Here’s an idea. Let’s scrap (nearly) every tax – whether on individuals or businesses – and replace it with a progressive consumption tax. Ed Conway proposes this in The Times today, but it’s a very British idea that’s been circulating since at least from the time of Thomas Hobbes.
In Leviathan, Hobbes argued that we should tax consumption as it’s the material manifestation of the enjoyment of life. Like so much of his thinking, it has stood the test of centuries, though we now have a few additional reasons to think it’s a good idea. Famed British economists of the last century Nicholas Kaldor and James Meade have shown that consumption taxes provide significant efficiency gains. A consumption tax eliminates the incentive to consume things now by ending the tax on savings, and reduces the effective tax on capital encouraging greater investment, which in turn leads to economic growth.
It may sound like an idea that only the rich could get behind, but as The Economist reported a decade ago Robert H. Frank posited it as a solution to inequality, and others, like Isabel Correia, have argued it could include a lump-sum transfer like a universal basic income. We could afford to pay for the progressiveness of this on the back of higher rates of economic growth.
At the end of the year we will properly leave the European Union. The last-minute deal that will presumably be struck with the EU and other Free Trade Agreements will mean there will be many areas where we’ll be limited on what we can do, despite Brexit. Often, though not always, this is to our advantage, but we will be able to go it alone on taxation.
Completely overhauling the tax system would be no mean feat. But then again, neither is exiting a trading block during a pandemic.
Masking the truth
Sam Dumitiru makes a forceful case on our blog as to why the government is right to make face coverings mandatory in all shops and supermarkets from next Friday. It’s a rebuke to the Telegraph journalist Timothy Stanley and others who are refusing to shop because of it.
The choice isn’t between wearing masks and continuing our lives as we did before the pandemic. It’s between wearing masks and the need for more stringent curbs on freedoms – including more lockdowns. It’s perplexing that an unmerry band of conservatives are shirking this very minor duty at a time of national crisis, and that an even less merry band of self-styled libertarians prefer to be locked in their homes than wear a bit of cloth on their face.
Luckily, they are in a tiny minority. Sam’s article cites opinion polls showing that people feel safer with masks. Britain’s high street entrepreneurs need people to feel safe to return – masks do exactly that.
Silver linings
What a difference a crisis makes. As we argued in Upgrade, businesses should be encouraged to make better use of digital technologies to tackle the sluggish productivity which characterised the pre-Covid economy and bounce back faster post lockdown.
As we noted, a lot of this is already happening. A new report from twillo confirms this, revealing that 97% of enterprise decision makers believe the pandemic sped up their company’s digital transformation, with 95% of all companies are seeking new ways of engaging customers.
Businesses are busy pivoting. Isn’t it about time that government did the same?
FSB on EMBs
The Federation of Small Businesses has a report on the obstacles holding back the UK’s ethnic minority entrepreneurs. It finds that ethnic minority businesses (EMBs) contributed £25 billion to the UK economy at the last count – equivalent to the economic contribution of Greater Manchester – and are more likely to export than their non-EMB counterparts. However, EMBs are often detached from mainstream business support, and struggle disproportionately when it comes to accessing finance.
We’ll explore some of the issues raised in this report – and others – in an event with the APPG for Entrepreneurship, supported by NatWest. We now have a time and date: 11am on 6th August. If you want me to send you a diary invite so you can save the date in your calendar just drop me an email. Speaker details to follow next week!
Fixing Leviathan