THE notional date on which we start keeping all our earnings shows no sign of moving forward, writes Brian Monteith
It is that time again. It comes every year but the exact date varies slightly, sometimes falling earlier – which most of us will think is good – and sometimes later, which only those who rule over us could possibly think is good.
I’m writing about what the Adam Smith Institute calls Tax Freedom Day, the day from which we keep all of the money we earn, having spent the previous months, weeks and days working solely for the state. The day is used to illustrate how the state’s tax take is growing or falling, reflecting the size that we have allowed the politicians to let it grow. There is, after all, no average person paying an average tax. Some of us pay more tax than others, some of us not working or retired do not pay personal taxes at all, but we do all pay tax for we pay VAT on most products and services and excise duties on various luxury items, tobacco and alcohol and tariffs on imports from overseas.
We also, as customers, pay taxes on transactions when we buy or sell properties or equities, or fly in the skies; as customers and shareholders we are the people who pay for corporation taxes and business rates, not the companies themselves, illustrating, in case you had forgotten, that taxes push prices up.
Those who are most economically active also tend to contribute a greater share and their tax freedom day will, in reality, be much later in the year – and those who do least and consume less have an earlier tax freedom day. It is therefore possible, from knowing your own personal circumstances as a working taxpayer or untaxed retiree, to make an educated guess if your own tax freedom day is earlier or later than the average day declared by the ASI each year.
This year it was last Friday, 3 June, meaning that it required 154 days for us to pay all of our taxes, some four days more than last year. That’s quite a leap, and hardly something for a Conservative Chancellor to be proud of. It is the latest Tax Freedom Day since 2001 and only the fourth time it has been this late since 1986.
The reason is simple enough, George Osborne is little different from Gordon Brown because he is a fiddler; fiddling about with marginal rates of this and that tax, most of which we do not notice. Gordon Brown was criticised regularly for using such “stealth taxes” because they obfuscated the accountability of ruling politicians to the taxpayer. Osborne is no different in this respect. Any claims to be a genuine tax reformer are little more than outrageous public relations spin.
True, Osborne has raised personal tax thresholds, benefitting everyone, but most of all the lowest paid. Even so, Lord Saatchi and the Centre for Policy Studies, together with the Liberal Democrats, deserve much of the credit for that achievement, as it is doubtful the change would have happened or happened so quickly had it been left to George Osborne alone.
A genuine reforming Chancellor would do two things; simplify the tax system so it had fewer allowances, write-offs, shelters and incentives that make it a complicated money earner for tax specialists – and reduce the tax take from its current 42 per cent of our gross national earnings. Osborne is doing neither of these things, and as his political future looks increasingly precarious whatever the result of the EU referendum, it is fair to believe he has missed the opportunity to put his name into the history books for good rather than ill.
There is no room for gloating in Scotland about this. Although the Adam Smith Institute has not calculated a separate Tax Freedom Day for Scotland it does not take a great deal of educated guesswork to recognise that the day must fall on a later date for Scottish people that it does in the rest of the UK.
The Scottish Parliament has its own powers to levy taxes and charges and although it has shied away from using these on personal taxes it has raised the level of business rates above that of the rest of the UK. Also, while there is a council tax freeze in Scotland resulting in it being lower than the equivalent in England, incomes are higher in the south – so the lower tax benefit is not as great as one might hope. We also have other hidden charges for services usually paid for by companies – such as inspection regimes, planning approvals, licensing and the like – which are ultimately paid for by the Scottish consumer.
It is generally accepted by businesses that operate in Scotland and England that they find the former is 10 per cent more expensive to do business in than the latter. Not only does this work against investment in Scotland, reducing economic growth and employment opportunities, the additional costs will again be passed on to the consumer.
It would be a useful tool if the Adam Smith Institute could do the maths to work out a Scottish Tax Freedom Day so we could encourage our legislators to be more responsive to the public by bringing the two dates together – and then going on to make the Scottish Tax Freedom Day earlier. That way Scotland, which is on the periphery of Europe and the UK, could gain a competitive advantage to make it more productive, attractive and prosperous.
There are many difficulties in completing such a task, particularly as a large amount of the corporate taxes of Scottish businesses come from the profits they make from customers across the whole of the UK. This means that the people in England, Wales and Northern Ireland are helping by their own unwitting contributions to making our Tax Freedom Day being earlier than if we relied on paying for our taxes entirely ourselves. This point again underlines the benefits of trade and why we need to focus on building our exports, especially to the emerging markets outside the European Union where there is the greatest potential to grow.
With the new tax raising powers coming to Holyrood this year, what are the chances our Tax Freedom Day will be later rather than earlier? I think we all know the answer to that question.
• Brian Monteith is director of Global Britain