Recently I was asked what I would do if I were made Chancellor for a day. The first thing, obviously, is to introduce the Flat Tax – as around a dozen countries already have done, including four EU members. Everyone would pay the same rate – around 22%.
Doesn’t that just help the rich and leave a big hole in the public finances? Well, no. As Britain and America have found after tax cuts in the past – under Coolidge, Kennedy, Reagan, and Thatcher – the rich end up paying more. When taxes are low, there is less point in avoiding or evading them, or moving abroad.
And I could scrap all the complicated allowances. The injustices of high rates have to be moderated by giving people a kickback when they save into a pension, grow old, or invest in R&D. With low rates, you don’t need the complications.
Having made taxes lower and simpler, I’d move on to make them less harmful, by exempting anyone on the minimum wage from tax entirely. Some of our poorest families pay eye-watering effective tax rates, because as well as paying tax on pitiful incomes, they lose benefits too. No wonder it pays many people to avoid taking a job.
And I wouldn’t tax savers either – we want people to invest in the economy.
It might shock the middle clases, but I would put things like higher education on a commercial footing. Universities should charge what they like in what is now a world market. If they continue to struggle under the yoke of penny-pinching politicians, they’ve had it. I would let them charge full fees but require them to set up endowment funds so the poorest students had equal access: choose on merit, help on need.
I would reform school and health finance too, in ways that would help the poor most. I’d give every parent a cheque for the cost of a state education, spendable at any school, public or private – just as in Sweden, the Netherlands, or Denmark. Like Sweden, people would be setting up new schools by the score, knowing that they are better able to attract parents, with their school cheques, than the clapped-out local-authority alternatives.
I would stimulate local democracy (and election turnouts) by making sure that what is spent locally is raised locally, instead of Whitehall calling the shots. At some point in the morning, I’d put in a call to the EU, telling them that we were going to scrap VAT and replace it with a local sales tax. The revenue exactly matches what local government spends, so that’s the end of that problem: let the local people decide what, and how much.
On central government expenditure, I would ask whether we really need Defra, at £3.1bn, or a culture ministry at £1.5bn, or a DTI that burdens industry more than helping it at £5.9bn? And I might conclude we cold also sack the Deputy Prime Minister and disperse his £5bn in tax cuts.
After lunch, I would relax and watch the investment markets boom, reflecting on the words of Henry Luttrell:
O that there might in England be
A duty on hypocrisy
A tax on humbug, an excise
On solemn plausibilities.
And I would knock off by giving tax policy over to the Bank of England. They’ve done such a great job of taking monetary policy out of politics that surely it must be time for them to step in and take taxation out of politics too – so that taxes exist to pay for essential expenditures, rather than to help politicians win elections.