Changes in tax was an important component of last week’s Budget. Debate on Question Time made out that this was a Budget that favoured Corporates over the disabled. However, perhaps this is actually a case of a lack of tax literacy affecting our tax reality?
George Osborne’s latest move to cut Corporation Tax will make the UK more attractive as an investment destination for big multi-national businesses. This is fundamentally important to the continued growth of our country. It will create jobs, increase PAYE and reduce the amount of benefits being claimed.
The cut in the rate of Corporation Tax to 17% is also good news because, as the Chancellor said, it is one of the most distorted and unproductive taxes there is. But while this will amount to a £900m tax cut in 2020-21, other reforms, particularly to the tax treatment of debt, will increase Corporation Tax revenues by £1.9 billion in the same year. It’s not just a decrease in Corporation Tax that we should be noting, total tax contribution made by Corporate’s is actually higher than ever; many now pay more total tax than ever before when you consider the range of taxes paid. They have a legal obligation to their shareholders. Tax is not paid on the basis of what “feels right” either to public opinion or to politicians. Tax is paid, and must be paid, in accordance with the strict requirements of the system.
A sugar tax on the soft drinks industry will raise a further £450 million. Here the Chancellor has created a hypothecated tax, which will see the money saved here reallocated into schools and active learning. This hypothecated tax is helpful in educating the general public as to WHY this tax is being introduced and the wider benefit it will have on society – rather than feeding the view that the savings will be swallowed up into a black hole.
The UK Capital Gains Tax rate is now one of the highest in the developed world; however, by cutting the basic rate to 10% and the higher rate to 20%, it will likely increase compliance around Capital Gains Tax and will help prevent avoidance, which creates a complicated and damaging system for those who choose to abide by it.
In conclusion, we need to move towards increasing tax literacy. The more sophisticated our understanding of tax implications becomes, the more engaged we will be with the actual reality of Government Budget updates. Low tax literacy and morale can be directly linked to poor compliance, damaging the wider society in which we live. Fairer taxation will help us to combat evasion and corruption, which in turn creates greater democracy, accountability and responsiveness.