AS Michael Fry mentions me by name in his latest article (Flat tax promotes growth, enterprise and with it equality, The National, November 21), I hope that I will be allowed to reply. “Brian Stobie of Penicuik” finds Michael’s article to be, as usual, flimsy, threadbare and full of holes.
Firstly, on the main subject of “why a flat tax is a good thing”, he should really read the words of the tax expert and adviser to the Scottish Government Professor Richard Murphy, particularly his book The Joy of Tax – How a Fair Tax System Can Create a Better Society. I highly recommend it. In this book Murphy notes that flat taxes are usually promoted by those of a libertarian viewpoint (cue Mr Fry) and that proposals for flat taxes are all about big tax cuts for those who are already well-off and about little or no change, at least in tax rates, for those on lower incomes.
Mr Fry admits that it is indeed deliberately designed not to reduce inequality, but the reasons he then gives for why it will reduce inequality are unfounded and frankly laughable.
The article itself is full of misleading points. He starts by claiming that progressive taxation has failed over a long time. No it hasn’t. Historically, Labour governments tend to increase the top rates and Tories reduce them, so you can’t conclude that they’ve always been high enough for long enough to do the job of reducing inequality. If they were still at the high levels of 1974-79 (98 per cent according to the article) then I think that would definitely help inequality – presuming the rich paid their taxes, of course.
The main reason it has failed, is, of course, that many of them “avoid” this basic inequality-reducing responsibility to the poorer members of society – unfortunately completely legally.
Michael then discusses the proposed Scottish Government tax changes and sees little to like there. I fear he is confusing the actions of a fiscally constrained government such as ours with the UK Government, which is free to do anything it likes fiscally. Our tax-and-spend policies will always be non-optimal until we get independence.
Later, Michael notes in response to my previous letter that “a lot of rich people will already be providing jobs” without mentioning that a lot of these jobs are now temporary or zero-hours contracts. Too bad if you want a decent wage or want to plan for the future.
He then goes on to claim that the rich will invest their money in UK gilts (government bonds).
Surely Michael is aware that the yields on these are currently very small, as low as 0.5 per cent in some cases, so I don’t believe that rich people will invest in them. I also note that households only own about five per cent of these investments in the UK.
He further claims that the rich will invest in shares in public companies – which also seems unlikely, when the value of assets such as property gives much better yields. If you Google “best investment rates” you will find that you can earn 8-10 per cent per annum if you have the cash – and it’s not by investing in manufacturing company bonds.
I’m sure Michael also knows quantitative easing has pumped up the value of assets since 2007, and that’s how the rich make money, in static non-job-creating assets such as property at home and overseas, not by investing directly in UK manufacturing.
At the very end of his very long article he gets to the point in the last two paragraphs – apparently the rich, benefiting from the extra dosh swilling around in their accounts after paying a tiny amount of tax, will “devote their energies to the discovery of profitable opportunities rather than the avoidance of tax”. I’m sure they would energetically seek profit, but there is no empirical evidence that they will invest in productive companies rather than higher-return assets such as property.
Maybe Michael can point us to the data proving this.
Brian Stobie
Penicuik
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