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Taxation has featured significantly in the Conservative leadership elections. But it is interesting how our tax system is so complex that it is impossible to put forward ideas without getting mired in detail.
Take Boris Johnson’s proposal (now downgraded to an aspiration) to increase the higher rate threshold but offset this by an increase in National Insurance contributions. That immediately draws into focus that some categories of income (principally pensions) do not attract National Insurance, so it would change the balance of taxation between various types of income. That is not necessarily a problem, but it does show that headlines don’t tell all of the story.
Then there is the devolution question. Income tax is a devolved matter but National Insurance is not. So a shift between income tax and National Insurance would have a different effect in Scotland unless, which seems unlikely, the Scottish government mirrored those proposals. The effect on Scottish finances of an increase in the higher rate threshold is far from straightforward – for those interested I recommend the Institute for Fiscal Studies commentary at tinyurl.com/ifsbjjun. As for the proposal to replace VAT with a sales tax – well there is not enough room in this column even to start thinking about what it might mean!
None of this is intended to be critical: but the law of unintended consequences is never far away. Anybody proposing headline-grabbing changes should reflect on what happened to Gordon Brown when he abolished the 10% starting rate.
