L'Ombre de l'Olivier

The Shadow of the Olive Tree

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26 November 2006 Blog Home : November 2006 : Permalink

Radical UK Financial Reform Part 2

Ok, as a follow on from part 1 which looked at the possibility of a Citizens Basic Income (CBI), in this one I'm going to run the numbers on a significantly reduced government and look at how to finance it. Apart from the CBI we will of course be ignoring attempts by Guardianistas to fund pet projects or employ their mates and in fact be eliminating large swathes of central government.

One critical point - this assessment is looking at central government only. I'm not yet sure how to fund local government but I'd prefer that however it be funded it not have any central government input. Also - and this is results in a significant saving - the UK will be making no contribution to the EU and will not be making up the shortfall for those dependant on EU grants.

A second critical point. I'm not looking at an English budget but a UK wide one. However I may highlight the obvious areas where an English nationalist could save a few millions by forcing the Scots and Welsh to pay for their own stuff.

What is included in the Budget is
(£ billion)
Home Office & Law
Foreign & Commonwealth Office £2.0
MoD £40.0
Transport £14.3
Health/NHS £82.0
Scotland, Wales and NI £47.5
Parliament, Central Government and Her Majesty's Civil List £7.7
Interest on public debt & bond redemptions
Total (excluding CBI)

Recall that the education budget is replaced by the £2550/student voucher scheme. I think I need to figure out something for Civil Service pensions (because I believe that is hidden in the budget somewhere) and there may be a couple of other worthwhile nooks and crannies that have been forgotten. However I believe that on the whole I'm safe in ignoring these because I don't think they are very large. No attempt has been made to look at individual budgets (i.e. reforming the Home Office and not spending money on ID cards, slashing Transport subsidies etc.) to keep things simple.

Figures are taken from the treasury budget 2006 website and in particular PDF file of Chapter A: Budget policy decisions and PDF file of Chapter C: The public finances.

Including the CBI (approx £300B) and we have a total public sector budget of £550B. This is what we need to hit by taxes and borrowing. The current budget assumes a PSBR of £40B so taxes need to make up £510B

One of the harder things to find in the raft of UK statistics is the mean personal income of UK workers and a whole shedload of related numbers such as the number of people who pay taxes at what rates - the figures are all terribly out of date. I have been able to find this page of stats from HMRC which seems to be about the best there is. In 2004 (latest figures reported) there were 28.5 million taxpayers (i.e. just under 50% of the population) and their average (mean) income was £21,800.  From this PDF the total income received was £625B and £111B was paid in taxes. The budget for this year assumes that the income tax received will be 144B so assuming that income has increased proporionately that means that total personal income received will be around £800B. This works out at an average (flat) tax rate of about 18%. Given that we are also giving everyone £5200 in CBI I am willing to tax all income at 20% thus giving us £160B in income taxes.

Note: there will be no other income taxes except for NI - see below - and no allowances. All income that is not the CBI will be taxed at 20%. This means that the people who work part time on minimum wage jobs will now pay tax, however while that should increase the tax take I have no idea what it will be so I shall ignore it for the present. The only clue I have is that £38.2B is given as the cost of the income tax personal allowance. Unfortunately I have no idea how that breaks down between existing taxpayers and those who are currently out of the tax system.

With £160B in income taxes we need to raise £350B in other taxes to make our budget.

NI contributions are estimated in the budget as £90B (split between employer and employee). I would prefer to eliminiate this but will defer doing so until later. By maintaining NI we now need £260B in taxes

Much of this can come from VAT. Note that as we are eliminating the EU transfer part of VAT much of the VAT fraud should be eliminated as well because we can ensure that it is a purely domestic tax (and we can probably make it a sales tax insetad of VAT too). VAT is anticipated to raise £76.5B. By removing VAT exemptions on everything other than food we can add in another £17.5B for a total of £94B. Reducing or eliminating fraud would make that £100B since the fraud is estimated to be costing at least £6B. With £100B VAT receipts we now need to raise £160B in other taxes.

Fortunately the other existing miscellaneous taxes like corporation tax, inheritance tax, vehicle taxes, various duties (fuel, booze etc.) and so on give us £137.5B leaving us with a hole of £22.5B.

By smacking the reliefs on stamp duty and petroleum taxes we can reduce that to about £18B and by removing VAT reliefs (another £10.4B) we are down at a hole of £8B or less. All of that and more can be realized by eliminating the VAT reliefs on
Together they realize a shade under £12B which we could, if we felt generous give back to them somehow. Or we could just reduce our borrowing by £4B or leave it as a contingency.

To summarize including the CBI we have a balanced central government budget and one that might even reduce the public debt slightly more than Gordon Brown expected:
Revenue Source
(£ billion)
(£ billion)

Citizens Basic Income
Personal Income Tax
(20% flat rate)

Governmnent Departments
National Insurance

Debt repayment

Corporation tax, duty etc.



Local government now has to raise whatever money if wants by means of rates, council tax or local income tax etc. What it doesn't get is any subsidy from the centre.

I think these figures are comparitively conservative. Amongst other things the treasury reports that personal allowances cost £38.2B and a lot of part time workers fail to pay any tax at all so I would imagine that a flat 20% tax would raise more than the £160B estimated. I also believe that both VAT and duty takes would increase thereby returning a significant chunk of the new CBI spend back to the government but in the process the UK would get an enormous kick in growth.

My targets in subsequent years would be move to a situation where the only taxes levied would be VAT (or a sales tax replacement), Personal Income Tax and some duties by a progressive elimination of all the other taxes. I would also attempt to ensure that public debt grew by no more than inflation but my preference would be rationalization of the tax scheme before I bothered with trying to pay down debt.

I despise l'Escroc and Vile Pin