UK Fiscal Policies

Date : 10 February 2002

To : The Editor, The Business

From : Nagindas Khajuria

Subject : UK Fiscal Policies

UK Fiscal Policies

Sir - Bill Jamieson's article (Taxing time 3/4 February) is Worthy of great scrutiny as it looks at almost every feasible type of increase in taxation the chancellor might introduce in the budget on 17 April.

Lower direct taxes encourage enterprise and the creation of wealth. Higher indirect taxes punish the poor. Whether poor or rich, we have not been able to change people's spending habits by change people's spending habits by changes in taxation.

So, the true reason for increasing the taxes must be for better public services. The election manifesto pledge in 1997 was fundamentally flawed. No government should play the tax or race card. In fact, manifestos stifle new ideas and are best used in a very limited fashion.

The chancellor will probably need £5bn to £7bn extra every year for the next few years as both consumption and growth are likely to be very low for a number of years. The markets have reached saturation point. Prime minister Tony Blair and Gordon Brown could kill two birds with one stone by introducing a new 5% lower rate and abolish personal allowances altogether.

At the same time, they could reduce the basic rate of tax of 22% to 20% and introduce a third rate and fifth rate of 30% and 50% so that Middle England at the lower earnings level would effectively pay lesser taxes at lower levels and higher taxes at higher levels more equitably.

The Treasury and IFS computer models could look into these proposals. I reckon it would bring in about £3bn extra income tax revenue.

In addition, the chancellor could introduce a new 20% Vat rate on luxury goods, such as cars. That would bring in another £3bn extra Vat income without hurting the poor.

Finally, Mr. Brown should be honest about reporting on how much public money may have been wasted during the last fiscal year by giving specific examples which with hindsight may not seem to have been the best course of action.

For example, £4bn was spent on burning 4m animals suspected of having foot-and-mouth disease. It may or may not have been a good thing to have done.

There may be other examples. By admitting their mistakes, they could win more respect for their endeavors.