CONGRATULATIONS: you’ve just started to work for yourself. Today is tax freedom day, the day when Britons stop working for the chancellor and start working for themselves. The Adam Smith Institute has calculated that for the first 149 days of the year, every penny earned by the average UK resident will be taken by the government in tax. This year’s tax freedom day falls two days later than it did in 2011; net tax hikes mean the government is taking a larger share of our hard-earned income than before. That remains true despite the chancellor’s humiliating and confusing partial u-turn on the pasty and caravan taxes last night.
Apparently it’s too tricky to work out whether a caravan is static or not – so the VAT hike is being cut to five per cent, not 20 per cent. As to the pasties, an ultra-complex new rule means that hot chicken or pies in warming units in supermarkets will be taxed at 20 per cent (a massive hike) but hot pasties left out to cool won’t be (even if they are just as hot). Greggs will win – but other retailers will lose. So much for tax simplification – the whole saga has been a disastrous joke for the chancellor and his officials, who have been exposed as both politically naïve and technically inept. It still seems that the government is doing all of this to avoid an adverse ruling in the European courts – fish and chips shops pay tax – but for some reason nothing is made of this by the Treasury.
Britain’s Tax Freedom Day still falls long after America’s (17 April) and – most intriguingly of all – Australia’s, on 4 April. In my view, Australia is the role model for the UK to follow when it comes to tax and spend – its citizens live in a highly civilised society with great healthcare and pensions but with public spending of just 33.8 per cent of GDP this year, compared with 49 per cent for the UK.
At least our tax burden isn’t quite as high as France’s, which will have to wait until July to celebrate its own tax freedom day. There is some good news: the cost of government day, which includes the government’s borrowing as well as tax, will fall on 23 June, seven days earlier than last year. Following George Osborne’s partial u-turn on VAT, he should now pay a visit to Australia to learn how drastically lower public spending and a great quality of life can go hand in hand.
YOU CAN’T ABOLISH RISK
For once, something sensible from the Financial Services Authority. It is rightly going to require all banks and building societies to prominently display posters and stickers in branches and on websites explaining which deposit guarantee scheme applies to their customers’ deposits. If customers are using the UK branch of a foreign bank from the European Economic Area, the posters will have to set out that those customers are not covered by the UK’s Financial Services Compensation Scheme (FSCS). In this case they would have to specify which national scheme will provide protection.
For banks that are covered by the UK scheme – the overwhelming majority – depositors will have to be reminded explicitly that they are only protected up to a total of £85,000 by the FSCS, the UK’s deposit protection scheme. Depositors need to behave more like investors – not put all their eggs in the same basket and accept that governments will not always bail them out. But I would have gone even further than the FSA and explained that even governments can go bust – risk can’t be abolished completely. That is especially true of Eurozone governments, of course: they cannot print themselves out of trouble. It is high time everybody understood this.