The Green Party and Taxation — a new way forward
At this year’s Autumn Conference the Green Party will make it’s most important decision in many years; and it isn’t who will be its next leader…
In the 2015 General Election, the Green Party of England and Wales put forward a programme for government that included an increase in spending of around £200bn, that would be funded by a number of untested and often vague taxes. These new taxes and tax rises would acquire the majority of this money from the incomes of the very richest people, their assets and their financial transactions.
This was widely derided as fanciful, while the revenue figures quoted were optimistic , to say the least.
The Institute for Fiscal Studies, was particularly withering in its criticism:
“This sense that there is free money out there just waiting to flow into the Treasury’s coffers without anyone noticing reached new levels in the Green party manifesto, which claims to have identified a truly staggering £200 billion worth of tax revenue from tax avoidance, financial transactions, the rich and the wealthy.
That would be laughable if it weren’t playing into a wider narrative that there is a magic money tree that we can pluck at will.”
Without going into the details of every tax revenue projection that the Party put forward (that would be a much longer article!), we in the Green Party should now face up to the fact that our approach to fiscal policy was largely based on ideological fervour, wishful thinking and significant arithmetic gymnastics.
Or, to put more succintly: our offering simply wasn’t credible.
We presented the idea that we could raise huge sums from tax increases without it affecting ordinary people or the productive economy. But the experts and the public simply didn’t buy it.
Our efforts to defend this position were a bruising experience, and since then our spokespeople have dialled back the level of spending commitment we make to the public (it fell to around £70bn in the 2017 election, though was much less well defined)
In that time, the Party’s Tax & Fiscal Policy Working Group has set about to create a more coherent, robust and credible fiscal plan. This will better support the Party’s core objectives of economic, social and environmental sustainability, but in a way that is credible to the people we would like to support and vote for the Green Party
The principle we set out to achieve this is that any tax policy/proposal should meet a number of key criteria:
- Simplification of tax laws/regulations
- Effectiveness in raising the revenue we claim
- Fairness in how the taxes are applied (including being broadly progressive)
- Promotion of sustainable behaviours
- Be generally difficult to avoid or evade
This meant that many cherished previous policies were cast aside as they failed to meet these expectations. This included the Financial Transactions Tax and the ‘ Wealth Tax’, which did not seem likely to raise anything like the revenues we had previously claimed (if anything at all), and other much less well defined taxes, like a tax on ‘speculation’. There were many other undefined tax proposals floating around that we have sought to remove without much fanfare.
We also largely set aside the idea that we could just ramp up the rates of income taxes for the top 10% or so, and especially the top 1%. There is little evidence that this would raise very much extra, despite our ambitious previous claims.
Overview of Proposal
And so, our work very much focused on tax options that were practical, effective, simplifying and fair.
The core elements of the proposal are:
- The consolidation of all taxes on personal and corporate income into a single income tax. This is designed to close many loopholes, and in turn make avoidance and evasion more difficult, but it will also bring the taxation of income from investments/assets to the same level as the taxation of income from work. This will also include the abolition of certain tax reliefs, allowances and exemptions that we felt were not justified
- The introduction of a Land Value Tax, a single tax on land/real estate to replace all other property related taxes
- A clearer and more balanced approach to eco-taxes and other indirect taxes, to mitigate against the effects of related price increases on ordinary households/individuals and the non-polluting, productive economy
- A small, but justified, increase in the taxation of financial services
- Increasing the finance-raising powers of local government to enable it to respond more effectively to local needs (subject to some governance rules), especially housing and infrastructure
- A more determined and robust approach to collecting tax and enforcing tax laws and regulations
We did not take a view on how much should be raised by taxes, but we estimate that the changes we propose would raise another £35bn-£40bn (estimates in bold below). In addition, the Carbon Tax & Dividend (which is already Party Policy) could raise an additional £25bn to spend on tackling climate change/environmental degradation.
If the party wished to increase public spending by more than that, it should do so by increasing the rates of the taxes we have set out below.
The proposals in more detail:
1. Replacing all current taxes on personal and corporate income with a single Consolidated Income Tax
This will mean treating all income in the same way for tax purposes, thus closing the vast majority of personal and business tax loopholes
For personal income this will mean the consolidation of the following taxes into a single income tax:
- Employee National Insurance
- Capital Gains Tax
- Inheritance Tax
- (Employers National Insurance will be included gradually, revenues permitting, and phased out over time)
This Consolidated Income Tax will be applied to all personal and corporate income, allowing us to tax earned and unearned income in the same way and (largely) at the same rate (unearned income currently enjoys numerous reliefs and loopholes)
We have assumed that tax rates will remain the same as the current combined Income tax + National Insurance figure (32%/42%/47%) for those who are resident in the UK for tax purposes.
A single tax-free allowance will exist for UK taxpayers of £10,400 per year (the midway point between current PAYE and NI allowances, making the change tax-neutral). Some small tax-free allowances will also remain for practical purposes, including for income from inheritance, gifts and capital gains on non-financial products, but they will be standardised to £3k per recipient per year
Those who currently avoid taxes will be much less able to do so, thus seeing their tax payments increase (we believe by around £3bn, or about half of all tax avoidance)
- This will principally be borne by company/asset owners, who will no longer be able to ‘minimize tax liabilities’ by shifting income around different sources, as well as those who use tax havens, or aggressive tax avoidance schemes offshore.
It will also mean the end of certain tax reliefs, allowances and exemptions enjoyed by pensioners, the self-employed and asset owners (thus seeing their tax contribution increase by about £17bn)
Corporation tax would be abolished and, instead, distributed profits from companies will be taxed at the point of distribution, including: dividends, share buybacks, additions to cash holdings, payments to parent or subsidiary companies (both onshore and offshore), and all other distributed income. This will be done at the basic rate (32%) for non-UK income tax payers and inter/intra-company distributions. We believe that this will raise a further £12bn in revenues due to the more effective taxation of income from corporate profits and at a rate higher than current Corporation Tax. ( We believe this is a very conservative estimate, but will accept a challenge if anyone can produce a more reliable figure).
This is not designed as a tax increase, but rather a tax simplification that will equalise its burden and significantly reduce avoidance(and thus increase revenues).
In time, this will be the sole tax levied on income, thus reducing the administration of tax by all concerned and ending the perception of unfairness by those who experience double or triple taxation on income, while others avoid it altogether.
2. Replacing all current taxes on land/property with a Land Value Tax
Initially it would be set and collected by central government
There would be no exception to the tax, but those who are owner occupiers on day 1 of the new tax regime could claim proportionate relief on their outstanding mortgages (i.e. if their mortgage was 60% of the value of the property, they could claim 60% relief on their LVT payment)
- Pensioners would be able to ‘roll over’ the tax until the property was sold or transferred (to avoid elderly people feeling pressured into leaving their home)
It would be a replacement tax in the long run: i.e. it would raise the same amount currently raised by other property taxes (around £73 billion), which would all gradually be phased out, such as Council Tax, NNDR, Stamp Duty on Land, ATED, Capital Gains Tax on land sales, Inheritance Tax on land, and income tax on land for owner-occupiers (i.e. rent from spare rooms, but not companies and businesses who rent land or properties to tenants)
It would be phased in over the first 5 years of a Green government
It would see a shift in the tax burden towards the top 15% of properties, which account for about 50% of land by value . It would also represent a £7bn shift in taxation away from renters (who would pay nothing) to their landlords
3. Increasing eco-taxes, especially on Greenhouse Gas emissions
…and using the proceeds to:
- Pay an equal dividend to each UK resident. In the first instance a ‘Carbon tax’ could raise around £50bn per year, result in increased prices for certain pollutants, and a £400 (approx) per year dividend for all UK residents. This would leave around £25bn per year to spend on supporting the transition to a carbon neutral economy, or on reducing other indirect taxes and/or prices on non-polluting economic activity (This could include subsidies for things like renewable energy and public transport, or the reduction or abolition of VAT on items like hospitality, entertainment venues, bicycles, hotel stays, solar panels etc… However, we do not commit to any specifics reductions at this stage)
4. Increases in taxes on the financial services sector
- Bank Levy/ Asset Tax will increase by at least £3bn over 5 years
- Stamp Duty on Shares will be extended to share purchases of all values and new share issues (‘market maker’ and similar intermediary transactions will be exempt). We think this could raise another £2bn
5. Giving Local Authorities extra revenue- and finance-raising powers, subject to clear governance rules
This could include
- Power to issue bonds/debt (also extended Housing Associations) to fund housing and other local infrastructure
- Ability to charge local precepts for certain services, such as those that currently exist for Police and Fire services
- Ability to issue local charges for use of public services, spaces and infrastructure (i.e. road pricing, parking charges, rent or sale of local public assets)
- Freedom to vary Land Value Tax, once it is fully up and running
6. Creating a new tax collecting agency with an anti-avoidance ethos
We would establish HM Revenue & Customs as an independent government agency, free of political interference and with a remit to collect the taxes set out by Parliament.
We would also
- Establish a general anti-avoidance principle in UK tax law
- Oblige banks to provide information about companies automatically to HMRC
- Abolish the rule that allows non-domiciled residents not to pay tax on foreign income (though we would respect the normal double taxation conventions)
- Seek to clamp down on tax havens internationally and, domestically, requiring offshore companies to reveal their beneficial ownership before being accepted as competitors for publicly funded contracts (thus closing a major route for money laundering and tax avoidance/evasion).
Tax is a complex, intertwined, ever-changing 3-Dimensional puzzle
We accept that this proposal will need to address the complex challenges faced in implementation of these taxes. It will also need to adapt to changes in the economy and wider policy.
Nonetheless, we feel that it provides a solid and reliable approach to levying and collecting taxes that will help us face many of the economic and political challenges that lie ahead.
By shifting the burden of tax towards asset owners, land owners, landlords, better off pensioners and polluters, while simplifying the entire system for everyone, we will steer the UK towards a fairer and more environmentally sustainable future, where:
- Public services will be adequately funded
- The housing market will function effectively
- The infrastructure needed to create a sustainable environment and economy can be funded and supported
- The ageing population will be cared for
- Tax avoidance and evasion will be much more difficult
And we will do all of this by constructing a tax system that is fit for the 21st Century and reflects the economy and society it serves.
The Challenge for the Green Party
The challenge we Greens face as a party and political movement, is to demonstrate to the electorate and the world at large, that we understand the demands of government and can take the difficult choices necessary to manage the national economy.
In the past, we have talked a lot about how we would support and even transform public services, but now we must show how we would make the necessary funding available.
The assumption in this proposal is that that funding should come from taxes levied in the real world, and the potential negative impact of those taxes must be understood and, where possible, mitigated.
When it comes to tax and spending, we should distance ourselves from ‘magical’ thinking, optimistic calculations and ideological bias, and instead present to the electorate a sensible set of achievable and effective tax policies.
Only then, will they begin to take seriously our wider ambitions for the economy, society and environment.