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13/08/2010
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Taxation

The Government believes that the tax system needs to be reformed to make it more competitive, simpler, greener and fairer. We need to take action to ensure that the tax framework better reflects the values of this Government.

  • We will increase the personal allowance for income tax to help lower and middle income earners. We will announce in the first Budget a substantial increase in the personal allowance from April 2011, with the benefits focused on those with lower and middle incomes. This will be funded with the money that would have been used to pay for the increase in employee National Insurance thresholds proposed by the Conservative Party, as well as revenues from increases in Capital Gains Tax rates for non-business assets as described below. The increase in employer National Insurance thresholds proposed by the Conservatives will go ahead in order to stop the planned jobs tax.
  • We will further increase the personal allowance to £10,000, making real terms steps each year towards meeting this as a longer-term policy objective. We will prioritise this over other tax cuts, including cuts to Inheritance Tax.
  • We will also ensure that provision is made for Liberal Democrat MPs to abstain on budget resolutions to introduce transferable tax allowances for married couples without prejudice to the coalition agreement.
  • We will reform the taxation of air travel by switching from a per-passenger to a per-plane duty, and will ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.
  • We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.
  • We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals.
  • We will increase the proportion of tax revenue accounted for by environmental taxes.
  • We will take measures to fulfil our EU treaty obligations in regard to the taxation of holiday letting that do not penalise UK-based businesses.
  • We will review the taxation of non-domiciled individuals.

View the Governments response to these comments

Your comments (285)

  1. Helen says:

    Raise the income tax threshold and simplify the benefits/tax system.

    Then raise inheritance tax – if you didnt earn it then you’re not entitled to it. There are far too many people in this country who are only wealthy because of their parents or grandparents or great-grandparents. I am tired of hearing about people who are going to lose their million pound house. If you want to keep your parents’ house, then earn enough money to buy it. And maybe it’ll be easier for people to do that with lower income taxes (and cheaper house prices due to capital gains tax rises).

  2. Jim Hewitt says:

    The best way to jump start the economy is to restore a tax deduction for mortgage interest.

  3. donald law says:

    One thing that concerns me is the expense of paying out for example a state pension and then collecting income tax on it; so two government organisations are involved. Surely it would be better to transfer a larger proportion of taxation to VAT, as this is virtually collected for the government by businesses, and is a lot more difficult to avoid. Also as the essentials of life such as food, childrens clothing, gas electricity are either zero or lower rated VAT, it will not impact on the less well off.

  4. Robert says:

    If you really want to help the poor, let those earning under £12,000 a year pay no tax. have a graduated scheme as you earn more… the poor need tax relief, not the rich.

  5. Robert says:

    More HM Customs specialists for corporate tax avoidance!

  6. Norbert Parrot says:

    If you raise the rate of CGT you are likely to wreck the buy-to-let business. Is this a problem? In itself, maybe not.

    But the effect will be a decrease in house prices. Is this a problem? In itself, maybe not – indeed many would argue that it would be a very good thing.

    The problem arises – and I can’t understand why this has not been discussed more widely – if house prices fall sufficiently to force people into negative equity. When this happens, lenders (banks and building societies) have to write down the values of the loans. Then you get a banking crisis. This *IS* a problem.

  7. Sarah says:

    I would rather pay a higher tax on what I buy (VAT) and actually see the money I earn.

  8. John Merrick says:

    I would advocate a shift in the emphasis in taxation from indirect to direct – taxing income rather than purchases – to ensure that the tax burden relates to individuals’ ability to pay. I do not believe that this would lead to a stifling of enterprise, but rather to a greater perception of fairness into the system. Indirect taxes might actually be able to be reduced or abolished in the long run, unless required for social policy reasons (such as discouraging smoking or environmentally harmful choices).

  9. Ian Harrison says:

    If you want efficiencies in tax collection, reduce that amount of taxes collected.
    As Employee National Insurance is presently used to augment Income Tax and not its originally intended purpose, it raises the question if it would be cheaper to scrap it & increase the Income Tax to offset it.
    It may also be worth while at looking at Council Tax, if I remember correctly when Poll Tax was introduced the Liberal Democrats suggested a local income tax, why not add this to the Income Tax as well.
    Bring in another income tax band at £80000 of 45%.
    Encourage small business owners by reducing Capital Gains on lower dividends, but increase them on higher dividends, todays small businesses are the future & people don’t set them up for fun, they must see a benefit.

    For the motorist, why not scrap Road Tax & add it onto the fuel, how much is presently spent on collecting the money & issuing the tax disc. The downside may be to force people to drive less miles, drive more efficiently or drive more efficient cars, maybe this should be in the “Energy & Climate Change” section.

    Inheritance Tax must be reduced in some way, it is unfair to penalise beneficiaries because their benefactor worked hard & saved for their future.

  10. George Hedley says:

    IR35 has been a total disaster. The tax has been arbitrary, with moving goalposts, and rulings defying the business legality of written contracts.
    Why not just simply say that Close Companies must assign 50% (or so) of their profit as salaries. This leaves the business free to choose between awarding dividends, pension provision, or saving funds to expand the business without relying on banks for capital.
    The definition of Close Companies is well established under Company law.
    Larger Companies with family shareholders would no longer be able to export dividends to non-domiciled family members.

  11. Bruce says:

    Scrap tax credits & child benefit. No to CGT. Raise the income tax threshold to £15,000 (with it being able to be transferred to a legal partner), and then have one rate of income tax at 40%.

    Whatever the Government elects to do the whole taxation system it needs to be simplified so that everyone can understand it and thus eliminate thousands of public sevice jobs which have been required due to the complexity of the current system.

  12. Jason Farmer says:

    Simplify the system Tax & NI are the same, don’t pretend otherwise, simplify the forms, the system, reduce the number of taxes – this doesn’t mean lower tax, I can do basic maths and have been saying for a number of years (ever since Gordon Brown broke his “Golden Rule”, sorry adjusted to suit a changing environment) that the country can’t afford what it is spending. So lets get the tax inspectors out of tax inspecting and doing something that contributes to the economy – charge them out as a service to other governments pehaps?

    Lets make it easy, lets chase payments that are under £2 short for a year as the administration must cost more than the recovery, lets be pragmatic about Tax, and really think about what we need from the system and try not to just tinker with what we have. Why not make income tax properly permanent, lets be honest its not temporary really so why force approval of the budget and the renewal of income Tax?

  13. Martin says:

    The real need is for taxation to attack the culture of greed whereever it manifests itself. Those being paid vast amounts of money (ie more than the PM|) are never worth it and by applying a penal tax rate of 101% and denying their employers the ability to ofset these amounts against profits would send a strong message that the counrty will be fair and equitable.

    Also those with significant assets (ex £1M) should pay an annual tax of 10-20% of their value.

  14. Ron says:

    I would suggest that a rethink of the tax system is likely in order, rather than tinkering around the edges.

    We want a tax system that is simple, efficient, difficult to avoid, and represents a fair trade purchase by the taxpayers for services rendered by the government. Given our past it is also advantageous to use the tax system to better balance savings and with consumption and to encourage a liquid housing market.

    I would suggest as an overall point that the government should poll tax paying residents about the overall size of the government they want relative to the economy, and then use that to guide taxation policies. After that we might proceed as follows:

    1) A simplification of the income tax system on earned income. I would suggest a single or at most 2 tier system which starts at the level of earnings which defines the top of the poverty level. This would bet set such that the government’s total take would be limited to a certain % of total UK earned income, such as, say 25%.

    2) A reestablishment of NI taxation to pay only for NHS & State Pension, and capped again at a certain income level (given that the NHS is not used disproportionately by those with high incomes, and State pensions are not indexed to earned income, this reestablishes the connection between the NI tax and the benefits it finances). Should this not be politically possible, I would suggest that it means NI has simply become another name for a tax on earned income, and should be abolished as a separate levy and folded into (1).

    3) Application of the same tax band to all unearned income as earned income, save that this would be keyed to earnings only above the official inflation level (else the system becomes tilted towards consumption).

    4) A tax on residentially zoned land. This would be a flat tax of a small percentage, and one could argue for freezing the tax base at the original purchase price, at least for primary residences, which would simplify record keeping and prevent long term owners from being unable to pay increased valuations. This would offer the government a steady stream of income and help to better maintain a liquid housing market, as there would be a cost to holding land in land banks or purchasing property that was left unused. It would also offer the government additional tax source as non-UK residents who own property in the UK would thus contribute to the upkeep of services necessary to maintain their neighborhoods. This would replace Stamp Duty and Council tax, and be paid by the registered owners of the land.

    5) A similar tax on commercial land. This would encourage owners of commercial property to put said property to use, helping to eliminate blight, while eliminating the incentive to destroy unused commercial buildings to avoid taxation.

    6) VAT – the current VAT system is actually reasonably fair and effective. It also has the benefit of reducing consumption. The current exemptions are sound and should be retained, and government can use such exemptions to encourage behavior (e.g. encouraging purchase of “green” items)

    7) An abolition of corporate taxation on firms that employ more than say, 10 unrelated persons (to avoid individuals recasting their earnings as corporate earnings). Such tax would be paid by the owners of the firms as unearned income in (3) upon it being distributed to them.

    8) An abolition of targeted tax credits.

    There are of course targeted taxes and most of these should be revisited. In general the VAT levy should replace these, in order to simply the system and remove interference in purchase decisions.

  15. John E says:

    1. We should all contribute to the reduction of the deficit. Instead of putting the burden of the debt on the younger generation through tuition fees and student loans, raise income tax across the board. We are all in this mess and we all need to chip in to get out of it. Targeting select groups, particularly students with stealth additional taxes will simply be storing up new problems for future generations and letting off the generation that caused the problems in the first place.

    2. Simplify taxation by getting rid of council tax and simply increase income tax to cover it. Along with making tax fairer it would undoubtedly save considerable administration costs.

    3. Remove road tax and car insurance and increase the cost of petrol. Everyone must buy petrol to make their vehicles work and so it makes sense to put the costs associated with vehicles on the fuel itself. People that do not use their car much will benefit from lower costs and this has got to be encouraged more than just buying cleaner cars.

  16. David Holder says:

    Look at tax laws, those who can afford it can find loopholes to avoid paying tax (which ends up being those who are well off); those on lower incomes end up with the burden to make up the difference. Look at closing all tax loopholes and have progressive tax rates so that all pay a fair share of tax on their income not just the worse off people.

  17. Jim Holdcroft says:

    I doubt if anyone in the Uk really needs to earn more than £250,000 a year. A higher top tax rate just for 18 months might be worth trying? So you annoy some wealthy people. But not for long enough to make them leave the UK…

  18. George Hedley says:

    Introduce a plan to port all government computer systems to the free Linux Operating System to avoid paying the ‘Windows Tax’.

    Enough other countries have already taken this path.

  19. Bobby Stodel says:

    Houses are business assets of landlords. They should be treated as such for capital gains tax purposes.

  20. Richard Goldring says:

    The country needs money to pay off the national debt right? The more debt we pay off now the less debt interest we have to pay later. So how about this: Encourage individuals and companies to pay some of next years tax this year and use this money to pay off the national debt, by rewarding them with some sort of tax credit e.g. 5-10% of the tax they’ve paid early the following year or the year they pay the tax early? Not sure of the sums or whether it might work, but it might be worth investigating further. It could be more attractive than saving the money depending upon the interest rates.

  21. Steve Miller says:

    Please give me a simple predictable system on which I can predict how much I’ll be taxed. I run a small company…I provide services to the private economy….I help that sector grow. As a result I have not a clue at what rate I’m going to be taxed. Please fix this as it is not sustainable

  22. Kate Netherton says:

    The fairest thing is for those who earn more to pay more tax especially with the current economic situation. I am against huge cuts that will affect low and middle income earners to a far greater extent than high earners who have the ability to pay if a service is not provided by the state. Look at a 50% tax rate for high earners.

  23. Tim Bentley says:

    Scrap National Insurance and add it to Income Tax. This streamlining would save millions in collection costs.

  24. Jon Alderman says:

    1) Cut corporation tax – With the aim of within 2/3 parliaments to bring it down to say 15%. Alternatively give/ increase tax incentives to the film industry, computer games industry, Rewenable energies, and any R’n'D intensive industries.

    2) Capital Gains Tax – reform in it is inevitable. Please would you consider having the rate reduce over a time scale – for example upto 1 Year 40%, 1-2 Years 35%, 2-3 Years – 30%, 3-4 Years 25% 4-5 Years 20% then keep this rate until 8 Years at this point cut to 10% and after 10 year have the rate at 5%

    3) If the government really wants to diversify the countrys economic base again please consider increasing the tax rebate given back to manufactures who invest in capital equipment to say 60/70%. I know this would be expensive, however it would stimulate economic growth in the economy and would hopefully create jobs because manufacturers would hopefully export more which would help with our competitive advantage of the positive depreciation of the currency..

  25. Elaine says:

    The £10,000 personal allowance is a great idea; it will support those who lost out by the abolition of the 10p rate. It will be really supportive for those who just miss out on tax credits.
    Focusing on tax avoidance is a good idea; this should also include tightening of tax loopholes.
    There should be a review of what is considered a charity, for example public schools get donations from people who want to ensure that their children /grandchildren are secured a place. Yes, there are scholarships available; but this is just a PR exercise, these pupils benefit the business by becoming a marketing tool, by boosting the schools achievements. If a “charity” is not able to potentially support society or the community as a whole, it should not be considered one.
    I like the idea of environmental taxes, this should apply to 4×4s.
    I approve the stance on non-dooms.

  26. Steve Miller says:

    Give me a reason to excel…let me create wealth and keep some of it for myself…let me be able to predict what the taxation rate is going to be…BE HONEST tax rises should be on the base levels not massaged by fiscal drag and removing dividend credits on pensions for example

  27. Fred says:

    See my post on Energy and Climate Change.

    We need a carbon tax instead of the plethora of sticks and carrots that exist currently.

    This would provide a clear long term financial incentive for people to change their behaviours.

    I’m on the side of those who favour indirect taxation. Don’t tax what I earn, tax what I consume, especially if that is using unsustainable materials or processes.

    To make this fair you have to increase the minimum wage. So do this and increase the personal allowances and so instead of cutting benefits you leave these the same and encourage people to work because that pays better – and I don’t get taxed on it.

  28. Tim says:

    Increase VAT as people can choose what to spend their money on – however food should be exempt as should fuel (or reduced rate).

    Pretty much everything else is discretionary so people can choose to spend or not.

    I would be prepared to pay more income tax if it was invested in economic regeneration to drive growth and that it was clear that the waste we see in local and central government / public services was really being tackled.

  29. Ali Abbas says:

    The one key issue that has not been mentioned is the inescapable fact that continuous economic growth is not compatible with living on a finite planet. We need an urgent assessment of how we can reshape our economy to live within environmental limits, such as by transitioning to steady state economy and by shifting from measuring success purely in terms of increasing GDP to measuring success in terms of increasing people’s wellbeing.

  30. Catherine Beer says:

    A big increase in VAT will punish those who can least afford a tax rise; I know it is unpopular, but a small rise in income tax for those who can afford it could offset some of the more hard-hitting cuts coming our way.

  31. Andy says:

    Why not introduce a specific “deficit tax” which must be time-limited and dedicated solely to deficit reduction, not spending? It could be based on income, spending or a mixture. As long as it’s very clear what it is and where it’s going, and other public spending isn’t wasted, I think most people would swallow this for a short period. It would, however, have to be set fairly and progressively, not with multi millionaires paying more or less the same as middle income earners!

  32. Karl Shivers says:

    I’m a 20-something professional who graduated in 2004. Since I graduated, I’ve had to grapple with repaying student loans and facing an ever increasing tax burden as income tax and NI have gone up since I started employment. I think its unfair for tax to be put up for people like me who have not been able to reap the rewards of the past economic boom because of the higher levels of tax and student loan repayments levied on me. I haven’t benefited from the economic boom because I live in London where the cost of living is higher, yet I can’t afford to move or buy a home now because deposit thresholds have been raised far higher than I can afford to put down for a mortgage. As a result, I feel that any tax increase to pay for budget deficit reduction will have the net effect of me subsidising losses of the the baby-boomer generation who have already got houses, past bonuses, gold-plated pensions and are living relatively well off compared to anything I could afford when I retire. Rather than complaining about this, I’d like the CG to think about the contribution I’m making to the UK economy and consider reducing some of the tax burdens on me so that I can start saving for my retirement which will clearly be put back a lot later in life due to the increasing retirement age.

  33. kevin says:

    Tax should not start below minimum wage and all credits should be stopped at average wage per house hold if a family can not support them selves on close to the average wage then something in the society need to be addressed as the average wage should be more than enough. housing prices are the biggest cost to house holds so more should be built / taxed on second homes to bring prices to 50 / 60 less than where they are now some one earning minimum wage should be able to buy a house if the wanted 15K time 3 house prices should start at 45k max.

  34. Chris Stokes says:

    The principle behind the Lib Dems CGT policy to tax Capital Gains at the same rate as income tax was to prevent tax avoidance where businesses essentially paid bonuses in shares which immediately increased in value. Essentially this would go back to the position before Labour introduced the flat 18% tax rate. Important to recognise that when the lower-than-income-tax 18% rate was introduced, it was set at this lower level to take account of removing taper relief, so it would be totally unjust for the Coalition to simply put the rate back up to 40% or 50% without reintroducing some form of tapering – this would particularly hit people who have long term investments. I think the Coalition should adopt the policy the Conservatives had a few years ago that all investments held for over 10 years should be exempt from CGT – this would reduce the potential for tax avoidance without penalising longer term investors.

  35. Peter says:

    Road tax, fuel duty and the poor transport infrastructure are a burden on the whole economy that puts the uk leagues behind its international rivals and has a terrible impact on our competitiveness and cost of living. Taxation should be benchmarked against Germany, Japan and the US equivalents and not treated as a cash cow to be milked by greedy and inefficient government bureaucracy.

    The whole uk taxation system should be consolidated and reformed to simplify and reduce the cost of collecting and administering them. e.g. NI is income tax with different rules. abolish it and add the equivalent to PAYE. Similarly with council tax, and tv licences.

    With PAYE, there should be breaks for low income and unemployed to ensure that they are better off working than existing on benefits. Employers NI should also be abolished and genuine apprenticeships employment costs heavily subsidised.

    Other duties on alcohol and tobacco and fuel should be converted into an equivalent VAT rate to provide greater transparency along with the current VAT rates altered to 5%, 20% & 30% to reflect the range of purchase choices of the poorest and richest in our society. Anyone who can afford to buy a £100,000 car or expensive jewellery should accept that it comes with a 30% VAT rate.