Tackle UK debt love affair with 'spending tax'

Thrugelmir

An interesting concept, but not sure would go down to well. Though the UK needs to rebase its economy.

Standard Life Investments chief executive Keith Skeoch has said the UK needs to reform taxation to tackle Britons' reliance on debt by replacing income tax with a new tax on spending.
Speaking in Edinburgh, Skeoch said the medium term focus for policymakers must be to reduce the dependency of economic activity on both consumption and debt, otherwise volatile boom and bust cycles such as the current situation would continue.
To achieve this he said two major areas of the economy needed overhauling. Firstly, he said banks should no longer be rewarded for creating financial products that encouraged people to take on debt - such as credit cards and loans - and which also increased their own risk.
The other major alteration he wanted to see was a switch in how spending was taxed, in an effort to make saving and prudence more attractive.
He said: 'One radical option that I personally believe should be given serious consideration is a switch to an expenditure tax.
'Spending rather than income would be taxed and such a system can be made every bit as progressive as the current system, with appropriate protection for those on low incomes.'
Skeoch said such an expenditure tax would simplify the 'excessively complicated and shifting landscape' around savings, and allow savers to focus on the quality and return of products they bought.
Consumer spending currently accounts for two thirds of UK GDP, according to Skeoch, and he said if over-burdened consumers cut back on consumption one of the major factors propping up the UK economy would be removed. He said: 'It is abundantly clear that if consumption either rises less fast than income growth, or declines as households choose to repay debt out of current income limiting their spending power, then on of the planks of support for economic activity over the last twenty five years will be much reduced.'
Skeoch said it was therefore vital that policymakers tackled this key issue, with a step-change in the tax system a potential way of ensuring a more stable financial future.
'The best way of avoiding the next big bust is to help shape the quality of the coming upswing (in economic activity), and that must involve reducing its dependency on debt-financed consumption,' he said 'It should be a major plank of policy of whatever government takes office.'

Really2

Thrugelmir wrote: »

Tackle UK debt love affair with 'spending tax'

I thought we had one called VAT?

Thrugelmir

Really2 wrote: »

I thought we had one called VAT?

VAT is not currently a progressive tax.

So I assume the suggestion is that the tax should address luxury items not basic ones.

abaxas

What about a tax on debt?

Really2

Thrugelmir wrote: »

VAT is not currently a progressive tax.

So I assume the suggestion is that the tax should address luxury items not basic ones.

difficult as how do you class Luxury?

I believe VAT is exempt or lower on some non luxury items at the moment.

The old "JaffaCake" biscuit court case springs to mind.

I really can't think how anything could work better that Income Tax TBH as it generally has a direct affect on consumption anyway.
Also the more you consume the more vat you pay in total (why cant I have a shrug shoulders icon.:))

Really2

abaxas wrote: »

What about a tax on debt?

Because it would make an extra tax for most businesses to pay.
Most use an overdraft day in day out and nearly all use credit to grow.

It would deter investment in the UK.

Thrugelmir

Really2 wrote: »

difficult as how do you class Luxury?

I believe VAT is exempt or lower on some non luxury items at the moment.

The old "JaffaCake" biscuit court case springs to mind.

I really can't think how anything could work better that Income Tax TBH as it generally has a direct affect on consumption anyway.
Also the more you consume the more vat you pay in total (why cant I have a shrug shoulders icon.:))

A tax on spending catches the cash generated in the black economy.

Avoidance of paying income tax is a major issue. More is lost in tax revenues in the black economy than through benefit fraud I believe.

de1amo

i currently reside in turkey and refuse to have debt--all loans credit cards and debt is contracted through the authorities to the provider-if you want a credit card you have to be processed by the local governent--they also pay for the jails you can very easily languish in while your debt is still compounding--to my knowledge it follows you til you die and there is no shedding mechanism-makes you think twice

abaxas

Really2 wrote: »

Because it would make an extra tax for most businesses to pay.
Most use an overdraft day in day out and nearly all use credit to grow.

It would deter investment in the UK.

Then make it only for personal debt.

Really2

abaxas wrote: »

Then make it only for personal debt.

So what if you are are trading as a sole trader or a partnership.

JP45

Consumer spending currently accounts for two thirds of UK GDP, according to Skeoch, and he said if over-burdened consumers cut back on consumption one of the major factors propping up the UK economy would be removed.'

It hardly seems sensible to increase tax on spending whilst the economy is still mired in recession with the prospect of low or anaemic growth for the foreseeable future.

You'd think someone who works in investment would understand the importance of timing.
.