Direct taxation for private individuals.....

[R1Geezer]

Is there an argument for abolishing altogether? The budget today is widely expected to reduce direct taxation so that more money in the pockets of the masses means that they have more to spend and hence pay more indirect tax. Is this an indication of the way forward? I mean what if we had no direct tax at all? I belive it only counts for 15-20% of total tax anyway, costs billions to collect which could be cut to very little.The average jos would spend the saing on things that have indirect tax on and the givernement gets the momey anyway and also stimulates the economy. Is any goverment bold enough?

[jake-the-peg]

29%
http://en.wikipedia.org/wiki/File:UK_taxes.svg add in employee's NI and it's nearly 1/3

VAT would have to double or trebble

Sounds like a non starter to me

[R1Geezer]

It's just testing the extremities really jake. Would not all the extra cash floating about stimulate the econloy and rake in more tax? I accept that vat etc would have to go up but the mere fact that people have more to spend will generate a bigger tax take even at the current rate.

[Gromit]

People already bleat about Rip-Off Britain because our prices include VAT and countries such as the USA advertise excluding VAT (they have a local purchase tax that varies state to state). So when they see a $500 computer in the States and it cost £600 here, they will buy abroad.

There would be a huge increase in smuggling and retail tourism, and British Traders would suffer.

[Gromit]

Some are expecting dire consequences if VAT goes up just 2.5% as is predicted...

// A business group set up by former Bank of England economists urged Mr Osborne to think again last night.
The Fathom consultancy said a rise (in VAT to 20%) would threaten consumer confidence by encouraging more saving, as happened in Japan in the 1990s.
It could also trigger an increase in inflation, the economists warned. //

[jake-the-peg]

Firstly I don't think you'd save much in department costs I think their budget was about £4 Billion or a bit over £100 a year for each of us.

You'd still have to have a significant department to properly manage tax collection however you do it.

The problem with putting it on indirect taxation is that there is no way of banding it to income.

So lets take a Nurse on about £13K they'd be better off by about what? £1,500 a year say £2,000 if you add in NI or £40 a week

It wouldn't take long for that to get swallowed up by a trebbling of VAT

Not only that but as we all know there is a huge problem of "cash jobs" in this country

So you'd be moving to a system that penalised the poorest disproportionately and was more susceptable to fraud

[jake-the-peg]

Some are expecting dire consequences if VAT goes up 2.5%

Are these the same people who said that dropping VAT by 2.5% was entirely pointless when Gordon Brown did it, noting that it would be mostly absorbed by businesses?

[R1Geezer]

but surely it's self banding jake, ie when it's spent. I think most would prefer to have their money tax free and choose what to spend it on. I don't see how it's more susceptible to fraud, it collects itself, unavoidable. Is this the system they have in Monaco/Saudi etc?

[youngmafbog]

Jake surely you have just put an argument against yourself.

Cash jobs would no longer benfit the tradesman. He may choose to not charge the VAT I suppose but where would that get him ?

[Trotbot]

If VAT is self collecting, why do tradespeople offer a discount for cash in hand? Once you let the money go into people's pockets, you have lost an element of control, so you take some away before they can hide it under the mattress.

If you significantly increase VAT, it hurts the lower paid proportionally more as the percentage of their income paid as tax increases.

Most modern countries have a VAT and PAYE system that is balanced between cost of collection, ease of enforcement and meeting social needs