A taxing issue:

Gaiety Row, or getting around the rules:

I heard on BBC Radio 4 the other day a tale of enterprising army officers of the nineteenth century who, banned from entertaining ladies in barracks, duly set up their ladies in a row of houses across the river Thames which they dubbed Gaiety Row (the houses that is, not the Thames). The moral is that human nature invariably finds a way of getting around unwelcome rules, and the sting in that tale is the present hoo-hah about company tax avoidance in the UK.

Amazon, Google, Starbucks and others stand accused of unfairly avoiding taxes in the UK by engaging in obscure and complicated dealings designed to make it appear as if profits were made not in the UK but elsewhere, where the tax regime is less burdensome. On the radio and TV they have the cheek to call this News, and it has led to much outrage and hand-wringing on the airwaves. My radio and TV sets vibrate daily with newscasters and interviewers whipping up controversies between the accused and some outraged taxpayers’ alliance of which I have generally never heard before. Perhaps they were invented for the purpose, I sometimes think. (Oh, so cynical, Charles…)

One shocking casualty in this debate is the general principle once expounded by a famous judge whose name escapes me for the moment but who said in his famous judgement something to the effect that no man is obliged so to arrange his affairs as to give the taxman the greatest possible share of his wealth. I have to say I lament the implied trashing of that excellent general principle.

But what has me yelling at the radio is that none of the parties to these daily controversies ever seem to address the real issue. Beware this mad scramble to pillory companies for so-called tax avoidance. The fact is that anyone who thinks we can tax a trading company as if it were something divorced from its customers is deluding themselves. You only have to consider where a company gets the money to pay these taxes. They get it from us, the customers. Every penny of that tax, were it to be paid in full, would appear in the price of the goods we buy from them. It is we, the customers, who pay that tax, not the fat-cat company directors nor the shareholders nor the company itself, which merely acts as the government’s tax collector. Company taxes are in fact a form of stealth tax, a downright fraud, a trick worked upon us, the general population, designed to hide from us the real burden of taxation that we carry. Even the lowest paid amongst us, though we may not realise it, pay a substantial portion of our income in taxes of one sort or another. Add them all up: here in the UK even if you pay no income tax you do pay those hidden corporation taxes through the prices in the shops, plus regular VAT, road tax, council tax, national insurance, stamp duty on a house sale, even the BBC’s licence fee; these are all taxes no matter what innocuous name they are given.

Successive governments have inflicted upon us ever more complicated and numerous laws, not just in the arena of taxation but in almost every walk of life. This disastrous complication has served like a fog to addle our brains and distract us from the irresponsible over-spending and consequent over-borrowing of chancellors and Prime Ministers who have ridden the illusion of good times bought with borrowed money. My grandmother taught me that any idiot can live high on borrowed money for a time. Then the bailiff comes knocking at the door.

Aside from company taxes, I am no friend of income taxes or property taxes either. The first is a disincentive to earn, expensive and intrusive to administer and collect; the second (council tax and the insidious new bedroom tax come to mind) threatens to rob us of our very house and home if by some oversight we have not earned enough cash to pay this year, somewhat reminiscent of the Sheriff of Nottingham upending the local serfs (that would be me, no doubt) and shaking them by the ankles to see what paltry few coins fall out of their pockets, threatening the while to set fire to their thatch if the coins are not enough.

My father, when anyone railed against some perceived injustice or fault of the system, would always challenge the ranter to say what he would do instead; an excellent principle, I think. So I feel duty bound to say what I would put in place of these fraudulent stealth taxes and Sheriff of Nottingham tactics.

Granted that taxes in some form are necessary for the provision of those desirable things we can have only by communal effort and co-operation – things like defence of the nation, the NHS, education for the plebs (that’s me too), roads, the distribution networks for electricity, gas, water and drains, the civil police force and system of law that distinguishes human society from the mere animal – granted we must pay for these good things, let us at least seek honesty and transparency in the levying of taxes upon us. Let us not be fooled by stealth taxes designed to blind us to their real burden. To those ends I am about to suggest a thing I suspect many will view with horror. But don’t howl me down just yet, please. All I ask is that you think about it before you place the hangman’s noose about my neck and heave with gusto on the free end of the rope.

Far better, I suggest, to levy taxes on transactions than on income, property, or the profits of trading companies. Then, whenever you spend a little money in the shops some of it goes in tax to the communal pot: painless (comparatively speaking), transparent, honest, hard for sly government to hide behind and hard to evade since we all must buy whatever we want in the shops, where the tax is levied. The much maligned VAT is, I suggest, a more bearable way of paying the money necessary for the running of the country. Oh dear; I feel the noose tightening about my neck even as I type…

“But what about the poor,” I hear you wail? “VAT is such a horribly regressive tax. The poor should not be expected to pay the same rate as the millionaire, dammit!” And I quite agree. Not only that, I don’t think anybody should be taxed on the basic necessities of life. It is everybody’s right to provide themselves with food, clothing, home and warmth before they even think of contributing to the communal pot.

So, if we zero rate the four basic necessities of life – food, home, household fuels and clothing – on which the poorest in our society spend nearly all their meagre income, then the poorest would effectively pay no tax at all. The moment anybody has discretionary income to spend (ie income more than is necessary merely to feed, clothe and house themselves) then they can and should contribute something to the communal pot. The richer you are, the more you spend and the more you pay in tax. Simples, as youngsters are apt to say these days, copycatting a certain entertaining TV advert.

“Ah, yes but…” (that’s you again, voicing another objection: The rope tightens. I’m on tiptoes now). “But that would mean the wealthy could spend oodles on stupidly expensive clothing and big houses far in excess of their needs and would pay no tax on all that extravagance! Get out of that one, clever-dick!”

Hmm… OK then, if you’ll just ease up on the tension a bit I’ll suggest that instead of zero rating basic necessities we issue a VAT-free basic needs ration to every citizen, just enough to cover a reasonable spend on those four basic necessities. Everyone gets that ration and can use it to buy their basic necessities at zero tax rate. Beyond that, the wealthy are welcome to buy all they can afford (which, after all, provides jobs for the rest of us) and pay full tax on everything in excess of their basic needs. The poor still only buy basic needs which are covered by their ration and so pay no tax. Thus the tax-free ration amounts to 100% of a poor person’s income, some lesser percentage of a middle income, and a piffling percentage of a humungous income. Or put another way, the rich pay lots of tax, the not-so-rich pay less and the poor pay nothing. Sounds good to me. Visitors to our shores who are not citizens have no ration and so pay the full rate on everything they buy, thereby contributing usefully to our communal coffers, which cuts down the rate for the rest of us. Simples, again. (Oh, I feel smug now! Do please loosen that noose a little.)

We wouldn’t have to issue actual paper coupons, World War 2 style. We all have a pin number. It’s called your National Insurance number. Issue the ration via a government website (we already have those too as anybody who has claimed unemployment benefit recently will testify bitterly). When you buy your weekly shopping give your NI number and the shop deducts the VAT according to your unspent ration.

We need not think up any fancy-dancy name for it. Just call it tax and levy it on any transaction conducted by way of trade. Since there are fewer trading entities in the country than there are people it would be a less expensive system to operate than the present hotch-potch of individual income and company taxes, the unutterable complexity of which provides so many opportunities for the wealthy to employ clever-dick accountants to avoid or evade them. We could sack half the existing tax inspectors. (Delicious thought: Let them sweep streets, he said, momentarily lapsing into Marie-Antoinette mode. I feel the rope slackening, unless there is a tax inspector swinging on the end).

To replace all those stealth taxes I daresay the VAT rate would need to be something more than the present 20%. But then we would have more income from which to pay the higher prices since our earnings would not have been raided for tax before we even got them, and nobody (except the shopkeepers) would have to worry about the taxman looking over his shoulder. Perhaps one of the aforementioned clever-dick accountants would like to tell us what rate of tax we would need to set to replace the aggregate of that horrendous list of stealth taxes I gave earlier. They’ll tax the very air we breathe next, you mark my words! Scrap the darned lot, I say, and let us just have VAT. Personally, I would rather pay a transparent 30 or 40% on every purchase than suffer the equivalent taken by the sneaky and deceitful stealth system presently inflicted upon us.

In case anybody objects that the aforementioned overpaid company fat-cats and shareholders would be getting away with it by the abolition of company taxation let me just return to my original premise: that company taxes do not come out of the pockets of the directors and shareholders, they come out of the pockets of their customers (that’s us). And I’ll also point out that whatever profits are distributed are still taxed, at present as the income of the individual who receives the bonus, and under my proposed reformation when they spend it, which they surely will do sooner or later. Even the miser eventually dies and leaves his gold to someone else, thence to be spent and so taxed, doesn’t he?

I could go on, but I think I’ll button my lip while there is still some slack in that hangman’s rope. But let me just boil all that down to its essentials:

  • Scrap all forms of tax except VAT
  • Issue a VAT-free ration for the basic necessities

And that’s it. Job’s a good ‘un. Have you let go the rope yet? Doubtless there are still objections to my proposal. Why not weigh in with your ten pen’orth in the comments below?

Meanwhile, back on planet earth, how the heck can I make a credible connection between reforming the tax system and my fiction titles?  Perhaps surprisingly, there is one: by another of those stealthy sleight-of-tax tricks our government inflicts upon us, it happens that in the UK though print books are not subject to VAT, eBooks, inexplicably, are. So if you buy my novel you will at least have the satisfaction that some of your brass will go to the national communal purse, which along with all the other taxes you and I pay, distinguishes us from the aforementioned villains who avoid theirs…

Cheers! And if you have, thank you for buying my novel.

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