A deal that will transform the UK economy

For the last generation, the UK economy has become dysfunctional, sluggish, excessively indebted and of benefit only to a minority of citizens; namely rent-seekers, the wealthiest 1% , land and other asset owners and, to some extent, pensioners.

The Transformation Deal is a proposal to restructure the economy so that it functions effectively and serves everyone.

It will use Land Value Tax, a Universal Basic Income, Commons Licences, a Flat Rate Income Tax and reduced transaction and business taxes to set free the productive economy and usher in a new era of growth and poverty reduction.

See the Overview  and individual proposal pages (linked to below) for more detail.

The Transformation Deal will introduced a Basic Income of £4,500 for every adult from 21-64 years old, £7,200 for everyone over 65 years old ad £2,700 for every child and 16-21 year old. It will retain around £40bn of means-tested benefits to provide further support to those with additional needs.

It will levy a Land Value Tax on all UK land at a rate that is equivalent to 3% of the value of residential property, 2% of agricultural land and 6.5% of commercial property. Land used for public, common or charitable purposes will be exempt, but vacant land or empty properties will not.

It will charge a licence fee for private use of common or public resources so that all citizens will benefit from the private profit that derives from common assets.

It will tax income from all sources in the same way and at the same rate of 25%, This Flat Tax represents a cut in taxes for most working people (especially in conjunction with the Basic Income) and will massively reduce the opportunity for tax avoidance.

It will abolish taxes on productive business activity, making the UK the best place in the world to do business. Taxation will instead be captured by other taxes, such as the  Land Value Tax on Commercial land, and the income businesses generate via the Flat Tax.

It will reduce VAT to just 12.5% for all (standard rated) products and services, except for alcohol, tobacco, new vehicle sales and petrol and diesel, which will remain at 20%.

And it will do all this without expanding non-welfare government spending. It also reduces the fiscal deficit by £10bn, although that money might be more usefully spent on provision of public services and/or supporting the transition to clean energy.

The effect of the Deal would be a reduction in tax on wages of over £130bn, and reduction in taxes on productive business activity of between £44bn and £95bn (depending on how much of their increased tax commercial landowners, banks and other rent-seekers can pass on to real busineses and consumers).

This would allow the economy to make a huge leap forward and provide far greater reward for all of those who create and add value.

Why have I created the Transformation Deal?

I have been interested for a long time in economic policies that make a break from the under-performing consensus that has governed us for much of the last 25 years, but I struggled to find a source that had brought them together in a costed, coherent way. So, this is my attempt to do just that. Lots of people are currently talking about why UBI is a good idea, for example, but very few are able to outline how we will pay for it.

Guiding Principles

I’ve tried to apply the following principles to all tax and benefits proposals:

  1. They should be simple to understand and implement, thus improving accountability, reducing bureaucracy and ensuring effective impact. Taxes should be easy to collect, benefits easy to distribute.
  2. They should be fair (a very subjective term, but in essence: nobody should be left out; everybody should be given reasonable opportunity to provide for themselves and their family; and nobody should unduly profit from the efforts of others)
  3. There should always be incentive to add value and disincentive to destroy value or rent-seek
  4. They should not attempt to punish people for past economic wrongdoing, nor compensate them for past mistakes. We need to look forward, not backward
  5. They must be affordable within the current economic climate. The aim is to improve the economy, but we must start from where we are. There is no ‘wish-list’ of spending, no reckless borrowing and no monetary or fiscal ‘tricks’ that will magically make everything better.
  6. They should support all people and businesses that add value – private enterprise is not the enemy – but they should not subsidise private gain. No private interests should be allowed to dip into the public purse
  7. They should support effective public services, infrastructure and regulation, which are absolutely necessary for any market to function well. However, any increases in public spending (and/or reduction in the fiscal deficit) must be achieved by growing the economy
  8. They must move us towards ending poverty completely, either by income redistribution or by the empowerment of those on low incomes. They should provide extra support to those who need it.
  9. They should empower the people to achieve their own outcomes directly, rather than seek to impose political outcomes or targets.
  10. They must provide a fiscal infrastructure that encourages our economy finally to make the transition from dirty, carbon-based and nuclear energy to clean, renewable energy.
  11. The Transformation Deal is revenue neutral in relation to current public spending. This is partly to counter the objection from different parts of the political spectrum that the deal with increase taxes or decrease public spending. It aims to keep both constant until a political decision is taken to do otherwise
  12. They should try to avoid ‘double dipping’ (i.e. taxing the same thing twice) which is why land will generally only be taxed once with LVT. i.e. Income people receive from renting a room in their house, or inherting land, for example, will not be subject to the flat income tax

Political Adoption

As a member of the UK Green Party, it is my hope that the Transformation Deal will be adopted by it as their core economic proposal in the next General Election. However, I can only lobby for that to be the case. I have no formal power to make that happen.

I have no problem with any other interested parties stealing the ideas they find here or contributing to their development. The proposal outlined here is not quite fully formed and I would keenly welcome any comments, feedback or challenge that readers would like to make. I have already borrowed heavily from the work done by many other people and am open to all reasonable ideas, so please challenge anything here if you have any thoughts!

I will outline the details of each of these areas over the coming weeks, so watch this space…

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2 Comments Add yours

  1. benjiiiiiii says:

    Looks similar to the Wadsworth Plan and policy of the YPPUK.

    Differences being all taxes on output are replaced (and all thresholds, reliefs, tapers and credits abolished) with a flat 20% tax on all income enjoyed by individuals or firms.

    This would massively simplify our tax code, reducing Tolleys Tax Guide from 12,000 pages to no more than a dozen.

    The YPP even have their own Android App which calculates the changes in peoples liabilities from a shift to a 100% LVT/20% flat income tax and a Citizens Income.

    From it, anyone will be able to see that a typical working UK households would be around £10K better off in their pockets every year from such a change to our tax system.

    The Wadsworth Plan is revenue neutral, and would be the first step to eventually eliminating all taxes on output ( Pigouvian Taxes on negative externalities excepted)

    Suggest you download the App at Google Play, and join the YPPUK:)

    Like

  2. martinfarley says:

    Thanks Benji. I am aware of the YPP plan and calculator, and have borrowed a fair bit from it, but wanted to pull out more detail and give people specifics. Ultimately, I would like this to grow into a full fiscal policy agenda that can be used by the UK Greens, or anyone else for that matter.

    You say they have replaced all taxes on output, but I have not been able to find the numbers for this on their site. Would happily take a look if you can point me to them. This plan is as close as I could get to shifting the burden of tax away from output and towards rent-collection, and make the numbers balance (also in a fiscally neutral way). I have provided estimates, albeit in a back-of-a-fag-packet way, for all my tax and expenditure proposals. I the coming weeks I will provide more detail and also seek to compare with the current, (incredibly complicated) tax and benefits systems. A calculator would be a great next step, once the policy areas and numbers were fleshed out.

    Ultimately, the YPP approach is a bit narrowly focused for me (it is about more than just young people, though they have most to gain), although I appreciate what they have done. This is the beginning of an effort on my part to take this message to a wider audience.

    I don’t think that YPP is the way to push this agenda forward politically, although respect to them for the easy way they have presented it so far.

    Like

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