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Article: A Wealth Producers’ Tax

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  • Picture of Derek Bates
    Derek Bates
    Author and Consulting Scientist
  • Economics and Finance

A primary reason for the UK’s relative stability is that we tend to pay our taxes. Derek Bates FRSA argues that the way our tax is collected is inefficient, highly complex, takes too much of the nation's resources, and suppresses enterprise. He suggests a revolutionary change.

Society cannot function without a productive system of taxation. As many UK Chancellors have found, getting the income/expenditure balance right is critical.In the UK income taxpeaked in the Second World War with a top rate of taxation of 99%. It stayed above 90% through the 1950s and ‘60s, which resulted in many creative people, including Noel Coward, living abroad with an obvious loss to the economy

In 1971 Margaret Thatcher’s government reduced  the top rate of tax from 98% to 60%, with basic rates at 30%. This was later reduced to 25% with the top rate cut to 40%. It is salutary that the Conservative Government left a buoyant economy in 1997. In 2010, Labour imposed a top rate of 50% on incomes over £150,000. As the CEO of Diageo said, the result was that many high earners moved abroad. This benefited cities such as Geneva at the expense of London. In the 2012 Coalition budget this rate was cut to 45% and some of the émigré high wealth individuals returned to UK.

Tax migration is not the only challenge and there is a level of tax beyond which people revolt: in 1601 Poll Tax sparked the Peasants Revolt and in 1990 an attempt to introduce a second Poll Tax provoked rioting. Excessive taxes were partial initiators of the French Revolution.

It is because the effects of tax changes are unpredictable that Chancellors alter taxes at each budget and accountants and finance directors have to adopt different strategies each year. For help they must turn to Tolley’s Tax Guide, already the longest in the world it is now 185% longer than it was in 2000.  Individual guides for particular categories of tax such as Income Tax exceed the length of War and Peace.  To administer tax, companies must employ accountants, bookkeepers and advisors; adding these to the expenditure of HMRC, which employs 100,000 people in 900 offices, could even result in some tax collections exceeding the revenue raised.

Tax may be assessed by a 'cost over value ratio’ (COVR). If people accurately calculated and paid their taxes directly to HMRC at their own cost, this would be calculated as 100%. No one will pay an avoidable tax and high wealth businesses and individuals endeavour to reduce their tax burden, encouraging devious practices amongst those who would otherwise be law abiding. 

All tax originates from the profits of businesses. These ‘wealth producers’ employ people to provide products or services or, in the case of importers, sell goods. Businesses must pay their staff at least enough to enjoy reasonable living standards but also pay an increment so that their employees can themselves settle the many forms of taxation to which they are subjected, including PAYE, VAT, Excise Duty, Road Fund Licence, Business Rates, National Health Insurance, Capital Gains Tax, Inheritance Tax and so on.

I propose a radical reform along the lines outlined in my book Shadows in the Wall. The proposal is to eliminate all of the different forms of tax and instead derive a Wealth Producer’s Tax (WPT).  WPT would apply only to profits from the sale of goods and services and capital gains such as when land is given planning permission or benefits from such things as new transport links. By reducing administration costs the effect would be that employers would pay less tax while HMRC would have a greater tax take. WPT would eliminate other forms of tax such as VAT since it would have the same effect as VAT of increasing selling prices. WPT would also replace Stamp Duty on property sales.

The economy of the UK is predicated on house prices. When these rise, owners feel an increased sense of affluence that they increase their spending and inflation increase. Property price bubbles are controlled by the Bank of England raising interest rates.  The major demerit of this is that it advances the value of sterling in relation to other currencies. With a stronger pound, exporters become priced out of markets, businesses fail and jobs are lost. If the electorate were told that for a period of six months any property sold would be subject to increased WPT, purchasers would be reluctant to buy for that period and prices would drop.  If property prices declined it would be announced that WPT would be reduced for a period of six months. This would stimulate purchases. Manipulation of WPT would bring stability to property but have no effect on Sterling so that exporting businesses would not be damaged.

The UK does not export enough goods and services and has a negative balance of payments. To stimulate exports, WPT could be lowered or (international trade agreements permitting) even eliminated on goods for export to allow them to be sold at a lower cost and thus reduce the deficit. Of course, WPT would not be without fault but would be simpler and less costly than the current incomprehensible regime.

Author and Consulting Scientist, Derek Bates working for virtually every type of industry is aware of the damage the existing tax regime imposes.  The article above is taken from Shadows in the Wall (www.reflective-productions.com) where he also proposes an alternative democracy.

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  • It remained above 90% through the 1950s and '60s, which brought about numerous imaginative individuals, including Noel Coward, living abroad with a conspicuous misfortune to the economy.

  • Wishing you the best of luck for all your blogging efforts.This is my first opportunity to chat this website. I found some interesting things and I will apply to the development of my blog. assignment writing services

  • I like your point of view. To be honest I've never though about it that way. New forms of raising revenue for the exchequer are really important. I'm doing a research for a http://www.grabmyessay.com/research-papers now and I find your article really useful. I hope that you are OK with this article being one of my sources. 

    Best regards.

  • While it is useful that people such as you propose new forms of raising revenue for the exchequer, I found the blog suffered from 2 flaws. First, the first 2 parags sound rather naive as you mention the percentages but omit to say what the basic rates were at the different times, and at what level of earnings the different rates kicked in. Any talk of changes to the top tax rates must be seen in context, or remain meaningless. 99% tax for every £1 earned over £1 million is a problem?  Secondly, the WPT you propose remains unclear. Do you mean to abolish all individual personal income tax paid on earnings from employment? How does one accumulate a pension? 

    Good luck in fostering interest for your proposals.

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