive economic activity puts it in a precarious position relative to its major competitors.

"While much of the recent focus has been on the credit-worthiness of the UK government, private-sector debt has risen from 65 per cent of GDP in 1980 to 427 per cent now. This makes the UK's private sector the most indebted of the world's top ten economies.

"While this dependency on debt finance should not prevent economic recovery taking hold in 2010, it is likely to make the pace and activity in the coming cycle both anaemic and fragile.

"The structural nature of this debt dependency will create severe headwinds for economic recovery and needs to be a major focal point for policymakers as the next economic cycle gets under way."

Skeoch told the 200 delegates: "The medium-term focus for policy must be to reduce the dependency of economic activity on both consumption and debt, if increasingly volatile boom-bust cycles are to be avoided."

He added: "Stability needs to be brought to the shifting sands that currently represent the savings landscape."