MP for Windsor
Working Hard For You
Complicated Tax System

Our horrendously complicated tax system undermines the quest for growth and sends mixed messages to taxpayers about the kind of behaviour the Government wants to encourage. To tackle the deficit and debt mountain and put Britain on a firm economic footing, we have to build a sane tax framework.

Years of political expedience — rewarding this or that influential group with a tax break or preferential treatment — have created a labyrinthine system that penalises job and wealth creation. Risk-takers who would start a business are deterred by high rates of tax on success; successful businesses are discouraged from employing new staff by a nonsensical tax on jobs; and benefits claimants are dissuaded from earning by the huge marginal rates of tax levied on lower incomes. Thankfully this year’s Budget was a step in the right direction.

 

If the tax system was better designed to promote our economic and social goals, it would be a social duty, even a moral obligation, to encourage people to pay the least amount of tax that they are legally allowed to. Governments are notoriously bad at spending people’s money wisely. They should collect the minimum amount necessary to secure a civilised society in which core public services, such as defence, policing, healthcare and a sound legal system, are available to all. These taxes should be collected in a rational way that encourages job creation and growth, while discouraging pollution and waste.

People tend to make better decisions for themselves and their families with their own money. Likewise wealth creators will naturally invest where profits can be made and jobs created. It is better if people can make these choices without worrying too much about hidden tax implications.

Some features of the current system work well. If we want people to save more for retirement, tax reductions for long-term saving are welcome. If polluters should pay, a landfill tax has merits. But we must define the goals of specific taxes beyond simply to raise more money for the Exchequer.

Today’s complicated patchwork of duties, taxes and tax reliefs tells its own story. Holidaymakers are enticed with duty free goods; homebuyers tempted with stamp duty free periods; and drivers are urged to swerve around the higher costs of car tax, petrol duties and tax discs by buying smaller cars. All of these are forms of tax avoidance, but are we to conclude that people are morally wrong to respond to the incentives they provide?

So conducting an arbitrary moral war against the majority who are merely responding to legal tax incentives is unwise. The current tax system is doing exactly what it has been “designed” to do. The problem lies in the design — or rather the lack of design.

Judging by recent headlines, an unwelcome sentiment has crept into the debate on tax. l legitimate avoidance of tax is somehow coming to be considered as corrupt as tax evasion. Everyone accepts that illegally withholding tax is morally unacceptable. But it is not the same as tax planning and avoidance. It is not wrong for pensioners to avoid tax or philanthropists to use tax reliefs. We must be careful not to say that these people are reprehensible unless they actually break the law. Blame for some of the more notorious examples of tax avoidance should fall firmly on the shoulders of legislators.

If our leaders manage to create a tax regime that actually promotes our social and economic objectives, the temptation to smear philanthropists — or indeed any group of citizens — would evaporate. Opprobrium could be rightly focused on law-breakers alone.

Law-abiding taxpayers should point the finger straight back at MPs who say that perfectly legal behaviour is wrong. The desire to create wealth and the instinct to maximise family income by minimising tax is exactly what is needed to kickstart the economy.

While evasion is plainly wrong, tax planning and avoidance should be a moral duty in an ideal world of simplified taxation.

 

Parts of our political class are indulging the politics of envy. It’s time to value wealth creators

It is all too easy to confuse wealth creation with wealth itself.  As Conservatives we must be staunch defenders of wealth creation, although this does not mean we should automatically defend inherited privilege and unearned wealth.

Like many of my fellow Conservative colleagues, I am becoming increasingly alarmed at the level of anti-business rhetoric emanating not just from the media, but from too many other MPs.  In times of austerity we must be especially careful not to be drawn into the left-wing trap of lambasting successful business owners, leaders and entrepreneurs with the divisive and flawed politics of envy.

We all want to see the jobs created and incomes generated that will lift us out of the current economic mess.  The last government left our country on the brink of bankruptcy with the biggest debt and deficit in our peacetime history.  We cannot repair the damage by striking out at those people who are in a position to put things right.  The question is how to get those people with the money, and an appetite for risk and hard work, to invest their cash and effort into UK businesses.

The media narrative often underpins the politics of envy by suggesting that high rewards for entrepreneurs and profitable businesses are part of the problem rather than part of the solution.  But we must celebrate profits made in Britain.  The bigger the profits made, the louder the cheer should be.  These profits are invested to create new jobs, paid in taxes to subsidize the rest of society and returned as dividends to pensioners through their pension funds.

Financiers, bankers, private equity investors and hedge fund managers can supply the money-flows needed to revitalize UK businesses.  If they are encouraged to operate in an appropriately regulated and competitive market, these are the very people with the resources on hand to instantly boost investment and economic growth.  So it is doubly disappointing when some of our political class continue to fall prey to the same lazy narrative, which excuses government failure to set the right regulatory framework, and persists with the mantra that rewards for success are somehow morally questionable.

If we want to reduce income tax for low and middle income earners and provide decent public services for the least able, we must encourage business investment.  Small and medium sized businesses provide 59% of our private sector jobs.  They also pay 53% of business taxes.  We should be urging rewards for success and we must value those highly profitable businesses that are, self-evidently, doing things well. On the flip side, if we are to get value-for-money from our public services we must spend taxpayers’ money wisely.  We must be more than willing to employ the expertise of effective consultants, rather than stereotype them as a group of scoundrels on the make.

Underlying these negative attitudes to wealth creators is a dangerous tendency to “groupism”.  The public is often led to believe that all bankers are to blame for the financial crisis, although the vast majority played by the rules; profitable businesses are selfish, even though they create jobs and pay the taxes we need; and consultants are parasites, when they are employed in improving public services and saving taxpayers’ money.

As Conservatives we must call time on these divisive and self-defeating attitudes.  The 2012 Budget went some way to ensuring that Britain is open for business, but we must go further in openly welcoming the energy, determination and drive demonstrated by our private business culture, so that overseas investors will not be deterred.

I look forward to the day when we live in a Britain where our political leaders unashamedly welcome aspiration and applaud big profits and rewards for success.  Thriving and vibrant British businesses are the only way for us to emerge from our dire economic circumstances.  We must be unapologetic in saying so. It may be unfashionable to value the work of wealth creators, it is better than the alternative of mass unemployment and soaring taxes for low and middle income families.