Cutting government spending is not enough. There will have to be substantial increases in income tax, say Britain’s private sector finance managers, in a new research report from business analysts Lindsell Marketing. Conducted amongst over 1,000 UK company finance professionals, the research reveals that income tax must rise to tackle the current public sector deficit. Moreover, spending cuts need to concentrate on central government departments and Quangos, and leave the NHS, the Police and local government largely alone.
Measures to reduce the current public sector deficit will have to be of a scale and significance to make an appreciable dent in this figure, in a bid to put Britain back in the black. In order to obtain an expert view on the issue, business analysts Lindsell Marketing canvassed the views of the private sector professionals who have to make such hard financial decisions every day of the week. Over 1,000 UK company finance managers were surveyed between May 4th and May 14th 2010. The sample of respondents provided representation of the national business community in terms of region, size and sector.
Overall, income tax must rise, according to British finance managers, as around two thirds firmly point government towards this unpalatable, but necessary priority.
In contrast, only a quarter of respondents thought that rises in VAT or the establishment of a £1m+ property owners tax would be moves worthy of priority government attention. Making changes to National Insurance, or putting Inheritance Tax rates up were seen as a priority by even fewer finance managers, possibly respondents feel such initiatives to be essentially ‘unfair’, hitting the pockets of the least well-off in society in an indiscriminate approach.
In terms of the threshold for higher rate income tax, UK private sector finance professionals think that the current £150,000 threshold may be too high to have any meaningful effect. A quarter of respondents recommended prioritising tax rises for £150k+ earners, but a further fifth thought this should be reduced to £100k+, and a further fifth felt the threshold should be just £50k. Working from HMRC figures[1], the authors of this report have shown that an increase of 10% in income tax revenues from £150k+ earners would raise just a few hundred million pounds, whereas a 10% increase in income tax revenues from £100k+ earners would deliver several billion pounds into the exchequer.
In terms of spending cuts, finance professionals are advising the government to leave the Police, NHS and local government largely alone, and instead focus on cutting waste in central government departments and Quangos. This key finding may suggest that finance managers believe health, law & order and local government to be ‘leaner’ than central government departments and quasi-autonomous non-governmental organisations, and that therefore these two categories hold the highest potential for cost savings. An alternative interpretation may be that law & order, health service and local government spending should be retained for reasons of social responsibility, stability and cohesion.
Paul Lindsell, Managing Director of Lindsell Marketing, notes, “The new administration really needs to pay attention to the outcomes of this research. Experienced finance professionals, who have to make hard decisions week in, week out, are telling the new boys on the block not to tinker around the edges, but to get straight down to the hard tack. With the inter-party negotiations out of the way, the first hundred days of this government will be judged on one key issue – tackling the public sector deficit. Dogma has to be thrown to the four winds, and the door opened to level-headed practicality.
“Income tax undoubtedly has to rise, with Britain’s finance managers saying that spending cuts – while necessary – are not enough. Tinkering round the edges with insignificant tax revenue streams such as inheritance tax, capital gains or property taxes, is largely a waste of time. Most important is to establish an income threshold for upper rate tax that brings in significant sums – and the findings of this report strongly suggest that this level should be around the £100,000+ mark. This could raise several billion, while keeping that additional burden focused on the c.700,000 wealthiest taxpayers.”
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Methodology
1,008 finance managers at British firms were interviewed between May 4th and May 14th 2010. The sample of respondents provided representation of the UK business community, by company size, sector and region. Respondents were asked, “At the time you answer this question, we will either be in the last run-up to the general election in the UK, on the day itself, or in the week following. Whoever gets into power, they will have to deal urgently with the huge public deficit – currently around £160bn. With this in mind, and regardless of the way you vote, which fiscal actions do you believe the incoming government should prioritise?”
[1] HMRC, HM Revenue and Customs receipts; HMRC, Income tax liabilities by income range