Tories and Lib Dems to fight next election on pledge for a 'flat tax'

[T_i_B]

Can the Lib Dems just dump this idea now please? Flat taxes are an inherently bad idea and totally unprogressive.

http://news.independent.co.uk/uk/politics/article311056.ece

The Tories and the Liberal Democrats are set to fight the next general election on a pledge to move towards a single rate of income tax or "flat tax".

However, the two opposition parties admitted yesterday that it might be difficult to bring in a single tax rate in Britain because its tax structure was much more complicated than in Eastern Europe, where there is a flat tax revolution. Instead, they may promise to simplify the tax system.

George Osborne, the shadow Chancellor, who is setting up a commission on flat taxes, suggested that a future Tory government would reduce the demands on the state by giving the private sector a much bigger role in running public services, which would still be government-funded. "There is no reason why every teacher, nurse and doctor should be employed by the state," he said.

At their party conference this month, the Liberal Democrats will discuss the merits of a flat tax. Vince Cable, their Treasury spokesman, said a "full monty" flat tax was not suitable but he wanted a "flatter" system. The party may promise to abolish the 10p starting rate of tax but keep a basic and higher rate. Their policy of a 50p top rate on earnings over £100,000 would be ditched.

[Mr Creosote]

1. Every time politicians

"simplify" the tax system it just gets more comp[licated.

[Briar]

2. Looks like 2005 is the last general election

in which I will vote. The Greens never waste their deposit on a candidate in my constituency.

I'm not surprised the Lib Dems have sold out to the low tax, deregulation anti social market consensus, but it does leave me without a party to vote for!

[muriel_volestrangler]

3. Yes, I felt the plan for a 50% top rate made them properly progressive

Drop that, and they look far too like New Labour/Tory Lite, economically. Maybe it's time to urge your local Lib Dem candidate/MP to resist this.

[Wabbajack]

4. I wish "old labour" would make a comeback

[Greeby]

5. I can't get worked up about tax issues

As first I need to find a job so I can earn above PAYE :(

[ikri]

6. They're still pushing this crap?

Newsnight isn't usually biased but the analysis that they did of a flat tax system in the UK yesterday pretty much slaughtered the idea.

It might work brilliantly in other countries, but the flat tax rate in the UK would have to be set at above 35% to gain the same income. Whilst those on very low wages and those on extremely high wages would see great benefits, pretty much anyone earning between £20,000 and £200,000 would be worse off - in case the Tories hadn't noticed, that'd be Middle Britain.

We'd only be better off under a flat tax system if government expenditure dropped by about 40% and doing that would see us lose the NHS or public education system.

And I wish someone would simply point out to these idiots that the entire reason that we have a MRSA epidemic in the NHS is thanks to the outsourcing of hospital cleaning to private firms - how good do you think the NHS would be with privatized nurses & doctors?

[tjwmason]

7. There's one point about this plan that I love

It's not technically linked to the strict notion of a flat-tax - that's a massive increase in basic allowances.

Those on low incomces are shafted enough, taking them entirely out of the income tax system would be a great development.

[Taxloss]

8. And people get so cross when I call the Lib Dems "yellow tories"

and "not an alternative" and "not progressive".

Flat-taxers? Vince Cable has also suggested dismantling the NHS! YELLOW TORIES!

[LeftishBrit]

12. I think that the parties here are not monolithic (any of them)

I think all three parties have their right and left wings. Obviously, the Tories are more right-wing overall than the other parties; but also they've been run by their right-wing since Thatcher. Labour has some very good people, but is run verrrrry much from its right; and the Lib Dems aren't really run at all at present, but they too have good and bad people. Vince Cable seems to be to the Lib Dems, what Blair is to Labour; and I fear that if they get into power, they'll be run by the Cables; it seems to be par for the course for any party nowadays to get run from its right wing. I still like our MP Evan Harris, though.

Unfortunately, the UK system is very much one of voting for party, rather than for people or for issues; which makes life difficult when a good party (Labour) is run by a bad guy (Blair).

[Taxloss]

15. The LD commitment to flat tax may be a device to stop losing votes

to the Tories. It will be interesting to see how/if they harmonise it with their plans for local income tax. I personally feel the flat tax won't go down very well in the country. Although there are some individual Lib Dems I like (Simon Hughes seems like an alright sort), overall I have very little respect for them. But the main parties aren't exactly writing their 2009 manifestos now - all three of them will have new leaders by then, probably.

[T_i_B]

9. One tax that the rich will love

This article by Will Hutton simply had to be put on this thread didn't it?

http://observer.guardian.co.uk/comment/story/0,6903,1567231,00.html

It is the new political idea of the season and its sudden prominence is a fascinating commentary on our times. Its endorsement is a badge of virility for every right-of-centre columnist, and now the virus has spread to our politicians. The Lib Dems and Tories say they'll look at it, with shadow chancellor George Osborne announcing last week that he is setting up a new tax commission to assess it.

This catch-all solution for our ills is the flat-rate tax or 'flat tax'. No more higher tax rates for higher incomes. No more tax credits for the poor or allowances to encourage this or that virtuous activity, such as saving for retirement. Just one straight flat rate for all, rich or poor alike. Simple. Understandable. Easy to collect. The long awaited magic bullet that will transform the British economy, remoralise our society and revive Conservative fortunes.

This is an economic idea that has gone from the batty fringe to centre stage faster than any other I can remember. No matter that it is virtually impossible to construct a flat-rate tax without massively squeezing the post-tax incomes of middle-income earners while giving the rich a gratuitously large kickback because the rate has to be set above today's basic rate of tax but below the top rate. No matter that the only way round this problem is to slash public spending, allowing the flat rate to be pitched below today's basic rate while finding resources to at least double the current threshold for paying tax.

No matter that the east Europeans compensate for their flat-rate taxes with hefty social security contributions, and in Hong Kong, another flat tax regime, with big property taxes. Or that the collection problems it might have helped solve in eastern Europe and Russia do not exist in law-abiding Britain. No matter that some allowances put forward for the axe, like those to encourage pensions, exist for very good reasons, or that the only way to capture even the first disputable benefits is to apply the flat rate across the entire tax system because income tax generates a mere quarter or so of all tax receipts. All is ignored in the Gadarene rush to be seen championing an apparently innovative idea.

[fedsron2us]

10. The UK only has three income tax bands

For the 2005-2006 tax year these are:

* starting rate band 10% – up to £2,090 of taxable income
* basic rate band 22% - £2,091 - £32,400 of taxable income
* higher rate band 40 % – from £32,401 of taxable income

As many of the special allowances and reliefs of the past such as MIRAS have been abolished this is really a policy aimed at benefitting the rich. The simple fact is that for the most people a flat rate of income tax will mean either one of two things. Either the total amount of income tax paid by the vast majority of the population will go up or else public expenditure will have to be cut. Moving workers into the private sector will not change the sums much since someone at the end of the day will still have to pay teachers and nurses salaries. Very few people will have the money to purchase these services directly so most of them will still have to be funded out of the public purse. Interestingly, the big corporations are now so embedded into British government life that many of them now have an interest in maintaining the status quo since they are receiving ever bigger proportions of their earnings from government. Since many of these businesses organise their affairs so as to minimise their exposure to UK taxes they are not likely to care one way or the other how the income tax system is structured. Similarly, the elite earners employ a vast army of accountants and lawyers to construct their affairs so as to avoid paying income tax. These people are not going to change their habits just because the top tax band is abolished. They will still seek to pay as little of their earnings to the state as possible. The idea that administering the three tax bands is responsible for the current size of the HMRC staff is just a joke. Most of the calculations are either done by employers via PAYE or automatically by the departments computers. Politicians really make me hoot with laughter when they suggest that it is bureaucrats who make the tax system so complicated. They seem to forget that it is MPs that are ultimately responsible for passing the governments Finance Bill every year. Finally, I do not detect any massive clamour from the general population for changes to the income tax system. Most voters are far more concerned about increases in the Council tax or rising fuel prices not the existence of the 40% tax band. My advice to the British political classes is that if you want to end your days hanging from the nearest lamp post or being carried by cart to the guillotine then this is the policy you should adopt because it will make a bloody revolution in this country a near certainty.

[Nihil]

11. It should also be remembered ...

... that the "starting rate band 10% – up to £2,090 of taxable income"
was introduced by Blair's supposedly "Labour" government, thus punishing
the poorest sector of the population whilst retaining the higher rate
tax band at 40% ... just as it was under the Tories ...

Of course, the Blairite champagne socialists will be full of "good
reasons" why this is "fair" ...

[muriel_volestrangler]

13. I don't think it did punish them

because it replaced a 20% "lower rate". While the starting rate only went up to £1500 of taxable income, and the lower rate went up to £4300, I think everyone gained slightly with the lower rate - eg someone with £4300 of taxable income paid £150 + £644 = £794, as opposed to £860. Someone with £1500 taxable income would have gained £150.

http://www.companyserviceonline.com/free_area/key_figs/tax/inctax.htm

[Nihil]

14. Must be my faulty memory then.

Sorry about that (and thanks for the link) but I was sure that a chunk
of the people between £28/week & £82/week lost out (i.e., those above
the £1500/10% cutover to the £28k/23% band).

<sigh>

[T_i_B]

16. Lib Dems ponder taxes on higher earners to attract Labour voters

Will the Liberal Democrats please just make their mind up?

http://politics.guardian.co.uk/libdems/story/0,9061,1568736,00.html

The Liberal Democrats could woo Labour supporters with changes to their tax policies which would benefit low-income households at the expense of higher earners.

Senior Liberal Democrats are considering the proposals, which include raising the tax threshold to the minimum wage level - at £8,615, almost double its current level - or axing the 10p rate band, days before the party's autumn conference in Blackpool begins on Sunday.

That would require raising more cash in other ways, for instance by scrapping the upper earnings limit on national insurance contributions. Critics have suggested that the Lib Dems' redistributive policies damaged the party's electoral appeal to middle class families at the general election.

[Briar]

17. Perhaps there will be two LibDem conferences

One to attract the Tory voters, another for the Labour ones.