BY JOHN DREWRY

Donald Trump has apparently expressed the thought that maybe Federal taxation is unnecessary altogether, and the economist Martin Armstrong agrees with him. It’s not such a crazy idea, and I’ve had a version of this in my mind for some years. Here’s mine for the UK.

Replace all taxes with an automatic licence fee for using the King’s currency

“You don’t understand, it’s far more complicated than that!”  The vociferous bleat of every bureaucrat who ever lived.

What was, in 1842, a simple 7d in the pound (2.9%) tax on incomes over £150, has burgeoned into a vast industry of tax invention, collection, administration, calculation and obfuscation – an industry that produces absolutely nothing. What is even worse, in its ostensibly singular task of extracting money from as many sources as possible for the Government, it also sucks out the energy from an otherwise much more productive economy. 

Yet all this could disappear at a stroke. If the singular purpose is to provide Government with the money it needs to run the country, let’s return to simple principles and discover the easy way to do this, with no infrastructure whatsoever.

Firstly, let’s cease calling it a tax. Instead, let us suppose that usage of the King’s currency (i.e. sterling) incurs a licence fee. And that our sole focus is the flow of sterling through the economy. Then at the moment any money of any amount arrives in any UK bank account for whatever purpose, let us say a small percentage is automatically deducted at the bank as a licence fee, and remitted to the Treasury instantly.

Instant collection in real time at zero cost

The money is collected automatically in real time at no cost. The Treasury’s software takes care of it without any intervention. The deduction automatically appears on the customer’s bank statement as S.E.L.F. (Sterling Electronic Licence Fee).

Ending the scourge of taxation

S.E.L.F. replaces all taxation, including income tax, VAT, capital gains tax, corporation tax, fuel duty, stamp duty, green taxes, National Insurance contributions, inheritance tax, council tax and business rates.

Calculating S.E.L.F.

The formula for this is simple, involving just two coordinates. (A) is the total sum of money the Chancellor needs to raise for, say, the forthcoming year. (B) is the total sum of money flowing into all UK bank accounts. Let us estimate (B) at £100 trillion a year. If the Chancellor calculates (A) at £2 trillion, S.E.L.F. is 2%

The stimulation provided to the economy, both financial and psychological, of removing all taxes, suggests that money flow and interchange would speed up. And every economist knows that increasing ‘volume of circulation’ stimulates GDP.

The calculation and collection industries become redundant, along with tax returns and profit/loss declarations. Indeed, with S.E.L.F., the State no longer has any interest in how much money an individual or a corporate body makes or doesn’t make.

No annual returns, no bureaucracy, no ongoing or accumulating liability

S.E.L.F. is taken in real time at point of deposit, and paid in real time to the Treasury, so no-one can accumulate any liability.

Winners & losers

Development of the idea will produce more comprehensive lists, but here are some headline examples:

WINNERS would include:

• Most working people. Someone with a gross salary of £50k, who also passes say another £25k through his/her bank account in a year, would have paid £1500 S.E.L.F. at 2%. Compare that with current tax and NI on a £50k salary!
• Employers, who no longer have the onerous Employers’ NI to add to their salary costs, nor any returns to file – they just pay their employees gross.
• Any business whose profits will exceed 2% of turnover (remembering additionally the elimination of business rates, NI, VAT returns and big tax accountancy fees, all of which will contribute to their profits).

LOSERS could include:

• The low-paid, currently paying no income tax, and some pensioners.  But they’re not really losers. Whilst S.E.L.F. would deduct £220 from an £11,000 income at 2% there is no longer NI to pay, or council tax, or VAT.
• Organisations with vast UK turnovers who declare their profits abroad.
• Currency speculators and funds transfer wholesalers.
• Charities, lottery winners and other tax-exempt/non-profit organisations or people (but again, consider the overall financial landscape with the disappearance of all  taxes).
• Vendors of expensive property (stamp duty would have disappeared, but S.E.L.F. would likely be applied at least twice in the conveyancing process).

S.E.L.F. only works if there are no exclusions, exemptions or exceptions

Because as soon as you introduce them, the bureaucracy returns. And remember, S.E.L.F. is not a tax, it’s a licence fee for using the King’s currency, so every user is automatically a licensee. S.E.L.F. doesn’t need to know whether you’re banking profits, turnover, a loan, a property transaction, an interest payment, a salary, a transfer between accounts, an incoming international transfer, unearned income, pension receipt, charitable donation, interest, an inheritance, or a birthday gift from Aunty Madge. Each time any money drops into any bank account, whether it’s cash, cheque or electronic transfer, S.E.L.F. is instantly applied, which automatically discharges your financial liability to the State, while paying the Treasury in real time and with zero collection cost.

Black economy a red herring

The thought may occur that people will get round S.E.L.F. by dealing in cash.  This is really not worth losing sleep over, for the following reasons:

• With S.E.L.F. at only 2%, many would conclude it’s not worth the risk of keeping uninsured cash under the mattress. 
• Sooner or later, cash will find its way back into a bank account (when someone pays a large organisation with cash, for example).
• Live a little, and let traders feel a bit raffish and freed up, without the State breathing down their necks all the time. There’s nothing like the buccaneer spirit of trading in cash without restriction to stimulate the economy at its grass roots.
• It would not be a good idea to eliminate cash. People need a choice rather than being coerced into a singular, digital system.

John Drewry has a background in marketing, owning and chairing an advertising agency for many years. He also holds an Equity card as a stage director and actor, and is Patron & Presenter for the Nursing Memorial Appeal. His anthology, ‘REASON IN MADNESS – 5 short stories about the unpredictable & irrepressible human spirit’ is available at Amazon.