George Osborne’s planned financial services levy is a lamentable failure according to international benchmarks. The IMF has called for any banking tax in Britain to be set at £6 billion. Last week, Left Foot Forward highlighted the socially regressive nature of the £2.5bn tax which will mean banks contributing 50 per cent less than families (child benefit and tax credit cuts) to the government’s fiscal consolidation programme.

The Chancellor has dismissed the idea of a financial transaction tax, (‘Robin Hood’ campaign), and appears reluctant to curb excessive banking sector profits and remuneration without international support.

That leaves as his only option the banking levy, which will raise £2.5bn 2013/14. The IMF, however, has argued that Britain’s financial industry should be taxed to the tune of £6bn. The exact applicable tax rate has yet to be finalised by Mr Osborne. To compound matters his plan has already been dumbed down.

The original plan was to have a £20bn threshold, with tax applying on the entirety of a bank’s balance sheet (i.e inclusive of the £20bn). Now instead of this threshold, every institution will have a £20bn allowance that will not be taxed. The banking levy will affect only liabilities above that level.

The forecasted revenue from the levy is pitifully low when compared to the costs of the banking sector bailout. According to a recent IMF report of financial sector taxes, the yet to be recovered fiscal cost to the UK is 6.1 per cent of GDP (as of end-2009).

However, this figure grossly underestimates the actual cost and exposure of the entire crisis to the UK. It is believed in most advanced and developed nations it could have been as high as 25% of GDP.

Mr Osborne’s planned levy of £2.5bn, which equates to roughly 0.2 per cent of GDP in the UK, is a clear illustration of this government’s abdication of any notion of social fairness. It simply cannot be right that a recession, caused by a collapse in the financial sector and markets, places such a disproportionate share of the burden on the public.

To reduce the iniquitous Comprehensive Spending Review fiscal consolidation settlement, the burden on the financial sector can be drastically increased with the adoption of a financial activities tax (a tax on remuneration, profits and bonuses) or a financial transaction tax (a Tobin tax or the Robin Hood campaign).

Net direct costs of recapitalisation and asset purchases is estimated to average 2.8 per cent of GDP or $877 billion for the richest G20 economies. The table below highlights the recovery rate for the advanced nations of the G20. It currently records a recovery rate of 21 per cent. This illustrates the extent to which the global financial sector has escaped its moral dues.

To his credit, the Chancellor has been pushing for an international financial activities tax, which will be on the G20 agenda next month. If his government genuinely believes in ‘fairness’, they must push hard not only for an additional financial sector tax, but one that truly prices their actions past, present and future.

The IMF has finally released its long-awaited report into financial transaction taxes (FTT).  The report does not seek to endorse or dismiss the idea, but rather provide a categorical analysis and evaluation of the history and full workings of any possible international transaction tax(es).

It should be welcomed by proponents, as it challenges and rebuffs many of the criticisms that have been leveled against it. Critics of financial transaction taxes, ranging from Giles Wilkes, the former chief economist at Centre Forum, and now economic adviser to business secretary Vince Cable, to the freelance journalist Tim Worstall, have outlined their opposition to the idea on several fronts.

Firstly, they argue the cost of the tax will be borne largely by the public, not the financial industry and traders operating in the speculative markets. They hold that the tax incidence, or economic burden, will fall on ordinary investors, shareholders, pension-fund holders, travellers etc. Mr Worstall even goes so far to argue that the effects are “so strong that the government could raise revenue collected by abolishing stamp duty on shares”.

A further counter to the much-vaunted tax is that an FTT will destroy marginal profit-making speculative trading. Mr Wilkes posits it is a “virtual outright ban on any speculation that is not looking for very large average profits”. He holds this would severely constrain market liquidity, and thus damage normal market operations and the workings of an efficient financial sector.

Real firms and businesses, from insurance to industry to government finance, would face a massively higher cost. Mr Wilkes states:

“Instead of facing a 0.2 per cent spread for doing a gigantic FX transaction, the absence of millions of small other-speculators on the other side might blow this out – to 0.5 per cent, to 0.9 per cent, more. Who knows? But this translates into a giant cost of capital charge on everyone else.”

A third criticism is that advocates have no idea what impact the tax will have on trading volumes and consequently, on revenues accrued. Related to this point, is their objection on practicality grounds.

So what does the IMF report say to all these points? The report argues it is difficult to make a strong economic case for introducing a currency transaction tax (CTT), since it would raise much less revenue on a considerably more elastic base than a security transaction tax (STT). This piece largely focuses on securities transaction taxes (STT).

Mr Wilkes’s point that financial transaction taxes would considerably increase capital costs for very short-term trading is confirmed by the report. However, they define very short-holding periods as a day(s). An STT at even the very low rate of one basis point reduces securities value by almost half. But for very long holding periods (e.g., 10 years), the drop in value from even a 50 basis point STT is quite small (1.4 per cent).

The report found that, in 2009, the average holding period for stocks in the Standard and Poors 500 stock index was 0.4 years, or about 3.5 months – down sharply from the average holding period of 1.8 years in 1990. The table below illustrates the reduction in security valuation and increase in cost of capital for different applied transaction tax rates:

So for an asset which has a holding period of three months (below the current market average) a 0.01 per cent STT would only reduce asset valuation by 1.3 per cent and increase capital costs by 0.04 per cent, a modest transactional cost. Also, transactional taxes over time can get priced in. For instance, the United States’ Securities and Exchange Commission (SEC), its equity market regulator, imposes a 0.17 basis point non-tax charge on stock market transactions to fund its regulatory operations, which has done little to damage market liquidity.

To soothe opponents of an STT, one potential option would be to introduce variable rates in accordance with the length of holding for an asset, i.e. a lower STT would be applicable for very short-term trades. This would take into account the narrow bid-ask spreads of short-term trades. The downside to such a system would be the additional complexity introduced. This is an idea worth exploring though.

To protect savings and investment made by the wider public, any proposed STT could be conditional on the size of the trade. Earlier this summer, Pete Stark, a US Congressman, introduced the ‘Investing in Our Future Act of 2010’ – which would amend the US Internal Revenue Code to impose an excise tax on currency transactions exceeding $10,000, equal to 0.005 per cent of the value of the currency acquired in the transaction (currency transaction tax). The $10,000 threshold is designed to target only large trades, which are predominately made by big financial firms.

Financial transaction taxes, if designed correctly, can raise substantial revenues. The IMF report stated that any proposed STT should have the broadest tax base possible, to avoid evasionary opportunities. If the goal is to raise revenue from the financial sector, one option is to improve the application. Taxing both debt and equity products will also reduce distortion of investment and financing decisions. However, they warn to be careful of taxing public sector debt, i.e. sovereign debt which would push up the cost of government borrowing. Not to do this, though, would reduce liquidity in the private bond market and increase capitals costs. This is something proponents will need to address.

The report found that unilateral STTs can work, even if they are only levied on narrow bases. They catalogue the different nations ranging from the UK (0.5 per cent stamp duty on all secondary share trading since 1986), Switzerland, Hong Kong, Singapore, and South Africa who have levied some form of an STT. This indicates that such taxes do not automatically drive out financial activity, particularly in major financial hubs like the UK and Switzerland.

There is a highly progressive element to any proposed STT, as a large part of the burden of an STT would fall on owners of traded securities. High-income individuals possess a “disproportionate share of financial assets, and would be ones to initially suffer from a fall in taxed securities prices”. In terms of revenue, a low-rate STT on stocks, bonds, foreign exchange and their derivatives could raise substantial sums. An example is that “a one basis point STT on global stocks, bonds and derivatives is estimated to raise approximately 0.4 per cent of world GDP”.

The IMF has provided no ringing endorsement for advocates of FTT (particularly for CTT), but they have provided clarity to the issue and a framework of how it can be successful. They believe an STT coordinated and implemented internationally will reduce market elasticity, and thus be able to raise larger amounts of revenue with a lower rate. If we can secure global agreement, even at a regional level (eurozone) then this dream may yet become a reality.

This week has witnessed the ascension of Ed Miliband to the Labour crown, and with it a new purpose and ambition for the centre left. Central to his campaign was a bold economic prospectus calling for fairness and social justice. A financial transaction tax, more commonly known as the ‘Robin Hood Tax’, is a key tenet to his vision.

Left Foot Forward has previously argued the merits of such a tax, and highlighted the growing international support behind it. The tax could raise as much $700 billion from a 0.05 per cent levy on all trades in the $4 trillion a day forex market. Global momentum continues to build despite the current government’s international opposition; there now exists a unique opportunity for Ed to lead British efforts worldwide for the adoption of the tax.

Recent weeks have seen a flurry of activity. Though differences exist within the European Union, France and Germany have been pushing hard for a FTT, with German Chancellor Angela Merkel declaring a few weeks ago in her national parliament:

“…we are going to try to persuade as many countries as possible.”

Her counterpart, Nicolas Sarkozy, has been equally vocal:

“Finance has globalised, so why should we not ask finance to participate in stabilising the world by taking a tax on each financial transaction?”

The French president has said if progress is not made on the idea, he will make it a key part of the agenda when they chair the G20 group of large economies. Spain and Portugal have also affirmed their support, at the UN summit last week on the Millennium Development Goals.

Earlier in the year the European Parliament voted overwhelmingly in favour of the tax, and the European Commission, the EU’s executive arm, is preparing a paper at the request of Europe’s finance ministers on the possible workings of the tax. Belgium has suggested that if no agreement can be reached at the EU level, the eurozone should look to take it forward separately.

As a passionate advocate of the tax, Ed should seize this momentum and lead the British charge globally. There are three principal ways he could do this.

1. Start arranging meetings and conversations with European leaders, particularly key proponents of financial transaction taxes. Not only will this be a great way to introduce himself to policy-makers throughout the continent, but it will add pressure on the government to re-think and engage more constructively with the proposal.

It will also demonstrate that the world’s leading financial centre is not averse to the idea, and that political support does exist.

2. Lead a political ground offensive for the tax. There already exists a major grassroots movement, which has cleverly clothed the idea as the ‘Robin Hood’ tax. This campaign is being led with celebrity endorsements and propelled through social networks, TV adverts and collaborative online forums. To date it has over 200,000 members.

Ed should meet with these campaign leaders to discuss how we can build on their efforts and what he and the Labour party can do to take it to the next level. As a party, we should also launch our own campaign. Ed has paid tribute to his defeated brother’s ‘Movement for Change’, a grassroots initiative mobilising and training local leaders. He has pledged to mainstream this within the Labour party. This is an ideal cause for it.

3. Provide clarity on any proposal for a financial transaction tax. One of the weaknesses of the campaign is that the idea can be found lacking in detail and definition. There are advocates who argue solely for a levy on currency transactions, and others for one on all financial and trading movements.

Proponents, including world leaders, have been guilty of re-defining its purpose for convenience; i.e. the tax will recoup the bailout of the financial world by taxpayers, protect taxpayers from future bailouts, help meet Millennium Development Goals, or be used for climate adaptation and mitigation in the developing world.

Understandably, this helps win support and the process of negotiations. But if we are to achieve any final resolution, then advocates have to be clearer in their intentions and mechanisms. Ed should be flexible, but have a strong idea on what type of FTT he wants and how it should be implemented.

The case for a financial transaction tax is overwhelming. It embodies every principle the left believes in: fairness, justice, and reciprocity. The time has now come for the new generation in the Labour party to take this to the next level.

Recent announcements of the coalition government’s cuts threaten to significantly worsen the plight of Britain’s poorest and most underprivileged children. New research highlights how the inequitable nature in road safety afflicting children from the poorest parts of the country is set to get worse.

The Road Safety Analysis group found children from the poorest wards in Britain are disproportionately more prone to being the victims of road traffic accidents. They concluded that the riskiest area in the UK is Preston, where one child in every 206 is likely to be involved in a road collision annually.

Kensington and Chelsea is the safest place in the UK, with a risk of only one in 1,158. The national average is one in 427 children is injured or killed in a road accident each year.

Cuts announced by the coalition government to the Road Safety budget – amounting to £38 billion – will only exacerbate the situation and increase the danger on roads and highways in Britain’s poorest neighborhoods. Added to this, the government has also ceased central funding for speed cameras, with the result that councils up and down the country are being forced to majorly scale back or even scrap their speed enforcement measures.

There are 6,000 speed cameras in the UK. The financial sustainability of the system is now at serious risk. This year’s road safety budget is being cut by a shocking 40 per cent. This is made up of a 27 per cent cut to the revenue grant (with £20.6m being taken off a promised £76.7 million) and a 100  per cent cut to the capital grant (£17.2m). Both grants fund the maintenance and improvement of the speed cameras network.

These cuts are a reckless move by the coalition government, which undermines their claims to be following a progressive agenda. All the evidence points to the effectiveness of speed cameras in cutting road safety deaths, with Richard Allsop, professor of transport studies at University College London, stating there have been “substantial reductions” in casualties in the first five years of the roll-out of cameras:

“There is a bit of statistical debate about exactly how many, but the picture of a substantial reduction is quite undisputed and it’s consistent with measured reductions in speed at camera sites.”

Abolishing speed cameras (which in effect the government is doing) will impact upon all parts of Britain, but particularly for those in deprived and disadvantaged areas. Children in poorer areas tend to reside in urban conurbations, and will walk and cycle more often than their affluent peers. Their safety cannot be jeopardised, and society must be firm in opposition to what is one of the coalition government’s most socially regressive actions to date.

To further dismay, it is widely believed that Philip Hammond is set to reject an independent and expert review into reclassifying the permitted drink-driving limit. The review, led by Sir Peter North, proposed as one of its key recommendations that the drink-drive limit be reduced from 80mg per 100ml of blood to 50mg. This is the same limit that applies in France, Germany, Italy, The Netherlands and Spain.

Other measures included introducing random breath-testing of drivers, taking away the right to have a second breath test conducted at a police station, reducing the limit to 20mg for new drivers, and bringing in a new offence of driving with an illegal substance in the bloodstream that impairs the ability to drive. Collectively, these measures could save as many as 300 lives per year.

The transport secretary has also dismissed the idea of a blanket reduction of the speed limit in built-up areas to 20mph. This is a key measure advocated by Brake, the road safety campaign, to reduce the risk for children who live in urbanised and built-up areas. At the very least, these measures should be debated in parliament.

Road safety has markedly improved in recent years. However, the current government’s early decisions on the issue are set to reverse that trend. The stakes are high, and lives are at risk. Their actions should be vigorously opposed by anyone who aspires to improve road safety, cut deaths, and safeguard children, especially the poorest, from the dangers of Britain’s concrete arteries.

One issue yet to be dissected by contenders to the Labour crown is taxation – and more specifically its principles. We may still be licking our wounds from one of our worst electoral defeats in history, but timidity is no recipe for renewing and building a revitalised progressive force to counter the growing threat posed by the ConDem coalition government. We need to be as radical as we are ambitious.

The big challenge is to set out our vision for society. Integral to that is the tax system. So far the leadership roadshow has largely ducked the opportunity to engage in a genuine debate about the nature of tax. We cannot miss this moment to realign the economic debate in favour of progressive ideals.

Four principles should inform any new tax system for the left. Firstly, it must be progressive. This means seriously re-considering the merits of personal allowances. Analysis conducted by Left Foot Forward has demonstrated the regressive nature of income allowances, which provide a universal and indiscriminate tax cut for all earners. Middle to higher earners gain disproportionately more from this.

The coalition government’s recent announcement for an increase next April will only further increase this tax subsidy. A radical alternative is to abolish them altogether, or reduce them to a lower level, while introducing greater marginality in higher rates. The current system is arguably too flat, with individuals earning £8,000 paying the same 20 per cent rate on their tax liable income as someone earning £40,000.

A more progressive system would be to have lower and more variable rates for differential income, i.e those earning between, £5,000-£10,000 have a 2 per cent rate, £10,000-£15,000 5%, £15,000-£20,000 10% etc. These extra marginal rates for lower earners could be funded through the abolition of universal allowances. And to ensure part-time workers, or those on very low incomes do not lose from this new system, appropriate changes can be made to benefits and tax credits.

Social justice is equally important. Taxation is one of the most powerful ways in which to shape socio-economic relations. We need to ensure that any new system does more to help the weakest and poorest in society. One of the ways we can achieve this is replacing council taxes with a local income tax. Council taxes are highly regressive, as they hit lower-earning households harder as a percentage of their income. A local income tax would be an effective and efficient way to account for wealth.

To make this policy even more progressive, councils representing poorer districts and regions could be given a grant by central government to encourage them to have lower rates of income tax than the national average. Another idea is for 1 per cent of the bank bailout when repaid to be put into a national endowment fund for poor communities to access.

Public support for taxation is crucial in preventing alienation and disenchantment. The system needs to speak to people’s basic sense of fairness. This means capital gains tax should be fully aligned with marginal income tax rates, thereby abolishing any discrepancies and avenues for tax avoidance. Capital gains are merely another form of income and no strong argument exists for its differential treatment. The scale and nature of the cuts planned by the coalition government will disproportionately hit poorer households more. This cannot be right or fair.

Those who were bailed out by the government, or those who have done well in the good years should be expected to make a more considerate tax contribution. A fair system will have a bigger banking levy than the £2bn currently planned, a wealth tax in the form of a mansion tax (as argued by Left Foot Forward), and a financial transactions tax, ideally coordinated internationally, but done unilaterally if not. Previous analysis has demonstrated this can be done without harming individual countries’ economies.

The final principle to shaping a new tax system is competiveness. Taxation should be used to forge a stronger, just and more sustainable economy. Our economy is grossly imbalanced and heavily dependent on a few industries. We are vulnerable. We can change this through introducing tax incentives and measures to generate a more dynamic and resilient economy. We need to move wealth outside of London and the south-east.

Lower business rates and start-up costs in poorer areas could help generate economic opportunities in hitherto non-investable areas. The Tory plan to discount National Insurance employer contributions for the first 10 employees up to a value of £5,000 for new companies has merits. However, cutting corporation tax at the expense of capital allowances and abolishing Regional Development Agencies is highly damaging. We should be nurturing growth industries, not hurting them.

Sweden successfully cut its deficit in the mid-nineties by prioritising investment in human capital and potentialities. Education, skills and jobs helped Sweden not only to tackle its deficit on schedule but actually accumulate a budgetary surplus. They also enjoyed the highest growth figures of all OECD nations in the past decade, and weathered the latest financial crisis better than most.

That is why it is astonishing the coalition government are cutting this year and dramatically scaling back key human capital projects in education, skills, sciences, and our growth sectors. We should not be abolishing the Building Schools for the Future programme, Regional Development Agencies, Child Trust Funds, reducing manufacturing and investment allowances, cutting the science budget, and scraping the 50p phone line tax for super-fast next generation broadband and capping housing benefit. All of these will impact on human potential and future growth.

Even right-wing think-tanks have come out in recent days to criticise the chaotic and disjointed nature of the planned cuts. This can be a moment for the centre-left, but only if we have a vision for society. And taxation will be key to that. So let’s put it on the agenda.

One of the key ingredients to the successful renewal of the Labour party as a political force, and indeed as a political movement, is re-kindling our mission as anti-poverty crusaders.

Harold Wilson once famously declared that the Labour party “is a moral crusade or it is nothing”. We are a party born from an ambition to tackle the realities of poverty, deprivation, and injustice. That is our mantra and essence as a movement.Move to Trash

The leadership campaign has so far focused on tackling inequalities of income and wealth. Compass heroically have been campaigning for a High Pay Commission where the wage-gap ratio between the highest and lowest earners in society is limited. This is a great campaign and will help to alleviate the wide-income gaps prevalent in society.

However, there is something else which we need to be equally passionate in fighting.

It’s something that destroys the life chances and potential for millions of people in this country. It’s called the poverty of ambition. We live in a highly-competitive world where our inter-connectedness is at a level never seen before. Thousands of students are struggling to get into university, with demand far outstripping supply. Graduates are fighting tooth and nail for jobs and the chance to realise their aspirations.

Very often though for individuals from deprived and disadvantaged backgrounds to succeed, they need more than just a good education. They need social connections and networks in the professional world to have the same chance as others in realising their full potential. Those who come from backgrounds with more established family histories, stable communities or have higher-earning parents thrive in this socially exclusive world of who you know and what they can do for you. Ed Miliband has spoken about how he believes immigration to be a class issue. This issue here goes to the heart of class privileges and we need to pierce it.

People without the necessary contacts, don’t benefit from the same insight into the professional world afforded to those with them. This not only makes it harder for them to seek the career they may aspire for, but actually hinders their personal ambitions. Very often you will find they lack the full awareness and knowledge needed to dream big, to ponder what might be possible and what they could achieve.

It is shockingly amazing that 90% of judges and 75% of lawyers have been privately educated, despite it only accounting for 7% of the education system. Individuals from a poorer background, suffer from a deficient ‘social consciousness’ of the top-tier professional world. It is a shackle that prevents them from fulfilling their true capability as individuals. We need to break this barrier to social progress and mobility, and we can start with our very own party.

The Labour Party is an incredible citadel of talent, experience and skill. We have leaders and members from all walks of life, be they legal, financial, scientific or political. This social capital needs to be exported. Not only should we open up internship opportunities as far as possible, but we need to build real networking forums in some of the poorest and most neglected parts of the country. These networks have to be tangible and provide serious opportunities to learn and develop a sense of the professional world. Once we have created a successful model, we should build a nationwide one engaging FTSE 100 companies, top graduate employers, Universities etc.

To take advantage of chances to network, one has to possess strong people skills. Private schools are very good at developing these ‘soft’ skills with their students through debating and public speaking training. Having the confidence and self-esteem to showcase oneself in the best light should not be an asset just reserved for the fortunate. This is why we need to roll out a national schools public speaking programme.

Too often, the costs of undertaking an internship or gaining work experience deter people from poorer backgrounds. It is wrong that you cannot claim JSA while doing an internship. As a starting point, we should follow Australia in allowing young individuals to claim JSA while they intern for a certain period of time. This would give them the opportunity to gain invaluable experience and the skills required to pursue their ambitions.

Parents have a significant influence over their child’s development, sometimes sadly to their detriment. Schools should introduce a structured careers guidance programme specifically designed for parents, so that they benefit from seeing all that is possible for their child. This will help to open up horizons and for some communities, break cultural stereotypes and taboo’s surrounding certain jobs.  Our attempts at renewal need to involve building a movement for change. If we have the determination to see through our ambitions, we can create one of the most radical shifts in social mobility seen in this country for generations.

Capital gains tax reform is one of the biggest issues currently facing the Coalition Government; there is a major debate taking place on how the tax can be reformed so that it is fairer, brought more in-line with income tax rates, and crucially, how it can stop being an avenue for tax avoidance – its biggest weakness.

The debate is intense, with proposed measures being vigorously defended and rubbished before they have even been officially unveiled. The analysis below attempts to provide some clarity on this highly-contested area with a closer examination of the main issues at stake and policy measures being muted.

This is the key problem: In April 2010, the new 50 per cent income tax rate for earnings above £150,000 was introduced. With CGT no longer aligned with income tax rates (changed in April 2008, to a flat rate of 18 per cent) the incentives to transfer earnings from income to capital gains has never been so strong.

The wide discrepancy and distortion between the two taxes have led to significant accounts of tax avoidance. Private equity firms have particularly been keen to exploit this, along with some small business holders. This is because they are able to forgo some of their salary, and invest the money into their business.

When it comes to selling, or part-selling their business, they would be liable to capital gains tax, rather than income tax, thereby avoiding paying huge sums of money in tax. Private equity firms are able to do similar things with share options and through employing expensive accounting procedures.

One MP revealed that a billionaire equity fund manager has to pay lower rates on his unearned income (18 per cent) than a hard-working individual on the minimum wage (who would find some of their earnings subject to a 20 per cent) rate. The case for reform is clear.

This is the current situation: One of the key Liberal Democrat pledges agreed on in the Coalition Government’s programme was to reform the tax system, by initially increasing personal allowances to £10,000 (a highly regressive policy, as explained in detail by Left Foot Forward), funded through departmental cuts on ‘waste’ and raising CGT rates.

The plan is to align CGT rates on non-business assets to income tax levels while re-introducing indexation allowances, thereby taxing the gains on asset appreciation in real terms. They have no plan to bring back taper-relief for businesses, which only serves to increase distortion and potential loopholes.

However, in the past few weeks Conservative rank & file members, along with backbench parliamentarians, have been voicing their opposition to any such move without significant exemptions, notably the re-introduction of taper relief. A campaign is being led by the former Cabinet minister, John Redwood, who has been arguing that 5-year-rated taper relief be introduced alongside any change to headline CGT rate changes.

Under his plan, the longer an asset is held, the lower the CGT rate, with a zero per cent rate after five years, which would:

“Send a strong signal to the world’s investors that the UK is back in business as a favourable location.”

He further claims that he has:

“Been swamped with support for these suggestions, both from around the country and from Conservative MPs.”

Indeed, it appears his campaign is having some success, with reports emerging that Chancellor George Osborne is set to announce major and widespread exemptions in his emergency budget on June 22. Taper relief is now being actively considered, alongside a full exemption from CGT liability for those aged over 65. How progressive is this?

Re-aligning CGT rates with those on earned and dividend income has been welcomed by several progressive voices and opinions, who equally supported the move to abolish taper relief in 2008. By creating a simpler system with the distortionary incentives removed, CGT can become a fairer tax. The director of Institute for Fiscal Studies, Robert Chote, has recently stated that:

“Different tax rates encourage people to be paid in more lightly taxed forms and to move into occupations where this is easier.”

He further argues against the Tory proposals to differentiate between business and non-business assets, through favouring the former:

“People should be left to decide unbribed whether to put their money into a bank account, housing, shares, or into their own businesses, based on their own judgement of the risks and returns involved.

“We should be wary of the argument that investing in one’s own business is virtuous and deserving of subsidy in a way that investing in somebody else’s business is not.

“People should decide whether and how to build an enterprise on the basis of its commercial fundamentals, not its tax treatment.”

Mr Chote also makes clear that people shouldn’t be pushed or incentivised into holding assets longer than they would wish to do:

“Economic welfare is best served by having assets owned by the people who value them most.”

The core of his message is that we should seek to remove the distortions and unjustifiable exemptions, and encourage investment, enterprise, and a culture of savings through better targeted allowances and initiatives – ie. capital allowances for manufacturing – that the Tories have hinted are to be drastically cut.

The debate on CGT reform needs to be focused here, not on the principle of the CGT itself.

Additional reporting by Aaron Peters, writer on public policy, social media and social networks; he works as a researcher at Tomorrow’s Company

With only a few weeks remaining till the emergency budget is delivered by the new Chancellor of the Exchequer George Osborne, closer scrutiny of one of his key policy positions to date, a more competitive business environment founded on a reduced rate of corporate tax, is now necessary.

Mr Osborne recently declared in his first major speech to the CBI that he had a five year ‘roadmap’ to comprehensive corporate tax reform and that the coalition government would:

“Reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates… our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.”

What is all too infrequently overlooked however is that when one looks at international examples there is very little correlation between comparatively lower rates of corporate tax and a successful private sector, specifically when it comes to success in export-oriented manufacturing.

Indeed the current rate of corporate tax (27 per cent) that we have in the UK is already the lowest among the G7 and among the lowest in the G20 – it is much lower than in Brazil or India, both of whom have a levy of 34 per cent.

Importantly of those countries that record greater levels of exports than the United Kingdom (and there are nine of them) only three – China, South Korea and the Netherlands – have lower corporate tax rates, leaving countries with truly innovative and world class private sectors such as Germany, Japan and the USA, second, third, and fouth in exporters after China, with less ‘competitive’ business tax regimes at present than the United Kingdom – the rate of corporate tax in Japan, the great success story of 20th-century enterprise and innovation economics, is a somewhat staggering 40 per cent.

The evidence is overwhelming – while lower rates of corporate tax serve to attract overseas companies to relocate (as was the case with Google going from London to Dublin) indulging in a race towards the bottom is hardly the way to build a more export-oriented, high-tech economy that Messieurs Clegg, Osborne and Cameron have consistently strived for.

According to the Geneva-based World Economic Forum, Sweden, followed by Finland and Denmark, is Europe’s most competitive economy. The organisation points this out in its Lisbon review 2010:

“The Nordic countries are the strongest European performers in the area of innovation, attributable to their companies’ aggressiveness in adopting new technologies and their level of spending on research and development, and the high degree of collaboration between universities and the private sector in research.”

Britain is languishing in ninth place, behind both France and Germany. The key is not in reducing headline rates of corporation tax, but incentivising long-term strategic and sustainable investment and innovation.

Osborne should be focusing on how capital allowances can be made more effective, and in particular, how the government can conjure a more inventive manufacturing culture in Britain. As the WEF explains, the key to Sweden’s success was their dynamic and creative investment culture:

“In terms of innovation ‘output’, they register among the highest rates of patenting per capita internationally.”

We need a government that will rebalance our economic base, not one that shifts the tax burden from the city to the manufacturing world.

The examples of Japan, Germany, France and even the US serve well to remind us that what is the cornerstone to an innovative and dynamic private sector can never be simplistically reduced to just lowering taxes but must also include a strategy founded upon a capability-formation approach that centres on building the skills of citizens and adds to our nation’s aggregate human capital. In his book ‘Development as Freedom’, Amartya Sen points out how history tells us that it is this key factor, human capital and the formation of skills, that is the single most crucial variable in creating dynamic and enterprising private sectors.

For a progressive it makes far more sense to retain the present level of corporate tax or even slightly increase it in order to foment greater capability formation among the population focusing particularly on the long term unemployed and low skilled. Of greater importance to creating a dynamic 21st-century British economy than a low tax framework for businesses is offering companies a British population that is highly skilled, competent and self-reliant.

Much crossover exists in this area with the issue of long-term unemployment, NEETs and the historic proclivity of the UK to fill shortages in the labour market with better qualified economic immigrants. Progressives should stand against the reduction in corporate tax and argue for the point that a dynamic, highly skilled economy that adds high end value in global commodity chains needs a dynamic and highly skilled citizenry. The latter can only be paid for through general taxation and if companies are to benefit from British talent they should seek to adequately contribute to its formation.

With polling day just four days away and all parties holding back from laying their true fiscal deficit reduction cards on the table, a refreshing sense of honesty, albeit of a brutal nature, was delivered this week by two leading economic think tanks. Both categorically sought to deliver an honest and blunt assessment of Britain’s fiscal state, and the painful medicine the nation will sadly have to bear in the years ahead.

On Friday, the National Institute of Economic and Social Research (NIESR) released a report arguing that major tax rises will be necessary in order to curb the fiscal deficit and prepare for any future economic difficulties that would require fiscal action. There needs to be sufficient economic leverage in place for emergencies, hence their most controversial proposal is to increase the basic rate of income tax by 6 pence in the pound.

This they argue would help to reduce the deficit by an ‘additional’ 2%. Electorally, this would be impossible for any one single party to do, particularly after the stark message delivered by the Governor of the Bank of England on Thursday. Mervyn King was reported to have warned that the next government would have to make cuts of such severity they would be “out of power for a generation”.

NIESR’s analysis concludes that tax rises are not only necessary, but may even be economically desirable as their effect on job creation and GDP growth in the short term is almost 50% lower than a related reduction in public spending. This puts pressure on all the parties to announce bolder tax rises.

The institute also criticises the Conservative Party’s opposition to next year’s national insurance rise and plans to start cutting the deficit this year. They conclude that the £6bn necessary to stop most of the NI increase (funded by additional public spending cuts) will lead to job losses between 30,000 and 60,000 and stymie growth by 0.1 to 0.2%. Serious questions still remain around Conservative plans for the economy.

Earlier, the Institute for Fiscal Studies (IFS) kicked off the week by making clear that whoever wins the election will have to embark on the most dramatic public spending cuts in a generation. It highlighted the fact that all parties were committed to a minimum fiscal deficit reduction of £71bn in real terms, or 4.8% of fiscal output.

Labour is aiming for a 2:1 ratio (spending cuts: tax rises), Lib Dems 2.5:1, and the Conservatives 4:1. This is in comparison to the last major fiscal consolidation in Britain that took place in the early 1990s. The ratio during this squeeze was 1:1.

The IFS feels all parties are being overambitious in their plans to cut public spending, in particular the Conservatives who they say in order to achieve their target will have to embark on the sharpest spending cuts since the Second World War. A favorite trick of previous Tory governments was not to index link rises in personal allowances to inflation, thereby ‘dragging’ lower earners into higher rates of taxation.

Such political trickery cannot happen again. The British people are smart enough to be aware that severely constrained times lay ahead, perhaps for years to come. Without honesty, a severe public backlash may be in the offing.

The only question now is what verdict will the British public deliver on May 6th?

Ahead of one of the most anticipated events in British political history, many will be searching tonight during the leaders debate for an answer to one of the big defining questions surrounding David Cameron’s party – has he really changed the Conservatives, and are they now genuinely committed to placing the greater interest of the country ahead all other instincts?

If the sentiments found on the Conservative Home website are anything to go by, the wider public are set to be disappointed.

After the events of the parliamentary ‘wash-up’ last week, where we witnessed the Conservative Party block targeted tax rises geared towards future investment and deficit reduction, the powerful rank and file voice of the party expressed not only their wet appetite for the abolition of the 50% tax rate on earnings above £150,000, but their belief it may come to fruition half way through a first-term Tory government.

This is a startling insight into the party for two reasons:

Firstly, the Conservatives have committed themselves to reducing the deficit faster and deeper than Labour, which, if they plausibly could, the Institute for Public Policy Research (ippr) has stated would be a national record for the country. However, even if this was a sincere pledge they sought to meet, none of the headline tax policies in their manifesto will go any way to tackling it.

The partial reversal of Labour’s NI increase will be funded by the most extraordinary public sector efficiency measures ever put forward by a party. Their controversial married couple’s tax allowance will be paid for by a levy on banks and apparently even more efficiency savings. These opportunistic tax giveaways damage any credibility they may have had on cutting the public sector deficit. The apparent expectation of the abolition of the 50% tax rate merely reinforces this.

Significantly, the musings on Conservative Home also demonstrate the tax-cutting glee and passion still breeding healthily within the Conservative Party. Why this is, and should be an issue, is that it represents their commitment to placing vested interests ahead of national ones. Whoever wins the election will have to embark on one of the greatest deficit reduction plans ever mounted in this country. Everyone will have to share and feel some pain. Labour have made a pledge that the poorest and most disadvantaged will be affected the least, if at all.

Not only are rank and file troops in Cameron’s army salivating at the prospect of tax cuts for the richest, they’re actually getting them. The cut in inheritance tax for millionaires made by George Osborne in 2007, shockingly still stands to this day.

Single parents and individuals who have suffered traumatic relationships will be penalised for their plight. And the country as a whole will suffer from the incredulous deficit reduction plans of the Conservatives should they get elected.

The only ones who appear to benefit relatively well from a future Tory government, are the richest, and most privileged in society; witness Cameron’s desire to abolish the fox hunting ban. Yes, the Tories are back in town, but sadly for the British people, it is not what they were expecting.