Government Spending Priorities

I will develop a list of spending priorities and even in these exceptionally difficult times some government responsibilities will have to be fully funded.

My list with would start with Defence and all aspects of Civil Protection, offering more employment to young people in a greater range of careers.  MoD housing must be fully modernised, stimulating the economy and rehabilitation after conflict.  We need to fund the supporting hi-tech R&D.

Education would have a higher priority than health.  Although safeguards for the poor especially those in work and those ill with disease that are not obviously self induced.

The field of transport policy would have a non distorting tax policy developed.

Local Government would come out low.  After setting minimum standards Central Government must transfer more of operational decision making and it’s funding to the local level.  This should clearly enliven local politics.  Again I have anticipated and support the Calman Report.

Arts & Culture as noted in my Random Thoughts should not have any Central Government funding support after school curriculum.

The lower on the list the stronger the squeeze and the demand for clearer priorities, effective methods of delivery and reduced expenditure.

Changing Society by Taxation Policy
Taxation is used as a powerful weapon to change the way people behave.  But should it?  Ideally it should be a way for governments to raise the most money with the least distortion of economic activity.  (The Economist www.economist.com 2 May 2009)

Income tax should be gradually reduced by phasing more and more people out of the lower tax bands.  If the tax remains if should be flat rate and never penal.  Far fewer allowances would apply.  This reduces the resources spent on avoidance and collection – costs that are waste.

VAT would be scrapped and some accommodation reached with Europe.  Spending would be taxed.  It tends to reduce consumption over time, what could be greener than that!  People would be made fully aware that spending taxes would rise progressively so even if there is deflation buying now will be cheaper than in 3 or 6 months time.  For example the Sales Tax on most foods would be zero.  There may be exceptions on expensive, scarce items or foods that travel long distances.  E.g.  10% from Europe and 15% from the rest of the world.  Luxury items could be 25% or more.  

Cars could be taxed on a sliding scale up to 25% or more for a town-based 4x4 off-roader.  However, in general I am against complex road pricing policies, believing that transport should be a level playing field.  The tax on fuel automatically compensates for distance travelled, the level of congestion encountered because of the time chosen for the journey and we can have added levy to cover the costs of accidents and the green impacts.  Poll taxes should be avoided.  They encourage avoidance and expensive collection and policing activities.  The fuel tax could be engineered to recover the Road Tax and basic Third Party insurance.  Leaving only Fully Comprehensive as a voluntary add-on.

The Sales Tax would also be used to squeeze out the black economy.  It would be a legal requirement on the populace to get a receipt showing that tax had been paid on goods and services and the buyer would be liable if they have no valid receipt.  Builders, painters, decorators often operate cash in hand.  Local Planning officers could inspect the receipts when checking the quality of home improvements.  Ex VAT officers would quickly establish the profiles of service companies prone to the cash-in-hand payment methods.  A further step to squeeze the black economy would be to greatly increase the registration of all trades.  A continuum of registration from the very specific of home plumbing and joinery skills to the general requirements for Chartered Engineers.  The GDP would immediately improve by 10%.

Statements of the desired social changes would need to be developed to capture the philosophical commitment of the public.  For instance, savings would be encouraged.  Once saved, the income from savings would be tax free.  This would remove some of issues surrounding IHT.  I do not believe that children have a God given right to inherit they parents' wealth, even if they were unlucky enough to get sick.  But we do want to encourage people to save for their old age, so at least savings being tax free would restore some equity to the situation.

Whilst in favour of free trade, the UK would likely be alone in Spending Taxes, which could be high on luxury goods; therefore Import Duties may have to be tightened.

Poll taxes such as the TV Licence fee need to be abolished.

Removal on income based taxes would support the elimination of the Poverty Trap.  A simplification of the Benefits system is long overdue.  More targeting but not cuts except to those who are cheating.

I am also of the believe that making gifts to approved charities tax deductible will be a bigger inducement to give than the present Giftaid system.  More costly to Government of course.  It could go hand in hand with tighter control of Charities and reduced support from the tax payer in a few areas.

Enhanced Monitoring
There will need to be much more precise monitoring of the impacts of these changes on the Basic Standard of Living.  The GDP, Debt Reduction will also need close scrutiny, indeed “rolling” mini budgets on a quarterly basis may well need to be the order of the day.  Reduction in Income Tax would be at least one quarter ahead of the imposition of revenue compensating Sales Tax.  But each must have a predicted the direction of travel in order that industry and households can adequately plan.  The current measures would clearly show that inflation would rise of 2 years as prices went up in return for the increase of people’s disposable income.  But the Standard of Living should increase.

Defence
Some believe passionately in disarmament.  And all of us want to live in a peaceful world.  However, in current world we have to be strong or shelter behind the skirts of the USA as long as they let us.  I would be ashamed to be a citizen of certain European countries who never put their troops in harm's way.  Three cheers for Canada.  You will note that Defence and other protection of our society are the highest spending priority.  With North Korea, Iran and even an occasionally belligerent Argentina, how can we deplete our forces any more?

We also have high unemployment so the services should be able to take on all candidates who meet their standards.  Our Reserves should be that, and called up for their contracted training of if they wish to, bit not as a matter of routine.  Anti-social youth should also be offered the forces as an option.

We could even consider setting up a second Rapid Reaction Brigade put at the service of the UN, provided our Chiefs of Staff agreed the Terms of Reference and the Brigade remained under British command.

Transport
The Transport Policy, shortly to be enhanced further has the basic principles of recovering all allocated costs of infrastructure, environmental damage and social costs, but otherwise the economics not being distorted by tax or dogma.