Not a great week for the UK Government and in particular George Gideon Oliver Osborne.  The problem here for the coalition government is not just the fact that there has been three U-turns in one week, it is the feeling that the March Budget was a bit of a shambles.  I would not go as far as that but it does seem a bit odd to me that so much was made of the so called “pasty” and “caravan” taxes and not that the UK Government did not even consider reducing VAT on repairs and renovations on residential property. 

As suspected the proposed cap on tax relief for charitable donations has been dead in the water for a number of weeks.  All we heard this week was  confirmation of that fact.  One final point on this.  These three U-turns come at a cost of approximately £150m.  Where is that revenue now to come from?   

“Flat rate” taxes were all the rage a few years ago.  Personally I have not been persuaded by the arguments put forward.  That said, as we start to think about how a Scottish tax system might look flat rate taxes should also be considered.  The latest call again came from those generally regarded to be on the political “right”, the TaxPayers’ Alliance and Institute of Directors.  In addition to arguing for a single rate of income tax the usual noises were made for the tax system to be simplified.  No-one is likely to argue against a simpler tax system until specific proposals are made.  For example, recent changes to the amount of personal allowance for those aged over 65.  This change has been termed the “granny tax”.  I did though like the idea of abolishing certain taxes although not necessarily those listed in this report.  It is claimed that the cost of these proposals would be met by prolonging the UK Coalition’s spending cuts by an extra five years.  More on this can be found here.  The report also claims that these changes would increase gross domestic product by 8.4% over 15 years.

Again on tax rates.  According to City A.M. the UK has continued to raise taxes while most other European Union countries tax rates have fallen.  The European Union average top rate of income tax decreased from 44.8 to 38.1% between 2000 and 2012.  In this same period, the UK’s average rose from 40 to 50% although the top rate is to fall from April 2013.  Unless of course we see another U-Turn.  The UK has though followed the European Union wide trend for raising VAT.  The average rate has risen from 19.2 to 21%, with the UK’s up from 17.5 to 20%.  The report from City A.M. can be found here.

Some stories do not surprise you in any way.  This is one of them.  Taxpayers are spending more than £1 million every month on the rent and upkeep of empty fire service control rooms that have never been used.  Details revealed under Freedom of Information legislation show that only one of the nine Fire Control centres is operational, despite the fact that taxpayers will continue to pay for their upkeep for up to 20 years.  This was reported in the Times on 24 May. 

Then there are stories that do surprise you but shouldn’t.  This is one of them and is also a story I have covered recently.  3,000 civil servants are employed by private firms in order to keep their tax bills down.  By remaining off the UK Government’s payroll, thousands of officials are avoiding paying national insurance contributions and are able minimise their overall tax contributions.  The report from HM Treasury can be found here.    

Good news that could have been even better news.  HMRC collected an extra £4.32bn during the last five years.  This is 11 times greater than the investment made for collecting this extra revenue.  However, a House of Commons Public Accounts Committee report claims that another £1.1bn could have been collected without job losses at HMRC.  A report on this from the BBC news website can be found here.

The International Monetary Fund (IMF) and in particular its managing director Christine Lagarde, is rarely out of the news these days.  Lagarde has said said that the UK economy had underperformed and unemployment remained much too high.  The IMF urged the UK Government to consider cutting interest rates and a further round of quantitative easing.  Ms Lagarde also said that UK ministers should prepare a plan for a worse economic environment which could include a cut in VAT.  However, the IMF also said that the UK Government should not divert from its aim of deficit reduction.  A report from the BBC news website can be found here.    

How to win friends and influence people.  Political parties in Greece have criticised Christine Lagarde for suggesting that Greeks were avoiding paying taxes.  Socialist leader Evangelos Venizelos accused Ms Lagarde of “insulting the Greek people”.  A report, again from the BBC news website, on this can be found here. 

There may be trouble ahead.  The UK Supreme Court has ruled that HM Treasury breached European Union law by retrospectively blocking tax refund claims.  The amount involved could be as much as £5bn.  Not surprisingly, HMRC has said that it is “considering the implications of this complex judgement carefully.”   A report on this from City A.M. can be found here. 
 
Now to what some might consider an overreaction.  Some US politicians are so irked at the idea that Americans are renouncing their citizenship to avoid tax, that they are introducing a new Senate bill to tax them forever.  A report on this from ABC news can be found here.  In addition, Congress is close to approving a law under which the Internal Revenue Service will be able to revoke the passports of Americans who owe substantial unpaid taxes.  An article from the Wall Street Journal on the passport claim can be found here. 

I think I will finish with fiscal powers.  HMRC is under no obligation to implement any tax proposal made by the Scottish Government under the Scotland Act.  HMRC can effectively veto any proposal if it differs too greatly from the UK system.  A report on this from the Herald can be found here.  I find it worrying that anyone is at all surprised about this.  I would be even more worried if I thought that anyone actually believes that HMRC and HM Treasury are happy to see tax powers being devolved.  I suspect that there are very few people in HMRC and HM Treasury who are happy to see the beginning of the end for a unified UK tax system.  An earlier blog on this point can be found here.     

Also on fiscal powers.  I still think it is unlikely that the so called “second question” will be asked as part of the independence referendum.  What will those who are arguing for “devo plus” and/or “devo max” do?  Will they vote for independence or the status quo and the hope of something more in the future?  This is an issue I will come back to after my well deserved holiday.  

Have a good weekend.