Page last updated at 16:53 GMT, Tuesday, 10 November 2009

Recipe for a good and palatable tax

Watch Newsnight viewers face the political animals in the Politics Pen

Anne Redston is professor of Tax Law at King's College London and one of four panellists taking part in Newsnight's Politics Pen. Here she outlines how the government can use taxes to ease the strain on the public purse.

Graffiti depicting Gordon Brown on a 10p coin, near Waterloo, Lo
More than a million people lost out when the 10p tax band was abolished

Britain is facing its biggest deficit for 40 years. The question is not whether taxes should go up, but how. Changing the fiscal system is a skill, like baking bread. To cook up a new tax you must:

  • Collect the main ingredients - simplicity, fairness and revenue-raising capacity
  • Mix until bland and easily digestible
  • Turn up the heat slowly, checking for unexpected problems
  • Roll out with a sprinkling of rhetoric, and label with a long shelf life.

Flawed bureaucracy

Sadly, new taxes are rarely so palatable. More commonly, they are the fiscal equivalent of fast food - complex ingredients thrown together quickly, full of lurking additives and nasty side-effects.

Remember the recent changes to income tax, which accidentally side-swiped the lowest paid by abolishing the 10p band.

If democracy is to mean anything, each party must publish its fiscal menu well in advance of the election

Then there was the pre-owned assets charge - aimed at inheritance tax avoidance, but snaring pensioners too poor to pay death duties, because they had helped their children buy a house and moved in with them.

Then there are burdensome, bureaucratic taxes which raise almost no income. The IR35 legislation, aimed at temporary workers, brings in merely 1% of its predicted £800m a year, but is hugely expensive to administer.

Workable rules

Flawed taxes like these damage the economy, waste resources and threaten political stability - remember Thatcher's poll tax and the fuel duty protesters? Tax has even triggered revolutions - think Boston Tea Party, Ship Money, and Gandhi's Salt March.

Person eating a fast food meal
Efforts to rejuvenate the nation's finances should avoid fiscal 'junk'

When taxes rise, as they must, we need fair, simple, workable rules, which raise adequate revenue. This is not an easy task, but cannot be ducked.

Politics Pen began the debate, inviting the public to propose ideas for new taxes.

Perhaps the programme will also stimulate politicians to participate - MPs are proving curiously tight-lipped when it comes to tax reforms.

Next year Britain goes to the polls. How will our new government raise taxes, and on what? If democracy is to mean anything, each party must publish its fiscal menu well in advance of the election, so we can assess and challenge their plans.

The sooner people start talking seriously about taxes, the easier it will be to detect and correct half-baked solutions.

We need to discuss tax, and we need to start now. Because one thing is sure - we cannot rejuvenate our finances with a load of fiscal junk.

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