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Trillion Pound Horror, Cowperthwaite and Loopholes!

12 November 2010

Last nights 'Britain's Trillion Pound Horror Story' on Channel 4, probably won't lie well with Guardian readers.

The basic premise was that the state is consuming 53% of the total income of the UK. We are taxed to death in the UK. The politicians would have you believe they are very good to the poorer off and make the well off pay their share to compensate. However, when you consider duties on alcohol, tobacco and fuel plus VAT - the story is actually, in reality, quite different.

What does the public sector do with all this money? Largely waste it. Badly run private businesses go under to be replaced by more efficient ones. Badly run public bodies simply create more public bodies or quangos to cover the cracks. The Labour government were particularly ‘good’ in inflating the public sector to bloated proportions.

The program mentioned Sir John Cowperthwaite (pictured right), a promising, up and coming civil servant who returning to Hong Kong in 1945 continued to rise through the ranks. He was asked to find ways in which the Hong Kong government could boost post-war economic outlook, but he found the economy was recovering swiftly without any government intervention. He took the lesson to heart, and positive non-interventionism became the focus of his economic policy as Financial Secretary. He refused to collect economic statistics for fear it would encourage officials to meddle in the economy. Cowperthwaite is revered not just in Hong Kong but China as well.

So, Cowperthwaite’s view, much admired in the East, is that low taxes and less intervention create more wealth which in turn, yields more tax revenues. The tax revenues provide more valuable services because a huge proportion is not wasted on bureaucrats.

As the coalition government battles with reducing public expenditure whilst encouraging private enterprise – they have set their sites on simplifying the taxation system. This was a pledge made by the labour party in 1997 – a government that created more finance legislation than all of the previous chancellors’ of the exchequer put together.

On Monday the coalition produced a tangible result that augers well. Enlisting the help of chartered accountants, they published a list of 1,042 tax reliefs currently available.

Some of the press had the temerity to describe these reliefs, prescribed by legislation as loopholes!

Let’s hope that common sense prevails with a simplified tax system, lower taxes to encourage enterprise and more value for money from public services.

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