Fair Taxation

Mike Hedges MS advocates a reexamination of the UK taxation system, and outlines some proposals for reforming it.

We cannot have Scandinavian quality public services and American level of taxes.

Taxation exists to pay for public services. Too many people believe that we can have the same quality of public services as Scandinavia but have a taxation system which is more like that of the USA.

When you look at the cost of private education and private health care, it puts into perspective the value for money we get from our taxation system.

It is not by random chance or serendipity that those countries with the highest tax levels have the best public services and those with lowest tax levels the poorest. It is because taxation is necessary to raise the money to pay for the public services we all need.

Tax on income

There are various ways of raising taxes and whilst with an expenditure tax such as VAT that I pay on an item is the same as anyone else living in Great Britain, this is not true for the tax on income.

‘A £40,000 house will be charged two thirds of the amount of council tax paid for a £120,000 house despite being a third of the value. 

Take someone earning £30,000 a year. If they are under retirement age, they pay income tax and national insurance. When that person reaches retirement age, they then cease to pay national insurance.

A graduate on the same income will pay back a student loan as well as income tax and national insurance.

Someone who receives their income via dividend will pay a 7.5% tax rate on income over £2000.

I do not believe this is fair. We need a less complicated system to ensure everyone pays their fair share.

My proposals are:

  1. The tax rate should be the same however income is derived
  2. National Insurance should be paid by everyone in work who earns above the NI threshold
  3. That the same tax threshold should exist for everyone
  4. That student loan repayment needs reviewing and the interest charges removed

Council tax

Council tax is based upon the value of property. It replaced the much-disliked poll tax which replaced the rates system based upon the rateable value of a property which is still used to tax businesses.  Council Tax bands in Wales Band Value was set on 1 April 2003 so the value of all properties will have increased substantially since then.

Band A is for properties up to £44,000. Band D is for properties between £91,001 to £123,00. Band H is for properties between £324,001 to £424,000.

Council tax is set on band D and all other band payments are based on that. Properties in Band A pay 75% of the amount charged on band D. Properties in Band H pay 18/9, or twice the amount charged on band D.  

A £40,000 house will be charged two thirds of the amount of council tax paid for a £120,000 house despite being a third of the value.

A £420,000 house will be charged twice as much in council tax as a £120,000 house and three times as much as a £40,000 property despite being over four times the value of some band D properties.

This is unfair because the payment is not proportional to the value of the property.

My recommendation is that all houses are revalued, and that Council tax is a fixed percentage of the value of the property.

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Business taxes

Whilst nobody likes to pay taxes, and some rich individuals and multinational companies are experts at legally reducing their tax payments, for some multinational companies’ corporation tax is an optional payment. Its value can be reduced by things such as Intra-Company charges like paying for intellectual property rights, or transfer charges for goods and services, or making the point of sale outside Britain. Each of these ensure the business profit occurs in a low-tax or no-tax country.

‘Google UK paid a year earlier, and meant the company paid the equivalent of 2.73% of its revenue in corporation tax, before losses and offsets were taken into account on the balance sheet.

Some argue that we need to reduce corporation tax to be competitive, but unless corporation tax is reduced to almost zero it will not be competitive with the offshore British protectorates such as the British virgin Islands for multinational companies.

Accounts filed at Companies House this year show that the corporation tax contribution of Amazon UK Services – the group’s warehouse and logistics operation, thought to employ the majority of the group’s UK workforce – was £18.3m in the year to December 2020, up 26% from £14.5m a year before.

Profits at the division rose by a quarter over the same period to £128m, while sales soared by 64% to £4.85bn.

According to its filing with Companies House, Google UK Ltd posted revenue of £1.6bn for the year to 30 June 2019 and the corporation tax payment was £44.3m, which was less than the £65.6m Google UK paid a year earlier, and meant the company paid the equivalent of 2.73% of its revenue in corporation tax, before losses and offsets were taken into account on the balance sheet. Again, I do not doubt that this was the amount they were legally liable for.

I am using these two companies as illustrations because they are well known. I could have used almost any other multinational company.

We have recently had an international agreement which intends to  force big businesses to pay their fair share of tax. It will set a minimum corporate tax rate of 15 per cent and let governments tax a greater share of profits from foreign businesses in the country where they are made.

I do not believe this will solve the problem of low tax payments by multinationals. Intra company payments and intellectual property charges can reduce the profit in one country whilst increasing it in another.

The only solution is to tax income rather than reported profit.

I believe these changes will make taxation fairer and will have everyone paying their fair share.

All articles published on the welsh agenda are subject to IWA’s disclaimer.

Mike Hedges MS is the Labour and Co-operative Senedd member for Swansea East.

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