Budgets – and the real big issue

WE NEED to talk about tax. No – really, we do. I realise that most people are riveted by all sorts of gossip, but the tax system is much more important.

With less than a fortnight to go before the Chancellor unveils his Budget, we are deep into speculation season over what measures he will take.

It’s likely to be a pretty limited Budget, with little financial scope for headline-grabbing measures.

Brexit is consuming a lot of intellectual capacity at the Treasury, reducing the bandwidth for big ideas.

That’s what’s needed, though. Budgets are pieces of theatre, scripted and performed by political actors with very shortterm views. Whether measures are included or dropped is determined more by expediency than intrinsic merit. No one seems to give much thought to the fact the tax system is a baggy monster that has simply grown up piecemeal, rather than been purposefully designed to help meet the needs of the economy and of society.

Tax could be a powerful lever to improve society but the rules are in a mess. It is practically an invitation for companies and wealthy individuals to risk appearing in the Paradise Papers.

The world, and the economic order, have changed dramatically, but the tax system hasn’t caught up. Policymakers have little idea how to tax an online, international retailer such as Amazon, which paid just £15 million tax in the UK last year on sales of £7.3 billion.

The rules are still geared to taxing domestic, bricks and mortar shops such as Marks & Spencer, which had a corporation tax charge of nearly £100 million on around £9.5 billion – not to mention the business rates it has to pay on its high street premises.

Government thinking around the world on corporation tax has not got much further than trying to cut rates to attract companies such as Apple in a race to the bottom.

In reality, a new social contract needs to be drawn up between businesses and the rest of society about what constitutes fair taxation.

In this country we have creaking infrastructure at a time when billions of pounds of savers’ money is making little or no real returns. Incentives to invest, particularly for providers of long-term, ‘patient capital’ could make a real difference.

So-called ‘intergenerational fairness’ is a big theme.

It isn’t – as it is sometimes crudely portrayed – a battle between baby-boomers with fat final salary pensions versus millennials who despair of ever getting a decently paid job, let alone retire.

There are challenges for all generations: how to fund care homes at one end of the age scale, getting on the housing ladder at the other. Instead of faux age-wars, it would be far better to devise some elegant solutions, such as giving a one-off stamp duty holiday to first-time buyers, and the same to last-time buyers to encourage them to downsize and free up a family home.

In the near future our attitudes to tax will be tested by the advent of new technology, not least by robots. Not only do robots never get ill, need no wages, no sleep and no holiday, they don’t pay any tax.

Bill Gates, the billionaire Microsoft founder and philanthropist, wants to tax robots – or at least their employers – in order to finance jobs that only humans can do really well, such as childcare or looking after old people.

We tend to think of tax as a malign imposition and historically it was: the money was used to finance monarchical excesses or foreign wars. In a more enlightened age, tax can help us fashion the kind of society we want to live in – but only if we start the right conversations.

Right now, that feels like a distant hope. But the need, as events accelerate faster than antiquated political structures can react, has never been more urgent.

The system is such a mess, it invites firms to end up in Paradise Papers