Tuesday 6 April 2010

Kit Malthouse and the confused mind of the ProgCon egalitarians

The story so far: George Osborne has "no plans" to increase VAT - but that leaves him plenty of wriggle room to pull off the infamous Geoffrey Howe dodge on VAT in campaign 1979.

Yet the deputy Mayor of London Kit Malthouse wants VAT up - writing in The Times that this could replace all other taxation, whose hare-brained scheme takes the preference for indirect over direct taxation to its logical conclusion and well beyond.

Hat tip Paul Waugh, whose back of the envelope estimate is that Malthouse is advocating VAT at about 120%, though anybody advocating this would be more likely to go for 50-60% and halving government spending (which would be very unpopular, whatever the Taxpayers Alliance tell you).

But Malthouse hasn't even bothered with the back of an envelope in his attempt to challenge the assumption that shifting all direct taxation to VAT would be regressive.

But surely VAT is a regressive tax that falls unfairly on the poorest? Not necessarily. Certain essential items that are already VAT-free — food, children’s clothes, The Times — could remain so, and would actually fall in price. Those with higher consumption, including the infamous non-doms, would pay more tax (although no one would need to be a non-dom, of course). Go out and buy a Bentley or a Lear Jet and you’ll make a big contribution to the Exchequer. But if you scrimp and save you will pay hardly any tax — what better incentive to cut up the credit card and open a deposit account?

I hope the Institute of Fiscal Studies might shortly draw him a diagram.

To steal The Economist's Big Mac index for a second, there is currently 64p of VAT in the £3.69 price of a Big Mac medium meal in Britain. That would rise to £3.50 or more of VAT under the Malthouse plan. He would counter that wage earners could receive their salaries gross, though he would not have any additional revenue to give non-taxpayers more income to deal with price rises.

But the Malthouse plan would be good news for higher rate taxpayers and would certainly be a nice little earner for 'two salaries' Boris, who has expressed outrage at the 50p tax which costs him £20,000 from his second job knocking off that column.

To be fair, it is now a little while since Shadow Chancellor George Osborne flirted with flat taxes. His leader David Cameron is also caught in two minds. So let us continue to celebrate their happy conversion to minding the gap on inequality, while puzzling over how Mr Cameron can reconcile that with saying "I'm a Lawsonian basically" in favour of flatter taxes and indirect taxes.

1 comment:

AdamB said...

Kit Malthouse has form on this. Westminster Council taxpayers will remember his pledge that they would pay no tax at all by 2012. I wonder what happened to that one?

Other long-dead Malthouse schemes include building a new city underground and moving Heathrow to the Thames Estuary.

Also, his interest in the Vat scheme would of course have nothing to do with his own long list of taxable incomes.