Financing | Web-desiging | CVS surveyors
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CVS Surveyors- For the retail sector, the recently confirmed transitional relief scheme won’t actually provide any net relief, who so desperately need it. Mark Rigby, CEO of business rent and rates specialists CVS Surveyors, said;“The Treasury’s golden goose is getting even fatter following a £1bn windfall from last year’s business rates yield and what’s more, this year the yield is projected to be £0.6bn over budget.
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Financing | Web-desiging | CVS surveyors
- 1. Taxation in the UK CVS SURVEYORS
- 2. Outline Overview of the UK tax system in historical, international and theoretical contexts: 1. Level and composition of revenues 2. Structure of the major taxes 3. Economic aspects of the overall tax (and benefit) system: – Effect on the income distribution – Effect on incentives to work – Effect on incentives to save and invest For more on 1 and 2: S. Adam & J. Browne, A survey of the UK tax system – www.ifs.org.uk/bns/bn09.pdf
- 3. The tax burden in the UK 30% 32% 34% 36% 38% 40% 42% 44% 46% 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 %ofGDP Public sector total receipts Net taxes and SSCs Line 3 Line 4 Source: HM Treasury
- 4. Tax to GDP ratios Taxes and social security contributions 0% 10% 20% 30% 40% 50% 60% UK EU15 OECD USA FRA GER JAP SWE IRE AUS CAN ITA 1979 2003 Source: OECD
- 5. Composition of revenues Current receipts, 2006-07 Income tax + CGT National Insurance VAT Other indirect taxes Corporation tax Recurrent buildings taxes Other capital taxes Other receipts Source: HM Treasury
- 6. Composition of revenues Current receipts 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1978-79 2006-07 Other receipts Other capital taxes Recurrent buildings taxes Corporation tax Other indirect taxes VAT National Insurance Income tax + CGT Source: HM Treasury
- 7. Composition of revenues 2003 Taxes and social security contributions 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% UK EU15 OECD USA FRA GER JAP SWE IRE AUS CAN ITA Other taxes Other capital taxes Recurrent buildings taxes Corporation tax Other indirect taxes VAT / retail sales taxes SSCs + payroll taxes Income tax + CGT Source: OECD
- 8. Income tax schedule For earned income, 2006 prices £0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £0 £20,000 £40,000 £60,000 £80,000 £100,000 Gross income Incometaxliability 1978-79 2006-07
- 9. Changes to income tax rate structure • Big reduction in top rates (83/98% 40%) – the start of an international trend • Reduction in basic rate (33% 22%) – part of an international trend • Abolition and re-introduction of starting rate (now 10%) – international trend is to reduce number of rates • Large-scale fiscal drag – some increase in no. of taxpayers – massive increase in no. of higher-rate taxpayers
- 10. The income tax burden For single worker at multiples of average full-time earnings 0% 5% 10% 15% 20% 25% 30% 35% UK EU15 OECD USA FRA GER JAP SWE IRE AUS CAN ITA Incometaxas%ofgrossearnings @ 167% of AW @ 100% of AW @ 67% of AW Source: OECD
- 11. Changes to treatment of families • Independent taxation introduced 1990 – part of an international trend away from family taxation • Abolition of additional tax allowances for married people and those with children • Tax credits bring support for children and low earners into the tax system – spread of means-testing revives joint assessment – major delivery problems with latest (2003) reforms
- 12. National Insurance schedule Combined employer and employee NICs, 2006 prices £0 £20 £40 £60 £80 £100 £120 £140 £160 £180 £200 £0 £200 £400 £600 £800 £1,000 Weekly earnings WeeklyNICs 1984-85 2006-07
- 13. Changes to National Insurance More like income tax: • Abolition of ‘entry fee’ • Entry point aligned with tax allowance • End of cap on contributions • Extension to benefits in kind • Erosion of the contributory principle
- 14. The burden of income tax + NICs For single worker at multiples of average full-time earnings 0% 10% 20% 30% 40% 50% 60% UK EU15 OECD USA FRA GER JAP SWE IRE AUS CAN ITA PIT+SSCas%ofgrossearnings @ 167% of AW @ 100% of AW @ 67% of AW
- 15. Main corporation tax rate 0% 10% 20% 30% 40% 50% 60% 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
- 16. Changes to corporation tax • Main rate cut (52%30%) • Small companies’ rate cut (40%19%) – ill-fated experiment with 0% starting rate • Reduced capital allowances – aim is to tax profit = revenue – expenses – expenses should include true economic depreciation – hard to measure so give fixed capital allowances instead – these deduct capital spending bit by bit over several years • R&D tax credit introduced 2000 • Rate cuts and base broadening is in line with international trends
- 17. Taxation of corporations and shareholders 2005 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% UK79 UK05 EU15 OECD USA FRA GER JAP SWE IRE AUS CAN ITA Top net income tax rate on dividends Main corporation tax rate Source: OECD
- 18. The corporation tax burden Effective average tax rates and capital allowances 2005 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% UK79 UK05 USA FRA GER JAP SWE IRE AUS CAN ITA Capital allowances (p.d.v.), plant and machinery EATR, equity-financed plant and machinery Source: Klemm (2005)
- 19. VAT • Main rate 8%15% in 1979 and 17.5% in 1991 – part of international move towards uniform VAT • UK has lots of zero-rated items – but uses reduced rates less than other countries
- 20. VAT rates and bases 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% UK1980UK2003 EU15 OECD FRA GER JAP SWE IRE AUS ITA NZ main VAT rate c-efficiency ratio: revenue / (main rate x national accounts consumption) Source: OECD
- 21. VAT • Is this narrow base a good idea? • Atkinson-Stiglitz: if leisure is weakly separable from all other goods, uniform VAT is optimal • May still be arguments for differential rates… – if not separable, tax complements with leisure more to offset usual distortion towards leisure – externality or merit good arguments • But widespread distributional defence is just wrong – progressive income tax is more efficient tool for redistribution
- 22. Excise duties • Fuel, alcohol and tobacco • Rates increased, yet share of revenues declined (as in most other countries) – Rates fallen since 2000 • Fuel protests in 2000 • Serious concerns about smuggling
- 23. Environmental taxes • Various new environmental taxes introduced: – Air passenger duty (1994) – Landfill tax (1996) – Climate change levy (2001) – Aggregates levy (2002) – London congestion charge (2003) • None of these raised more than £1bn in 2005 – compared with £24bn (+ VAT) from fuel duty • But revenues don’t tell the whole story
- 24. Environmental tax revenue, 2006-07 Fuel duty (+ VAT on duty) Vehicle Excise Duty Other
- 25. Property / local taxes • Council tax: – Replaced poll tax in 1993 (previously domestic rates) – Based on property values (banded, no revaluation) with discounts for 1-person households and low-income families – UK’s only local tax (councils set average rate only) • Business rates: – Proportion of estimated market rent (unbanded, revalued) with discounts for businesses with low rents – Centralised in 1990 • Lyons Inquiry report due on Wednesday
- 26. Distributional effect of the tax and benefit system Excluding most ‘business taxes’ -40% -20% 0% 20% 40% 60% 80% Poorest 2nd 3rd 4th 5th 6th 7th 8th 9th Richest Decile group of equivalised household disposable income Benefits - Taxes as % of original (private) income Source: Authors’ calculations from ONS (2006)
- 27. Effect of tax and benefit system on income inequality 1998, personal taxes and benefits only 0.0 0.1 0.2 0.3 0.4 0.5 0.6 UK EU15 Aus Bel Den Fin Fra Ger Gre Ire Ita Lux Neth Por Spa Swe Ginicoefficient Private income Disposable income Source: Immervol, Levy, Lietz, Mantovani, O’Donoghue, Sutherland and Verbist (2005)
- 28. Effect of tax and benefit system on income inequality Excluding most ‘business taxes’ 0.0 0.1 0.2 0.3 0.4 0.5 0.6 79 81 83 85 87 89 91 93 95 97 99 01 03 05 Ginicoefficient Private income Private + benefits Private + benefits - direct taxes Private + benefits - all taxes Source: ONS (2002, 2006)
- 29. Effect of tax and benefit changes on income inequality Personal direct taxes and benefits only, 1997-98 population -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 79 81 83 85 87 89 91 93 95 97 99 01 CumulativechangeinGini relative to RPI uprating relative to RPI uprating of taxes, GDP uprating of benefits Source: Clark and Leicester (2004)
- 30. Work incentives among workers Personal taxes and benefits only 40% 45% 50% 55% 60% 65% 70% 79 81 83 85 87 89 91 93 95 97 99 01 03 Mean effective marginal tax rate Mean participation tax rate Source: Adam (2005)
- 31. Work incentives among workers 1998, personal taxes and benefits only 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% UK EU15 Aus Bel Den Fin Fra Ger Gre Ire Ita Lux Neth Por Spa Swe Mean effective marginal tax rate Mean participation tax rate Source: Immervol, Kleven, Kreiner and Saez (2005)
- 32. Taxation of savings • Starting point not obvious – Tax all income (earnings and savings) equally? – Savers are rich so tax them more? – No… • Saving is just deferral of consumption • Atkinson-Stiglitz again: under various assumptions, should tax consumption today and consumption tomorrow the same • This implies no net tax on the normal return to saving • The assumptions are unrealistic, but it’s a useful benchmark
- 33. How not to tax saving • Present value of lifetime earnings and expenditure are the same if all saving earns the normal return r – Ignoring bequests: a tricky issue! So three mechanisms: 1. Tax earnings, ignore savings completely: NICs 2. Tax expenditure, ignore income completely: VAT 3. Tax expenditure, calculated as: earnings – net contributions into saving accounts
- 34. Income tax treatment of saving Default is to tax returns to saving (interest, dividends, capital gains) as well as earnings But… • ISAs: returns tax-exempt (wage tax treatment) • Housing & other durables: ditto • Pensions: expenditure tax treatment – contributions deducted from taxable income – returns within the fund untaxed – withdrawals (pension income) mostly taxed These account for most saving for most people
- 35. Other taxes on saving • Savings cut entitlement to means-tested benefits • Other capital taxes – council tax, inheritance tax, stamp duties • Corporation tax – lots of savings are invested by companies – effective marginal tax rate (EMTR) depends on how far investment and returns can be deducted from taxable profits – this varies: • different types of investment (plant & machinery, buildings, R&D,…) • different methods of finance (debt, equity)
- 36. Company-level EMTRs, 2005 -80% -60% -40% -20% 0% 20% 40% 60% 80% UK1979 UK2005 USA FRANCE GERMANY JAPAN Equity-financed plant and machinery Debt-financed plant and machinery Equity-financed industrial buildings Source: CVS (2005)
- 37. Conclusions • UK mostly in line with international trends – Rise in overall tax burden since 1979 – Income tax rates cut – Shift from excise duties to VAT – Corporation tax rates cut, base broadened – Shift from family to individual taxation • Whether reforms have increased inequality depends what you mean by a “reform”! – Labour’s reforms (relative to price-indexation) have been progressive but weakened work incentives • Distortions between different savings vehicles and forms of investment have been reduced
- 38. Taxation in the UK Stuart Adam