Debate Magazine

Probably True.

Posted on the 14 November 2014 by Markwadsworth @Mark_Wadsworth

Ryan Bourne is a bit of an apologist for the corporatists and rent seekers and is incapable of distinguishing between earned and unearned income, but you can't argue with facts.
From City AM:
In fact, it may well be that significant hikes in taxes are not even feasible – even if they were considered necessary or desirable.
The UK already has a high tax burden. According to the Treasury’s measure, it currently stands at 37 per cent of GDP with a forecast increase to 38 per cent in the next Parliament. But 38 per cent of GDP represents the absolute maximum that governments of any political persuasion have been able to raise in revenue – irrespective of the tax rates they have set.
So it looks like we are already at the upper limits of our taxable capacity. With increasing labor and capital mobility among those paying the lion’s share of taxes, we might expect this maximum taxable capacity to fall further in the future.

This is a slightly different way of thinking about the Laffer Curve, I suppose.
His figure of 38 per cent seems about right (let's not bicker over a per cent or two either way), no UK government has ever raised more than that, not even the supposed high tax governments of yesteryear. So let's face facts and try and keep spending down to 38 per cent max.
What is not clear is how much of that 38 per cent is really tax (and how much of government spending is really spending).
For example: until last year, my wife and I received Child Benefit, so a primitive mind would count the £2,000-odd a year we received both as tax (which we'd paid in the first place) and as spending. It's a philosophical point whether it's both or neither.
Some higher earners chose to waive their Child Benefit entitlement without receiving a tax cut; does that mean the government is spending less? Sort of. Does it mean the government is taxing less? Nope.
I, being pig headed, decided to continue claiming the Child Benefit but the price I pay is that they add the equal and opposite amount to my tax bill. Would I be paying less tax if I waived the Child Benefit? Nope, clearly not.
We've got the same dilemma with e.g. public sector employees. As Lola has pointed out often enough, public sector employees cost less than their headline salaries because the government only pays out part of it, it keeps the rest under the heading "PAYE".
Ditto with Housing Benefit "paid" by DWP to local councils. You can count payments from the private sector to the government as "tax" and you can count payments by the government to the private sector as "spending" but book keeping transfers between government departments are neither.
Remember that local councils have to pool most of their income from social housing and hand it over to Whitehall (or they did until recently). That's neither tax nor spending. Housing Benefit payments from DWP to local councils are the same nothing, but in the other direction.

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