pretzpol

[pretzpol]

Cuts to Corporation Tax: Ideological and Arbitrary

The UK already has a pretty low corporate tax rate, at 20% - it’s the lowest in the G20. VAT is also 20% (fairly standard internationally), and so is the basic rate of income tax. In fact, the headline rate of Capital Gains Tax was also just cut from 28% to 20%. The Conservative party must really love that number.

But the Tories, in their ideological pursuit of making the UK a tax haven, have a commitment to reducing CT. It was 28% when the coalition Government came in in 2010 (for profits >£1.5m, 21% for profits <£300k, marginal rate in between), having seen various changes under Labour from 1997-2008. The coalition gradually cut it over 5 years to 20% for all companies, and with the Tories in full control, planned to cut it further, first to 19%, and then to 17%, presumably to 15%, or maybe lower, perhaps in line with Ireland’s low 12.5% (Northern Ireland has devolved CT powers and already has a 12.5% CT rate).

Is this a good thing? Debateable. The right have argued since time immemorial that having lower taxes produces a trickle-down effect, supposedly propelling private sector investment (quite transparent nonsense, it just gives the rich more wealth that they don’t spend), but there are claims that CT receipts have risen as a result of the rate cuts. Misleading claims, but claims nonetheless (take that as you will).

Disregarding facts, as is apparently popular in modern politics, the idea is to draw business to the UK. And probably to irk other EU countries as a middle finger now that we’re leaving, TerriMay planning to trigger Article 50 next month, Parliamentary Ping-Pong permitting.

So I think I’m clear that the cuts are ideological, with the only benefit going to big business, with the intention to draw large multinationals to the UK.

In or out of the EU, London is a business hub, as is much of the South East, and many of the UK’s major cities in other regions of the country, albeit perhaps a bit less so. Business wants to invest here because as an established economy, Britain is a good place to invest, CT rate regardless.

It makes the most sense to have a return to banded Corporation Tax, with small companies maybe paying a rate lower than 20%, but larger companies paying a higher rate than 20%.

But let’s play devil’s advocate - let’s pretend arbitrary cuts to business taxes work as intended, and that a less taxed free market benefits everyone, not just people with pre-existing capital. I would argue that even following this logic, tax cuts could be made that would benefit the economy as a whole far moreso than a simple cut to Corporation Tax.

So with the budget coming up, what “pro-business” moves could the Government take instead of reducing the CT rate and triggering a race-to-the-bottom on business tax, when we should be seeing an international movement to push it up (and regulate private industry, and move shares into the hands of the workers, and so on...)? There’s no real persuading the Tories from cutting some kind of tax, after all (they cut everything else, why not taxes too?) So here are a few alternative ideas.

Realistically, as part of a comprehensive tax policy, Inheritance Tax needs reviewing, as do Capital Gains Tax, Income Tax on dividends and rental income, and the possibility of introducing a Land Value Tax and a Luxury Goods Tax should be looked into - but let’s focus purely on business taxes for the purposes of this.

Increasing the VAT registration threshold

As an accountant, I have seen many small business get hit as soon as they start to get going, by VAT - the cost involved in preparing and submitting returns every three months, or every month, is a massive burden, and a massive time expense by busy entrepreneurs, let alone the cost of the tax itself to both businesses and consumers.

At the moment, a business is required to register for VAT as soon as it turns over £83,000 in the span of 12 months, or it expects to soon. After that, it’s required to submit the aforementioned VAT returns every quarter, and to add 20% to its sales prices to pass over to HMRC, after deducting 20% on any VATable purchases.

£83k is pretty low - most businesses hit this as one-man-bands. I should clarify it is turnover, i.e. sales revenue, not profit, that this £83k represents.

In my opinion it should be at least £150k, probably higher. Aren’t businesses supposed to create jobs? If you slap VAT on them before they start making enough money to employ people, how are they meant to do so?

Additionally, VAT increases the cost of consumer goods for consumers, increasing the cost of living, and keeping the poor, poor. If you want to encourage small business, this would be a far better move.

I’d also suggest reducing VAT in general, since it hits the poor more than it hits the rich, thereby being a regressive tax, but since the Coalition increased it from the lower rate Labour left it with, I think it’s unlikely that’s on the table for TerriMay and her team.

Increasing the Personal Allowance.

By all accounts, someone working 40 hours a week at minimum wage (which, in spite of its rebranding, is not a living wage), should not be paying income tax. This is something UKIP, of all parties, pushed for at the 2015 GE, and left-wing parties should be pushing for more strongly. This is the approach the Government should be taking to reduce personal tax liabilities, not moving the basic rate band and higher rate bands around - not so subtly done so that Lib-Con swing voters might be more inclined to vote blue in 2020.

Doing this would increase the net income of working people to be in line with living costs, increasing the velocity of money (because poor people spend their money, while rich people save it), and reducing inequality (by ensuring poor people have enough money to actually live). This is good for business because it means more people are able to spend more money.

Increase the Primary Threshold for NI

National Insurance is a mess. Thankfully, Class 2 NICs (weekly contributions of £2.80/wk for any self-employed people earning over £5k or so), are being phased out. But as the Personal Allowance has gone up for Income Tax, the Primary Threshold, the point at which people start paying NI, has stayed roughly steady, with employed people paying Class 1 Primary NICs at 12% starting from about £8k, and at 2% starting at the higher rate threshold, and self-employed people paying Class 4 NICs at 9% starting at about £8k, and at 2% starting at the higher rate threshold.

There should be a move to combine National Insurance and Income Tax - since they’re almost the same thing anyway. Income Tax at 20% and NI at 12% is basically just Income Tax at 32%, with the next band being 42% and then 47%.

The NI bands should be moved perfectly to mirror the Income Tax bands, and self-employed people can get a 2% or 3% tax credit so they don’t lose out on the lower C4NI rate. Class 1 Secondary NICs (Employer’s National Insurance) should obviously be handled separately, as should industries such as share fishing which have different rates - but that doesn’t mean there shouldn’t be a general move as I describe.

The arguments for this are basically as above for the Personal Allowance - lower earners having more money to spend, therefore more money gets spent on consumer goods.

Eliminate Employer’s National Insurance for under 25s

There is a crisis of youth unemployment in the UK, and across the western world. Young people can’t get jobs because employers only want people with both experience and qualifications, even though these young people are fresh out of uni or college, and know their stuff, and are eager to work. Another issue is that people are living longer, and are working longer, meaning fewer job vacancies are being freed up, and new ones aren’t being created because of stagnating industry.

Separately, once in work, young people are devoted employees, driving themselves to the point of developing mental health issues (additional source: me) - but they aren’t really being hired in the first place, which also drives mental illness.

So the Government needs to intervene, and introduce incentives for businesses to employ young people so they can actually get experience and become noticed by potential employers. Employer’s National Insurance is a cost employer’s take on by employing staff, originally as a “you pay a bit, and you pay a bit, and you both benefit,” as NI is explicitly used for funding pensions and the NHS.

Employer’s NICs were already eliminated for under 21s under the Cameron Government, but they should go further and tell employers “you don’t have this cost for under 25s,” so that employers will be more inclined to actually train staff.

Introduce a CT credit for employee costs

Youth unemployment (and underemployment) isn’t the only issue - unemployment is an issue in general. This could be tackled through tax incentives - although it would be best as a package deal alongside contract regulation and industry investment.

CT is charged on profits, so say a company had sales of £500k, general costs of £200k, and staff costs of £50k - their profit is £250k, and taxed at 20%, their CT is £50k.

I propose companies get a CT credit for their staff costs, so that they’re more likely to be willing to spend money on staff. Employment and training should be seen as an investment, not as a cost.

i.e., with the same example as above, the company could claim £25k (50% of their staff costs) as a further reduction of their taxable profits - down to £225k, reducing their tax by £5k, down to £45k.

This would also serve to make things like minimum wage increases more palatable.

Increase R&D tax credits

Research and development is very important, and is surely the actual kind of investment the UK needs. If the Government wants to draw overseas investment through CT incentives, it should be with a move like increasing R&D tax credits - a nominal increase in R&D expenditure to reduce CT charged.

Increasing subsidies for green industry

For heaven’s sake this one should be obvious. Solar panels, wind turbines, water turbines and tidal plant components are crucial to our survival as a species, let alone country - or at the very least, to our current way of life. Want to go back to strike-induced power cuts? Skyrocketing fuel prices? Plastics and pharmaceutical prices shooting up? Welcome to a future where crude oil is near unobtainable. And that’s without even looking at air pollution and climate change. The people of Fiji say hi.

Of course, instead of reindustrialising the north by investing in green industry, the Government is cutting solar panel subsidies for reasons that make no sense, and approving technology known to cause tremors, poison water, and serves as a terrible stopgap when alternatives are vastly superior.

Also, electric cars and corresponding infrastructure - where are they? Jobs could be created by manufacturing charging points, and putting them in appropriate locations. Should we not be investing in hybrid and electric vehicles that meet the various criteria that drivers have for purchasing vehicles? That’s the main reason they haven’t taken off yet, really. Invest in that, and regulate petrol and diesel cars away. Encourage people to buy and drive hybrid and electric.

In conclusion, the Government could achieve its goals by doing the above instead of reducing Corporation Tax. It should also completely reconsider how Corporation Tax rates are balanced, as receipts from small business are rising, whilst receipts from large business are falling. But no, they’re too ideologically committed to making us a tax haven. I wonder who benefits from that?

I’m a trainee accountant, so I have a degree of tax knowledge - I do not claim to be an expert, and definitely not infallible. I welcome constructive feedback on the above, as I’m always looking to learn.

[pretzpol]

An open letter to the DNC

This is your fault. You had the opportunity to put up a better candidate than Hillary Clinton, who got railroaded through to the nomination in spite of an active investigation and an was deeply unpopular throughout the country.

Head-to-head polls during the primaries showed Republican candidates coming close, with Kasich even beating her. Bernie beat everyone by a mile, and had he become the nominee, would have won by now.

You rigged the primaries in Hillary’s favour - the Podesta e-mails make that abundantly clear. There was a mood that it was, for whatever reason, her turn.

There’s an abundance of people who can also be blamed - Comey, Ryan, even Trump, sure. But no, the blame, ultimately, lies with the DNC.

You did this to yourselves by not putting up a candidate that people wanted to vote for, and instead putting up a mediocre candidate, and saying “vote against the other guy.”

That’s not how you win an election.

You should have learned this in 2000.

[pretzpol]

High Court judges: Enemies of the people??

I am completely baffled by this “High Court blocking Brexit” nonsense that’s dominated the headlines the past couple of days. That’s literally and objectively not what’s happened.

Unless my (admittedly somewhat limited) legal knowledge fails me, referenda in the UK (rare as they are, relatively) are inherently advisory unless the initiating legislation explicitly says so, which the European Union Referendum Act 2015 does not. The judges are doing their job and interpreting the Act in line with its wording and our (unwritten) constitution. It’s 100% a ruling about process.

So of course the Article 50 decision needs to go through Parliament. And to say Parliament will block it is absurd - either The Commons or The Lords voting against it would be turkeys voting for Christmas.

By overturning the verdict of direct democracy, The Commons would face a General Election with likely horrendously low turnout, or unusually high anti-establishment turnout, and The Lords would face already growing criticism for being an unelected body - some/most of those 800-odd people would lose their law-making capacity. These are the events that would create a constitutional crisis, not this court judgement.

Therefore at large it is in MPs’ and Peers’ self-interest to vote in favour of Article 50 being triggered in line with Terri May’s timetable, even if they personally are in favour of staying in.

I should add that this isn’t addressed at people who hold one opinion or another, as there were perfectly valid reasons to vote either way, this is more bitching about the press (in particular The Mail, The Express and The Sun) and bandwagon politicians who are acting as if democracy has somehow been betrayed in a way that warrants some far-right revolution.

Misreporting of stories is hardly new, but this in particular just rubbed me the wrong way for some reason, probably because it’s such a big issue and so blatant in its misstatement of facts that I am, as established, baffled, which is the only word I feel adequately describes the situation.

Hopefully this is about as non-controversial as it was in my head.