Top Tory Kit Malthouse wants direct taxes replaced with VAT. The policy would mean the poorest paying 30% more in tax while the richest got a 9% tax cut.
Boris Johnson’s deputy mayor, Kit Malthouse, yesterday suggested that direct taxes should be replaced with VAT. The policy would result in an astonishingly regressive shift in the tax system.
In yesterday’s Times, Malthouse wrote:
“Whichever way you look at it, cash is on the way out, and this means an indirect, universal sales tax could be on the way in, as a replacement for all direct taxes. The amount of tax collected may well be the same, but the big benefit would be an end to the mindless game of cat and mouse among politicians, corporate Britain, the Inland Revenue and the long-suffering public.”
The wisdom of the policy has been questioned by Paul Waugh, Next Left and the Daily Mirror but the full horror of its regressive nature is only just becoming clear. Analysis carried out for Left Foot Forward by Howard Reed using ONS data shows the distributional impact of replacing direct taxes such as income tax and employee national insurance with VAT. The chart shows that the poorest families would be hit with a 30 per cent tax hike while the richest would face a 9 per cent tax cut. Reed estimates that VAT would have to rise to 55 per cent to cover the loss in income tax and NICs.
Malthouse has form on hair-brained tax schemes. In 2004, he promised that Westminster City Council could stop charging council tax by 2012. VAT is popular with conservatives since it fits with their flat tax philosophy. Earlier this parliament, George Osborne wrote:
“Flat tax scores highly on the age-old principles of good taxation, famously laid down by Adam Smith, who said that taxes should be efficient, transparent, simple and fair. They are easy to collect. The amounts charged are predictable. The burden on companies and individuals is low.”
33 Responses to “Top Tory’s VAT plan would leave poorest 30% worse off”
Will Straw
Anon,
We want you on here adding your strongly held thoughts and analysis of our pieces but please do treat our authors and other commenters with respect. It’s not too much to ask.
All the best,
Will
John77
Will Straw,
If you didn’t think anything in that article is inaccurate then it can only be because you stopped thinking while you penned that reply. The ONS data that you cite quotes a figure of 7.9% for the percentage of spending by the bottom quintile absorbed by VAT. ONS THEMSELVES state that the income figures for the bottom quintile are seriously understated because their data on income omits two-thirds of the tax credits paid by HMRC, of which the large majority (I hope!) goes to poorer households, so the income of the lower deciles is understated and the %age absorbed by taxes is overstated. VAT is less than 30% of the tax paid by the each of the bottom two deciles. In fact, according to ONS, the direct taxes paid by the bottom quintile exceed the amount that they pay in VAT! Kit Malthouse is not a “Top Tory” – second division at best.
The Conservative party in this country has since its creation in the Nineteenth Century always supported the concept that taxation should be based on the ability to pay. The flat tax philosophy is supported by the “Conservative Party” in the USA which is unconnected to the British Conservative & Unionist Party.
Apart from the last couple of points, I have told you all this before. You are too young to be suffering memory loss due to Alzheimer’s disease, so why are repeating claims whose errors I have already explained to you?
John77
Sorry – typo “omits two-thirds” started off as “only includes two-thirds” and should read “omits one-third”
Will Straw
John – You seem to be arguing two things at once. First, Malthouse’s idea wouldn’t be so bad, after all. Second, Malthouse is a crank and the Tories have always been committed to fair taxation. On (1) are you seriously suggesting that moving towards more VAT wouldn’t be deeply regressive? On (2) Malthouse is one of the most senior Tories in office in the UK. And if flat taxes are an unBritish idea, why did Osborne flirt with them in 2005?
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