U.K.s Tax Well Running Dry – US-FOREX.US
When Catherine Monahan of Clink! Wines wrote a letter to the British Prime Minister complaining about the increasing tax on alcohol in May, she was surprised to get a reply just two months later. Signed on behalf of the U.K. Treasury, a government official explained that the government wasn’t raising taxes to try and curb the country’s drinking problems. It just needed the money. Badly. The increased duties would “play their part in ensuring we can continue to fund the Government’s spending priorities,” the letter said. Unfortunately, higher duties on booze haven’t been enough to fill the 35.5 billion hole in Britain’s tax revenues. Britain’s revenue shortfall is skirting the highest levels seen since the 1920s, the latest report on its finances showed on Tuesday. The 2008-2009 fiscal year saw accrued revenue and tax receipts fall by 28.7 billion and 18.7 billion each, reducing the total tax revenue to 714.5 billion for the year.The government can thank deteriorating corporate earnings and rising unemployment for the widening deficit. “With fewer people in work, there’s less tax,” said Vimal Tilakapala, a tax lawyer at Allen and Overy. “We’re seeing the effect of the government’s tax policy driving companies and individuals out of the U.K., something we cannot afford.” Last week McDonalds announced it would be moving its European headquarters from the U.K. to Geneva later this year over tax concerns. The collapsing property market, high numbers of bankruptcy claims and a slide in consumer spending has cost the U.K.’s coffers 10 billion, 8.2 billion and 10.5 billion in stamp duty, corporation tax and value-added tax respectively in the last year. The National Audit Office, a public body responsible for auditing the government’s finances, found that in the 2008-2009 tax year, 7.5 billion of outstanding debts owed to the government had been written off because they were unrecoverable. Meanwhile the amount of “doubtful debt,” or debt that the government doesn’t expect to reclaim, rose to 27.1 billion from 12.9 billion, partly as a result of self-assessment tax forms and fraud.
Tony Dolphin, senior economist at the Institute for Public Policy Research, believes that there’s little the British government can do to patch up its finances in the short term. “The interest rate is almost at zero, fiscal stimulus has been all but used up,” he said. “It’s now down to the Bank of England and quantitative easing.”
However, the turbulent economic climate did prove to be profitable in some areas. Last year saw growth in capital gains tax —which is often paid by executors of an estate or the person responsible for an estate owners debts after death, after selling a property—as well as growth in petroleum revenue tax , which increased, thanks to higher oil and gas prices.