August 25, 2017

A low tax vision for post-Brexit Britain

A low tax vision for post-Brexit Britain

Some of the most open, prosperous and happy nations around the world are low tax nations. So why doesn’t the UK join them, asks Rory Broomfield?

What do Canada, Denmark, Australia and Switzerland all have in common? They are all some of the most economically liberal and happy nations on Earth, according to multiple studies including the Heritage Foundation’s Index of Economic Freedom and the World Happiness Report. The UK doesn’t fair too badly either. It’s ranked by Heritage as the 12th freest economy in the world and by the World Happiness Report as the 19th happiest country in the world. But, just looking at which countries are higher in these and other rankings, you can’t help but ask the question: why?

The methodologies of these studies obviously explain the reasons that they give for the rankings. Notwithstanding this, there are significant differences as to how some of these countries structure their tax system.

The UK has at least 18 different broad tax groups that bring in £670 billion of revenue annually and make up a tax burden of 32 per cent. A lot of these taxes are consumption taxes, such as VAT or alcohol duty which helps the government raise the funds in a consumer driven marketplace. But other taxes, such as National Insurance and income tax, are taxes on work that penalise both individuals and companies for employment and earnings.

In some countries, like Hong Kong, they have a flat tax which allows individuals the freedom to provide for themselves and their families. As a result, Hong Kong’s tax burden is just 14.4 per cent – less than half that of the UK’s. Yet the former British Overseas Colony isn’t (for now at least) one of the happiest countries. Why? This, according to the report, is because of its freedom to make life choices and generosity – despite having higher GDP per capita than many other nations ranked more highly.

A factor in this is state control and, of course, Hong Kong is experiencing increases in that control in social areas. It means that the relatively high economic freedom isn’t the problem – it is the relatively low social freedom that’s causing people to become unhappy.

Indeed, it is worth pointing out here that regulations are also a form of tax. They cost businesses money, they cost people money and they actually cost governments money as businesses are either likely to move, not to invest and not start up in the first place if regulations put in place by the state lead to the costs of establishing and running a business being costlier than the overall benefit. Many people here look at the economic regulations and, in Hong Kong’s case, there are fewer economic regulations than in other countries. However, there are higher social regulations which mean, among other things, that people feel restricted in their ability to express themselves and pursue their lives.

What many of the consumption taxes in the UK do (such as airline duty, alcohol duty, the BBC’s TV tax, cigarette duty, excise duty, fuel duty, inheritance tax, insurance premium tax, savings tax, stamp duty, and VAT) is ensure that the state is always influencing and taking something out of your life. Indeed, it is increasing the costs of the life you choose to lead.

Of course, not all of it is about economics. Some of the countries with the longest life expectancies, for example, are helped by the type of social environments and interactions that they encourage. Nonetheless, looking at some of these countries I do wonder whether the UK can learn something concerning taxes, regulation and social structure.

Indeed, providing for a strong society – rather than a strong state – allows for people to voluntarily contribute to the lives of their communities and the direction of their state. Countries like Switzerland have this in abundance and, along with low taxes (and no federal inheritance tax), it is no wonder that it is both one of the freest economies in the world and contains some of the happiest people in the world.

The UK has a lot to learn from Switzerland.

5.00 avg. rating (98% score) - 9 votes
Rory Broomfield
Rory Broomfield
Rory Broomfield is Director of The Freedom Association and the Better Off Out campaign. He is an authority on the EU and has written a number of books including his latest, co-authored with Iain Murray, Cutting the Gordian Knot: A Roadmap for British Exit from the European Union. He has previously worked in the City of London and in Westminster for a number of Members of Parliament, including the current Prime Minister, Theresa May; the current Chairman of the 1922 Committee, Graham Brady; and Sir Richard Shepherd.
  • gunnerbear

    “Would you/others be happy depositing your money with them/using them? I would guess not, and as a result other options would be able to spring up. But hey, instead we get a system whereby highly risky banks are ‘regulated’ and therefore seen as safe which is simply not accurate.” Fair comment….

  • bootsyjam

    Just did a mmoneysavingexpert calculation for income tax and NI. You Earn £60,000 in 2017/2018 and you’ll take home £42,580.
    Over the year you’ll pay £12,696 income tax and £4,724 in National Insurance. That’s 29% tax straight away.

    On a 40k salary that’s a 23.8% tax rate. Add on all those taxes I mentioned and you still reckon 32% of income goes towards tax? Oh right no, I forgot, it’s all about the GDP. Fabulous.

  • bootsyjam

    I really want to agree with this article but it makes a few wrong turns.
    Canada is not a low tax country by any means!
    Also, the author is falling into the trap of using tax as a % of GDP as a guide of how much we all pay here in the UK. Absolute rubbish. Work it out-if you paid just 32% tax a year then you’d be a lot wealthier than you are already. Tax as a % of GDP is a lazy statistical figure that is trotted out to justify ever higher taxes.
    Don’t believe me? Work out your income tax, NI, VAT, petrol tax, booze tax, council tax, cigarette tax, insurance tax, capital gains, stamp duty on shares, let alone that one big stamp duty hit that you take when you buy a property (that’ll bump up your % of your income paid in tax won’t it!), tax on pension dividends, sugar tax (coming soon!), tax on flights, the list goes on.

    But yeah, we pay just 32% in tax. I’d bite your hand off if you offered me that overall tax rate…

  • bootsyjam

    I agree that we do need regulation for many things e.g. food quality (amongst many others). However I remember reading a great article that did open up another avenue of thought, where it questioned the wisdom of regulating banks. Hold on for a second-don’t go just yet! The point being made was that regulation of the banking sector actually gave people a false sense of being under control and understood. And so we merrily go getting mortgages off them and depositing money with them etcetc, whilst the reality is that they could blow up at any point and we’d be screwed. So in that sense regulation was a red herring. Instead, imagine if the banking sector was totally unregulated. Would you/others be happy depositing your money with them/using them? I would guess not, and as a result other options would be able to spring up. But hey, instead we get a system whereby highly risky banks are ‘regulated’ and therefore seen as safe which is simply not accurate. i hope that makes sense-food for thought anyway.

  • ClickBait

    … oh look, the sky is falling !!

  • dustybloke

    Brexit will never happen. No-one in government and especially the civil service has any enthusiasm for accomplishing it.
    Philip Hammond will expose the fiasco that will be the conclusion of negotiations, which will have more loose ends than my oldest pullover, and then demand that we give up all our “foolishness” and demand that, like a whipped dog, we do the right thing and rejoin the EU on the worst terms conceivable.

  • ClickBait

    Maybe its just because these countries have small populations.
    Gibraltar has vastly higher GDP per capita. Why ?
    In fact, the smaller the population the richer..Iceland, Luxembourg Liechtenstein, Andorra, Jersey
    So what ?

  • Nockian

    All of them. Don’t stop until the state is completely out of commerce and peoples lives, until it is delimited to protection of Liberty and property by the prevention, or prosecution for the initiation of force against persons or property by domestic or foreign elements.

  • gunnerbear

    “At the same time we need to dump regulation and other impedements to free market competition.” Which regulations did you have in mind?

  • SonofBoudica

    The Swiss have a direct investment in how their country is governed. The relative ease with which referenda can be organised to overturn laws, including taxes, and the fact that politicians have to keep a low profile, as otherwise they get dumped, gives everyone a stake in their own society.

  • Derek

    Is there any realistic solution to the UK problem of ever-rising debt and deficit bearing in mind rising liabilities due to ageing demographics? These are rising far faster than economic growth.
    See “The future of public debt: prospects and implications” http://www.bis.org/publ/work300.pdf.
    I’m not convinced ever increasing austerity to match rising liabilities can be sold to the public in the long term.
    Productivity ans economic growth is low in the UK. Money would be far better spent on infrastructure projects such as roads where over 90% of all journeys are made and where delays costs the economy money rather than white elephant railway projects such as HS2. We need higher economic growth not white elephants.

    It can’t help the economy that over half all graduates have extremely expensive totally useless degrees which means they are permanently on low salaries ans will never pay back their loans. At the same time there is a shortage of skilled workers. Why not only support graduate course than support increased salaries and use the rest of the money to support skilled apprenticeships instead.?

  • Nockian

    No taxes would be morally superior. However, back in the current world of moochers and weepers we have a 2 trillion pound debt, a 50 billion deficit and even with the current rate of interest we are accumulating an additional 50 billion a year on the existing debt.

    Therefore the problem at present isn’t to cut taxes, but to cut spending-much though it pains me to say it. At the same time we need to dump regulation and other impedements to free market competition. The state needs radically pruning and the advantages of that pruning will need to be experienced by the majority in order to cut further to the point that Government is strictly delimited to the functions of law, order, justice and defence through voluntary contribution (general private insurance) rather than pernicious coercive taxation.

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