The Alternative Budget

10 different policies that could change our taxation system

The budget was, frankly, futile. Since 2008, governments have been chasing their tails, scared to take the big decisions required and framing ‘radicalness’ as a continuation of the status quo. No matter what Rachel Reeves did last month , mansion tax here, freezing thresholds there, lifting the two-child benefit cap here, everything was an oxymoron. A high tax, high-welfare state does not work; one must take precedence.

We have not addressed our economic malaise, it has become endemic - a virtuous cycle. Politicians are insulated, stuck in their bureaucratic straitjacket and too cowardly to upset the applecart. It is an endless carousel of nothingness and pain.

To combat this doom loop, we need different solutions. Actual radicalness that proposes a different way to the economic landscape we currently preside over. I have listed some of the measures a government could propose to change the taxation system and reshape our economic story. These are decisions that require bravery, conviction and a belief that economics are not just a means to an end but a platform on which governments’ aspirations and goals can be realised.

1. Disband Council tax bands to replace with a yearly payment of 1% of house value.

The Mansion tax that was announced by Reeves in the budget was a recognition of how bad our Council Tax system is; it is the most apt metaphor for our moronic taxation system. Based on house values established in 1991, this tax is deeply regressive and forces a family of four living in Burnley to pay the same council tax as those living in a semi-detached house in Westminster.

Reeves has sort to alleviate *some* of these problems with here new tax on large homes. Estates valued at £2-2.5m will pay an extra £2.5k a year and £5m + £7.5k a year. This was a necessary step but does not go far enough, seen more as fiddling around the edges rather than enacting deep, structural change. It is a constant mystery why no government seems reluctant to go the full hog and rip up the system entirely, it’s an open goal. No party can reject a reformulation of the methodology – the unfairness such an arcane system has created is indisputable.

So, I propose replacing the council tax annual payment of 1% of your house value.

This would be rolled out initially over a five-year period. For the first two years, the original bands A-C would pay 0.3% of their house value, D-F 0.4% and G-H 0.5%. At the end of year two, this would increase to: A-C 0.6%, D-F 0.8% and G-H 0.9%. After five years the 1% would kick in.

Gradually rolling out the policy allows for public preparation. A 5-year period means that finances can be brought into order, and economic shocks can be kept to a minimum, once the new changes come into effect.

There would be a significant number of exemptions and leeway within the 1% framework to ensure that it is fair, progressive and places the burden most strongly on the broadest shoulders:

• Households deemed on a low income – where partners are both on 50% less than median income (£36,700) or a single person is on 50% less than median income would be exempt from paying the tax.

• There would be a tax break allowance of 20% of local property median average price for households below 1M. 1-2M 10%, 2M + tax break of 5%. So, a household at 700k in an area (Local Authority district) where the average price is 450k would get a tax break of 90k, so they would be taxed at 610k as household value.

• If the local property median average price is less than 300k, the rate is reduced to 0.5% for all properties (you would be taxed 0.5% on top of your house value after tax break). If the average price is between 300k – 500k rate is reduced to 0.7% on top of the tax break.

• For houses worth 10M-20M the rate would be 1.5%, 20-30M 2% and 30M + 4%. This would be collected tri-annually.

• To cash-poor households, payments can be deferred for up to 5 years, interest-free. There would be loans with a capped interest rate available to cash poor households (less than 20k) to pay the tax. These households would be assessed annually for their right to be classed as cash poor.

• Households have the option to pay multiple years’ payments in one go. i.e you could pay 3x1-year tax rate in one full payment. But this is capped at three years.

• Valuations would be manned using AVM + transaction data. These would be updated annually. Valuations can be appealed by residents, but only if there is more than difference (+-10%) sqm between local properties.

• Each year, 20% of houses within the local area would be valued in person to train the model and keep it accurate.

• Every household would be valued in person at least every five years.

• The methodology of valuation would be clearly published and accessible online, paired with an online calculator that allows people to see transparently how much tax they would pay.

Governments think that everything must be dumbed down, yet our technological capabilities can allow us to create a complex and detailed system that maximises revenue and is grounded in plurality. Thinking in this way should be the template model for how tax legislation should be constructed.

The proposals would generate £30 billion more in revenue each year.

2. Remove all VAT exemptions and put VAT on everything but reduce the rate to 5% for essentials. 15% for everything else.

This was an idea that Martin Wolf spoke about several weeks ago. The VAT exemptions list has always been mindlessly confusing. A direct obfuscation of a system that should be far simpler.

Removing the exemptions streamlines the system, while recognising the importance of keeping essentials at a minimum price, especially for low-income households.

• There would be a zero-rate VAT on essentials for low-income households – classed as 60% lower than the median income (£36,500>). VAT 0.5% for 50% lower, 1% for 40% lower, 1.5% for 30% lower and 2% for 20% lower.

• These households would be administered a pass that removes or reduces the VAT when scanned at checkout. This would be reviewed annually to ensure a targeted and fair approach.

• As the changes are implemented, businesses would be required, by law, not to raise prices, to reduce inflationary pressures.

This would generate £80 billion more in revenue each year.

3. Remove Stamp Duty for first-time buyers and on transactions less than 700k.

The Tories, quite self-proudly, announced they would abolish all stamp duty at their recent conference. This got all the Tory girls and boys cheering and whooping. Of course, this was unfunded, but that was beside the point – stamp duty is seen as a key obstruction for the YIMBY steam train.

Principally, Badenoch was right that it is an inane tax that disincentivises people from moving house. However, a clean sweep of it would be misguided. It still generates significant revenue and should therefore be targeted at large moves not those trying to get on the housing ladder.

• The removal of stamp duty for first-time buyers would be implemented and then reviewed after 3 years. This allows for adjustments to be made and any refinements to take place if measure is too damaging to housing market.

• The policy would be paired with a full-throttle approach to building. Guerrilla politics, where everything physically possible should be done to increase the supply side.

• Buy-to-let investors would be excluded and would still have to pay current stamp duty rates.

• Properties would have to be lived in for at least two years before they could be sold or pay a 15% stamp duty rate.

• Stamp duty would increase to 15% on transactions over 2M.

• Overseas purchases are charged the standard 10% rate.

• Second homes stamp duty charged standard 20% rate.

• Mortgage lenders would be tightly managed to ensure that stress tests are firm.

This is roughly revenue neutral but are crucial steps in massaging the housing system into shape. Any financial gain received would purely go into increasing housing supply, which is both a good way of packaging the proposals to the public and enacting actual change.

4. Abolish the triple lock and abolish the state pension in its current form.

This is the most contentious policy. The triple lock is seen as sacrilege, a pact that cannot be discarded. Truthfully, governments know it’s a preposterous situation, even the broadsheets whose reader base is 50+ have quietly mooted about getting rid of it. There were reports earlier in the year that a fourth pillar could be brought in, where, as the pension increases to such a level it is eligible for income tax it would be exempt. If that is not enough of a sign of the ludicrous situation, we find ourselves in, then what is?

I would take it a step further and abolish state pensions in their current form. Making all financial support administered by the state means-tested; only those who need it, receive it, and those who don’t. Such radicalness would never be brought in, for those who have paid tax all their life to the state and get nothing back when retiring is an understandable angst. Yet, this does not take away private pension pots or other revenue streams people may have. Tough decisions must be made; the state should act as a crutch and not be taken for a ride.

• At the retirement age of 66, anyone who wants a state pension would declare all their assets and income, not including their homes - unless their home is more than 1M. This would be increased to 2M in London and the southeast.

• Private pension pots are not penalised or affected in any way, nor are any workplace pension contributions.

• If your private income is £12,000 a year, then you would get the full state pension - £230 a week.

• For every £1 retirement income above £12,000 state pension reduces by 50p.

• Income status will be assessed at 66, using tax records and pension provider data.

• Asset selling records will be looked at. Any major assets sold inc homes in the last five years will not be counted towards determining eligibility status.

• Offshore accounts will also be counted and means-tested.

• All records would be online, and the data would be shared.

• Changes would apply to people more than 10 years below the current state pension age.

• No pensioner would fall below a basic income of 12k a year, 20k for a household. Money saved would be used to support and top up in these areas where people may fall through the net.

Would save around 50 billion a year.

5. Enforce NIC contributions by Landlords

This is something I first saw the excellent journalist Harry Lambert mention a few years ago. The government has demonstrated its commitment to improving the lives and security of tenants through the Renters Rights Act – the success of which is still very much up in the air, considering the effects it could have on the market. Nevertheless, this is an easy move to make and would follow the trend of aiding tenants, improving fairness and broadening the contribution bases.

Currently, a tenant pays NIC on their income, which is then given to the landlord as rent, but they don’t pay NIC on this money. You would simply equalise the burden.

For example, someone taking home 55k pays £3k a year in NIC and £9k a year in income tax (thanks to our progressive, 40%+20% threshold on). Their rent is £1.5k a month, £18k a year. Allowing for costs (2-3K), a landlord would take home 15k in profit. Under proposals, this would then be taxed at an 8% rate - the same as self-employed people do.

This would raise £4-5 billion a year.

6. Capital gains tax is increased to a flat 30% on all purchases.

CGT is currently and will maintain a position as oneof the greatest revenue raisers for the treasury in the coming decades. The sale of financial assets, such as stocks and shares or residential properties and businesses, is only going to increase. Therefore, we should look to maximise revenue in this area, while ensuring the country remains pro-business, entrepreneurial and pro-British.

• Any gains made that are reinvested into a UK business. I.e. selling your business for 100k after buying it for 50k and then investing 25% of that money into a British tech startup would cut 5% off rate. So, you would be given a tax rebate after proof of investment.

• For small businesses that are valued between £1-10M, the rate would be reduced to 10% for all transactions. This would be based on company filings and work in a way that does not stifle business growth.

• One tax-free trade every 2 years is allowed if an individual or business, completes more than 5 transactions. The amount is limited to 30k.

• Pensions and ISAs have a CGT threshold of 12k.

• Tax indexed to inflationary movements to maintain stability.

• At death, either pay a 25% rate or reformed IHT (mentioned later)

  This would raise in the region of £18 billion a year.

7. Winter fuel payments to be cut and means-tested for those in need.

This will be familiar to many. Labour’s, arguably, original sin was announcing this to the public so soon after taking office. The backlash was substantial, and many have not forgiven them. Nevertheless, it was a good move, one that was progressive and aimed to cut welfare while ensuring that those in desperate need of additional funds, still received support.

Labour’s proposal was drastic; the number receiving the payment would have dropped from 11 million to just 1.5 million. Indexing the extra support to those receiving one of several means-tested benefits. I propose enacting something similar but broadening it out slightly further to grant households who earn 50% less than the median income receiving the payment. Ensuring that no one slips through the net. Additionally, a cash pot should be set aside and become available each winter, where people who do not receive the payment but feel they should be eligible, come forward and apply.

Would save £1.2-1.3 billion a year

8. Introduce a land tax.

Much of the discourse, especially on the left, has become obsessed with a wealth tax. This is an admirable pursuit, but it feels flawed. High net worth individuals could leave, and just prosaically, it is bad optics. A move that looks like a punishment for achieving economic success.

Therefore, a land tax is far better targeted and negates many of the problems. Much of the land that isn’t used for farming and arable activities just lies still, an investment being primed for development or just accruing value. A tax on these assets wouldn’t stifle economic growth but reduce the redundant position it currently occupies. Crucially, this would only apply on land where nothing is happening or is planned to happen soon. There would be a big drive to encourage activity, with the tax only imposed where no proof of development or future development is present.

So, you have a flat annual rate on the value of your land excluding farming and arable activities. Additionally, I would discard the IHT changes around farm, which is an inane policy that fundamentally underestimates the value of land and creates far more problems than any capital it might raise.

· 10% rate if acre value is ≤20k

· 15% if acre value is 20k-50k. The additional 5% is only charged on the difference between value and 20k.

· 20% if acre value is 50k +. The additional 5% is only charged on the difference between value and 50k.

· Would be collected biannually

Would raise £10-15 billion

9. Inheritance tax changes

IHT is one of the most contentious tax policies in the country. Some cheaply label it as a ‘death tax’ while others protest its importance, noting the considerable sums that it brings in. However, it should remain in place. Removing it would further entrench the deep, social class system we have which is one of the country’s most fundamental blights. These changes do not necessarily raise more capital but remove the flaws, creating something fairer that does not discourage people trying to game the system.

· Increase the threshold from 325k to 500k. The current figure is egregious as figures have to pay tax on sums not that high.

· Estates worth 500k to 750k carry a 5% rate. 750k-1M 10%. 1M-5M 15% rate. 5M-20M 20%. 20M + 25%.

· Crucially, you are only charged 5% on the difference between the band and your value. I.e if the estate is worth 800k, the 750k would be taxed at 5% and then 50k would be taxed at 5%. If estate is worth 11M first 5M would be taxed at 15% and then 6M would be taxed at 5%.

· 10% added on for second homes, unused land and investment portfolios, inc pension funds 1M+. This is added onto the initial IHT sum, not the difference sum.

· People can give up to 1M tax-free to children at any point in their lives. This is tracked on a national register.

· All revenues generated from this tax are solely directed to funding programmes improving social mobility.

· Valuations would be mirrored to the new Council Tax system.

· Trusts can only avoid tax for 20 years – these must be declared each year.

· International trust would have to comply as much as possible.

This would raise 10 billion, roughly revenue neutral.

10. A tourist Tax for the top 25 most visited cities in the UK.

Despite the fearmongering, the UK is still one of the most attractive places to live and visit for people across the world. Residents have started to fight back against tourists across the world, most notably in Spain and Barcelona. The UK does not struggle with the same problems; our largest cities are so big that excessive busyness is a way of life, and our smaller cities are often proud that people travel from across the world to visit. We should capitalise on this and look to levy our countries global appeal through its entertainment, historic, sporting and cultural offerings, which struggle to be rivalled.

· London, Edinburgh, Manchester, Birmingham and Liverpool would have a 7% additional charge added to visitors staying there. This wouldn’t apply if you are only staying for 1 night and is reduced to 3.5% if the stay is longer than 5 days.

· The next 10 most visited cities would have a 5% charge. Wouldn’t apply if you are only staying 1 night and the rate would be reduced to 2.5% if the stay is longer than 5 days.

· The next 10 most visited cities would have a 2.5% charge. Wouldn’t apply if you are only staying 1 night and the rate would be reduced to 1.25% if the stay is longer than 5 days.

· Students wouldn’t be charged.

· This would require a national approach in cooperation with hotels and with Airbnb/short stay to ensure compliance and not dampen demand.

This would raise around a 1 billion a year.

These policies may not be implemented – in fact, I’m certain a lot would never even be considered. They are radical, highly capital raising but do not consider that greatly the societal effects it could have and the considerable backlash against certain measures. However, it is paramount that we start to think in these bold, innovative ways that are deep-rooted in technology being the bedrock for everything that we do. It has unbounded potential; it can improve our systems, reduce inequality, maintain economic growth, have a pro-business mindset and repair our public services. Reenvision a new state that does not get bogged down in factional spats or a cowardly mindset – it’s time to take the initiative.