Archive for the 'Taxation' Category

Give hauliers red diesel – in return for road pricing

Fuel protests are due to return to London this morning. Hauliers are protesting against the rising costs of fuel and the detrimental effect it’s having on the economy. Co-incidentally a group of Labour MPs is meeting the Chancellor today to press for concessions on forthcoming motoring tax increases.

I’ll deal with the general issue of fuel and vehicle duty in another post. The government have had 8 years since the last fuel protests to sort the system out to make it equitable, accountable and acceptable to the public. One is not inclined to be sympathetic to their predicament over the issue now.

Nevertheless I do have some sympathy for the position of the road hauliers. They are asking for a 25p / litre rebate on fuel duty. Their reasoning being that fuel duty (and hence fuel prices) are significantly lower elsewhere in Europe and that they are not able to effectively compete with foreign hauliers. They complain that foreign hauliers are coming to Britain fully loaded with fuel in order to undercut their British counterparts. They also point to the lucrative cross-Channel haulage business.

Clearly the effect that high fuel duty has of getting HGVs coming over from across the continent (burning even more fuel) is somewhat perverse. Yet simply giving hauliers a significant rebate is not the answer, either. Our use of fuel is not sustainable. The oil price is going to stay high, and rise, for the medium to long term. The cost of road haulage must rise, along with all other uses of oil, in order to encourage use of alternatives (i.e. local produce and rail freight). Other European countries might have lower fuel duty, but they also have a much higher state subsidy for rail, paid out of general taxation. It’s unlikely the British taxpayer could swallow moving to such a model overnight and, arguably, it’s better to make people consider the economic cost of each journey they make rather than simply subsidising greener alternatives.

So, in order to address the hauliers’ valid concern over fairness of competition I propose that they be given access to red diesel (currently permitted to farmers only, with significantly lower tax levels). This would give them a much bigger discount than what they are asking for. But I would propose one condition: hauliers should start paying electronic road pricing.

Road pricing is a much fairer mechanism for hauliers to pay for both the economic cost of road maintenance as it would apply to all HGVs, including those coming over from Europe. With access to red diesel they would have a level playing field with their European counterparts. Road pricing is also much more effective for tackling congestion as different prices can be applied to suit the varying road types. Inner city and residential roads should have higher prices per km, rural and trunk roads should be lower.

Of course there is a problem with this proposal: the government does not have an infrastructure in place for road pricing and is intending to make use of Galileo. Yet there’s no reason why an initial infrastructure could not be based off Navstar-GPS. It would take a couple of years, even if they kept it simple, yet I’m sure they could work out some interim arrangement. The real issues are: whether the hauliers would buy it, and perhaps more importantly, does the government have the balls?

“Big state” consensus in the UK

Martin Wolf argues, in the FT, that the UK is moving towards higher tax with no debate. Depressingly, I think he’s probably right.

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Hollow Tory spin on Council Tax

One of the press releases out of CCHQ (which is apparently what Conservative Central Office is now called) caught my eye yesterday: Council tax is the ultimate stealth tax.

Ummm… hello? How on earth is Council Tax a “stealth tax”? I thought a stealth tax was a sneaky revenue-rasing measure that most people wouldn’t notice whilst going about their ordinary business (hence taxation by “stealth”): Crafty things like phasing out the married couples’ tax allowance, mortgage interest tax relief and tax credits for pension funds. Council Tax, on the other hand, is one of the most up-front, in-your-face taxes in our entire system – which is precisely why it is so unpopular. It is the only regular tax for which you get an invoice, which you have to settle directly by cash, cheque or direct debit. People moan about their Council Tax bills but most of them never stop to think about VAT (which they probably pay a lot more of).

Getting away from the bizarre spin, the Tory press release did quote Caroline Spelman pointing out two real problems with Council Tax. Firstly that many households, especially pensioners, simply can’t afford it; and secondly that many eligible households do not claim their Council Tax benefit because of the many hurdles involved in the ever-complex tax-and-benefit system.

Then the press release stops, with the obligatory swipe about how council tax has gone up 84% under Labour. No attempt at presenting a solution – other than the inference that Council Tax is too high. What would the Tories do? Cut services or increase other taxes to reduce Council Tax bills?

The fact is that both of the problems Mrs Spelman describes are actually symptomatic of the fact that the very premise of Council Tax is ill conceived. As a tax on property value, rather than income, it is obviously going to discriminate against pensioners. Furthermore, because it is a regressive tax, it needs a system of rebates (student exemptions, Council Tax Benefit, etc.) which incur a great amount of hassle and bureaucracy to process.

The Liberal Democrats are known for odd-ball policies but surely their position on Council Tax is sound: it must be replaced with a local income tax. It’s not a pinko-lefty idea, they have it in the USA. Such a tax could be collected by the Inland Revenue, through the same PAYE mechanisms as the main national income tax. (The Scottish parliament can already raise extra tax in this way so it’s nothing new.) This would not only make the system fairer but would also do away with the costly paper-pushers administering Council Tax Benefit in town halls across England.

Unfortunately the Conservatives seem to be focussing on a rather negative campaign claiming local income tax would cost people more money. Well yes it might, depending on the rate at which is set. That doesn’t impact on whether the tax is fairer, or not. Actually, given that the Tories complaining that some people are unfairly having to pay more Council Tax than they can afford, the logical argument must be (if taxes are not to be cut) that others will have to pay more.

There is a separate debate to be had about whether local taxes should be higher (with national taxes being lower) so that more money is raised locally to pay for local services. There was an interesting thread on this at Conservative Home awhile back. I quite like the idea of having a range of local taxes to include business rates and sales (VAT) as well personal incomes – it would help to ensure that local authorities think about nurturing their local economy in a sustainable and coherent manner. Obviously these would have to be off-set by cuts in national taxation so as not to increase the overall tax burden.

Of course, a local income tax is not the only answer, but it is the most progressive, straightforward and transparent proposal I’ve seen so far. The point is that we all know that Council Tax needs fixing. It would be nice if the main opposition party could put forward constructive solutions rather than incessantly whining about it.

If this is the sort of press release is able to weasel its way out of CCHQ then Cameron still has much work to do in making the Conservatives a positive, constructive forward-looking party of government rather than one carping in opposition.

Time to tax the fat?

Earlier this week I watched Tax the Fat on More4. The style of the “documentary”, by Giles Coren (apparently he is a Times columnist, and restaurant critic) was that of a very provocative polemic. But it’s a subject I’ve contemplated before myself.

Mr Coren began his film by making the economic case for tackling obesity: he pointed out that nearly a quarter of Britons are clinically obese, i.e. have a body mass index (BMI) of 30 or more; and went on to claim that they cost the NHS £3 billion a year in obesity treatment and further costs to the economy in being unable to work. Rather amusingly he also showed that fat people are a safety risk to the rest of us as they increase stopping distances in cars.

The programme then looked at taxing fat in goods and services but showed it was unworkable: a supermarket spokesperson started going on about ‘good fat’ and ‘bad fat’ showing how difficult it is to tax fatty foods, and then, somewhat farcically, there wasn’t much support amongst travellers at an airport for charging a ‘fat supplement’ on air fares…

The film’s conclusion, therefore, was that obesity must be tackled through direct taxation. Mr Coren proposed that obese people should pay an extra tax on their total tax liability: this extra tax would, in percentage terms, be the square root of their BMI. So, for example, someone who has a BMI of 36 would pay an extra 6% in tax on their entire taxable income.

Amusingly, whilst Mr Coren was unable to impress the Public Health Minister with his proposal he did manage to get a meeting with John Prescott, the Deputy Prime Minister. Ironically, the meeting was “over lunch” with Mr Prescott putting away quite a bit… Whilst the Deputy Prime Minister did take an interest he, rather understandably, said the government had enough on it’s plate with a smoking ban. (Perhaps it also dawned on him that he may have to pay it.)

I think fat people are an economic problem but I’m not sure Mr Coren’s tax proposal is viable. Firstly, the very point Mr Prescott raised: that poorer people are more likely to have unhealthy diets. I’m actually not sure if this is true, of it’s just a widespread belief. Assuming it is true, however, that doesn’t mean we can’t have a Fat Tax, just that the formula must not penalise the worst-off in society.

The larger problem is to what extent being obese is a lifestyle ‘choice’. Sure, smoking is addictive, but you volunteer to get addicted when you start smoking. With overeating I’m not sure that for some people it isn’t a medical condition. The last thing we want is doctors’ time being wasted by patients wanting to be signed off their Fat Tax liability.

But then again, private insurers charge more for healthcare if you make poor lifestyle choices (including being obese). Why should the NHS not do the same with National Insurance? It’s often said of the NHS that it is more a ‘national sickness service’ than a health service because of it’s lack of focus on preventative care. Supporting lifestyle choices through regular health screenings (and appropriate adjustments to NI contributions) does not seem that unreasonable.

Incidentally, the very next day after this documentary was shown was Prime Minister’s Questions in the House of Commons. There was a question about rationing of NHS treatment by Primary Care Trusts on the basis of BMI. The question was posed by John Hemming, the Liberal Democrat MP for Birmingham Yardley, who looks rather obese himself but, to his credit, happily declared his interest. Canny as always, the Prime Minister, didn’t even pretend to answer the question and I haven’t seen much concern reported. Such rationing of non-emergency treatment, if it is NHS policy, is rightly so, in my opinion. People who adopt unhealthy lifestyles and take no responsibility for correcting them should not have their resultant healthcare costs funded by the rest of us. Perhaps a Fat Tax isn’t that far away from being politically possible.