Tuesday 12th May

Tax is an awful word, it is considered almost as punitive, imposed from above and the commonest refrain you hear is “I’ve paid thousands in tax and never had a penny out of it.”  Not quite true I am afraid.  Even if you have never been unemployed or claimed benefits if you had children you will have received Child Benefit and those kids will have been educated at no cost to you.  If you are lucky enough to live to (the ever increasing I will admit) age of retirement you will get a state pension.  If you are as old as me you may have received MIRAS (Mortgage Income Relief At Source) which subsidized your house purchase.  If you have saved for a private or work pension you will have received tax relief too.  If you have ever visited your doctor or had an operation you will have got some of your tax back.  And even if none of these things you can rest assured that if your house catches fire there will be someone to put out the flames and if you are burgled a policeman will at least come and have a look at the damage.  Your money is of course spent in other ways you might not be so happy about, such as nuclear weapons, armed forces and foreign aid – to say nothing of the civil service payroll or the various quangos either.

We entered the Common Market, as it was then called, in the early seventies and VAT was introduced.  I went on a course at the time and was surprised to discover that VAT was not to be shown separately on prices displayed.  This was a clever ruse, as it means that whenever we buy almost anything except food we do not realise that we are actually paying tax.  Income tax is shown on our payslips or our tax demands but VAT is a silent deadly tax that we are almost completely oblivious of paying.  I used to be a great opponent of VAT, in that it was not progressive – in other words it hit the poor harder than the rich, and even the unemployed pay it.

But…..the trouble with income tax is that so many avoid paying it.  Good accountants can easily minimize your tax bill, and if you are self-employed as many more of us are becoming it is extremely easy to simply under-declare your income, which of course all those on Salaries cannot.  I have met many ‘self-employed’ people and almost all of them to some degree under-declare their income (or over-declare their expenses).  So I am slowly coming round to the view that VAT is actually a more effective tax, in that it is harder to avoid paying it, unless of course you pay cash to small traders.  Nobody likes paying tax, but maybe the Lib-Dems were right and increasing the personal allowance while increasing VAT was not such a bad policy.  All parties at the last election made much of stopping tax avoidance, but actually it is much harder than they will tell you.  VAT is actually the hardest tax to avoid.  Maybe we should have a luxury VAT tax, on diamonds and expensive cars, but then that would straightaway be seen as a tax on aspiration.