Gauke, Cameron, Morals and Tax – scrap VAT and National Insurance

I see there is a bit of a stir back in blighty about folks paying tradesmen in cash. No questions answered. Nudge, nudge wink, wink. We have all done it. I admit to it. The bill is £100 + VAT. I get my cheque book out and the chap says “tell you what, let’s call it £100 in cash.” Since I cannot personally reclaim VAT I am £20 better off. The chap can of course reclaim VAT but if he is generating more VAT-able revenues than he has VAT-able costs all he is doing is acting as an unpaid tax collector for the Government.

Of course there is the suspicion that he may not declare all of that £100 for tax purposes and so we who play the game are perhaps abetting him in that matter.

The controversy came about after David Gauke MP, a junior Treasury minister, said that paying in this way was “morally” wrong. This echoes Call Me Dave saying that Jimmy Carr’s 100% legal tax reduction schemes were “morally wrong.” As I noted at the time Cameron was a fool for trying to bring morality into politics. I do not like his moral code when it comes to telling barefaced lies (we are tackling the deficit, bringing peace to Afghanistan, etc, etc) but it is not for me, him or anyone to impose my moral values on anyone else via legislation. That is a very slippery slope.

Some folk argue that Gauke should resign? For what? Being a bit of a dickhead? Saying something foolish? Bringing morality into economics and politics? Hell’s teeth. That is one of the most frustrating things about Britain in 2012. When someone really bollocks it up allowing kids to get murdered on their watch in Haringey or sending troops off to die needlessly in an illegal war or knowingly allowing their bank to engage in market abuse they never resign, unless they get an enormous payoff. But when someone merely expresses a very silly view, everyone demands that they resign. Gauke is a prat but let him carry on being a prat. His prattishness merely echoes the prattishness of his leader, who really is a prat.

If a tradesman elects not to charge VAT on a non Vattable item he is breaking the law. If he does not declare income he is breaking the law. This is not morality it is just obeying the law. The law is set up to allow society to function. Society needs a Government and that needs to be funded. So we have taxes. That is a matter of economics and legality not morality.

Of course there is a bigger debate which Gauke, Cameron and 99% of those calling for Gauke to quit, a witch-hunt to discover which ministers pay their window cleaners cash in hand, etc. Do we have too many laws so making the ones that matter unenforceable? Yes. And is the tax system simple, fair and one that does not create an administrative burden for the state (i.e. taxpayers), individuals and businesses? Er, no.

VAT is a nightmare to administer. It is a real burden for businesses. It is unfair since some consumers who are smart and middle class can work out ways of reclaiming some VAT while poor people never have that option. As such, as with all sales taxes it is a regressive tax. And, as we all know, it is easy to dodge. So how about scrapping VAT altogether and simply collecting the shortfall by an additional few pennies on income tax. While we are about it we can end the pretence of the Ponzi scheme that is National Insurance by scrapping it and adding personal NI to income tax and employers NI to corporation tax. We get to fire thousands of civil servants (good), reduce the admin burden on business (good) and folks would also get a real idea of how much of their cash the Government actually takes to piss away. Sorry spend wisely on our behalf.

Of course it would be electoral suicide. Were Osborne to announce tomorrow that in doing what makes perfect sense he had – in effect – upped the basic rate of income tax from 23% to, say, 39%, New Labour and economic illiterates like Vince Cable – would at once say that this was the Tories increasing tax and screwing the poor. Of course that would be a lie. My proposal would leave the overall tax burden unchanged. It would be progressive rather than regressive. And since it would both reduce tax evasion and also allow the firing of thousands of tax collectors it would actually increase tax receipts while reducing Government spending so cutting the deficit. But it is not politically expedient so it will not happen.

As an aside the Z in my initials is for Zacchaeus. The biblical scholars among you will know that he was a tax collector from Jericho who repented of his wicked ways. I was however named after Zacchaeus Crawford, the first of my family to move to Ireland (in the 1700s). No doubt he was named after the repenting tax collector.