A year in which we were told the economy would grow and the recovery would begin in earnest. A year ending with almost everyone predicting hard times ahead.
The past year has been dominated by the economic crisis and the fiscal powers debate. Let’s start with the economic crisis.
The link between what a government spends and how it funds this spending is an obvious one. Whatever the government spends it needs to match by taxation or borrowing. The consensus now is that we have a “debt crisis” rather than a recession. The main political debate is between those who wish to restrict government spending and those who argue for more government spending to grow the economy.
I agree that spending must be reduced. There is little doubt that the UK has been living beyond its means. Even when the UK Government manages to balance its books the national UK debt needs to be serviced and at some point paid off. The scale of the task is such that even under coalition government plans it is going to be at least another five years before the books are balanced.
If there is to be additional spending on say infrastructure then public spending in another should be reduced. Growth is important but so is reducing the debt mountain. The trick is to somehow do both. Is there a simple answer to this conundrum? Of course there isn’t.
There is though a related issue that needs to be addressed. We are often told “we are all in this together”. The problem with that statement is we keep hearing about sections of society that seem to be treated differently. Bankers and their bonuses is close to becoming a cliché but what of those in senior positions in the public sector. Can it be right that salary levels, bonuses and the numerous associated benefits of many of those who work in the public sector are so high and wide ranging and far in excess of the majority rest of the workforce? One example. Dave Hartnett head of HMRC is to take early retirement next summer with a pension pot of £1.7 million. I have blogged on Mr Hartnett before. It seems he may even get a bonus this year.
That is where the public spending debate is moving. If public spending needs to be reduced, and let’s be clear it does, then the starting point cannot be reducing those who in the public’s eyes actually do the work. First things first. I keep hearing and reading about highly paid public sector managers who earn lots but no one is sure what they do. My question is a simple one. Is this actually true?
Then there is HMRC and the claim by the House of Commons Public Accounts Committee that there is £25bn in tax owed by large companies. HMRC has “previous” with this Committee of which I have blogged on before. The taxation of large companies is complicated but that is a huge sum of money. Again this makes me wonder if we are all in this together.
The taxation of large companies is complicated but does HMRC treat all businesses the same? Evidence gathered by the law firm McGrigors showed that HMRC is increasingly using legal powers to force the settlement of unpaid tax bills in Scotland. The use of similar powers in England and Wales fell over the same period. Does this mean that not all businesses are treated equally? I don’t know but the question needs to be asked and answered.
What about the richest in our society? Our governments, both in London and Edinburgh, along with HMRC must do more to defeat the perception that for the wealthy paying tax is a choice. One example. The avoidance of Stamp Duty Land Tax on valuable residential properties via offshore companies should be stopped.
Are we all in this together? It does not seem so.
One last point before I move on to the fiscal powers debate.
The UK Government’s decision to waive VAT on the Military Wives Choir Christmas single is an example of what is wrong with how we decide as to whom and what we tax. Is this a great cause? Yes of course. Are there lots of other equally great causes? Yes there are.
Now to the fiscal powers debate. The result of the Scottish General Election has ensured that the fiscal powers debate in Scotland has taken centre stage. The Scottish Parliament may even refuse legislative consent for the Scotland Bill. I like to refer to the Scotland Bill as “Calman minus”. My own opinion is that the Scotland Bill was never meant to be fit for purpose.
The fact that the UK Government will not even agree to devolve air passenger duty or control over the Crown Estate shows how out of touch they are. The debate has moved on. My last few tax blogs show how quickly the debate is moving. Even senior members of the Labour party in Scotland favour “devo max”. Hopefully in 2012 we will learn more of what “devo max” actually means.
The fiscal powers debate is no longer confined to Scotland. I must admit I did not see this coming. The Eurozone crisis and proposals such as a European Financial Transaction Tax has stirred the euro sceptics and that was before the call for greater fiscal union amongst the Eurozone countries. The analogy between Scotland’s relationship with the UK and the UK’s relationship with the European Union is an obvious one. The European angle to the fiscal powers debate has the potential to cause problems for those who arguing for major fiscal powers for the Scottish Parliament and those who oppose this. I suspect I will be blogging on this regularly throughout 2012.
A quick word on Ireland. How far will countries such as Ireland be willing to go to stay a member of the Eurozone? Will Ireland give up its treasured low rate of corporation tax? Does Ireland have a choice?
Lastly what am I hoping for on the tax front in 2012? Now is not the time to be greedy. A VAT reduction for home repairs and improvements is much needed. A tax exemption for the governing body and the competitors of Glasgow 2014 is essential for the success of these games. Less specifically I would like to see some evidence from the powers that tax us that we are all in this together.
Merry Christmas and best wishes to you and yours for 2012. See you again in the New Year.
