Fantastic article from the Telegraph about the welfare state.

If you want to understand why Britain has become such an expensive place to live in, look no further than our giant, bloated welfare state. It needs to be paid for somehow; yet all three main political parties are terrified that we will eventually find out just how much it is really costing us.

If all public spending was financed entirely from highly painful but easy to understand levies such as income and corporation tax, the rates required even on middling earners and small firms would be so eye-wateringly high as to trigger an immediate revolt and a collapse in economic activity.

This means that the Treasury has now become dangerously reliant on a multiplicity of stealth taxes and off-balance sheet levies, many of which voters are entirely unaware of, pushing up the cost of everything we buy and fuelling Britain's cost of living crisis.

Combined with a broken approach to land planning, this is the genesis of today's political row about living standards; it is a problem caused by years of cross-party political cowardice and a national inability to accept that a huge, redistributionist state doesn't come as a free lunch.

Take the price of petrol, a rip-off made in Westminster if ever there was one; for all of the Chancellor's good work in this area, 58.8pc of the price of petrol is still directly accounted for by taxes.

It cost 137.60p to buy a litre of petrol last month, of which 22.93p was VAT and 57.95p fuel duty. This doesn't even account for the impact of other taxes, such as corporation tax and the special North Sea oil levy, all of which end up being passed on to consumers in some form through higher prices.

Motorists pay far more into the exchequer than they take out. Fuel duty and vehicle excise duty raised £31.5bn in 2009. That same year, road spending was £9.9bn and the social cost of road transport emissions was put at £3.5bn. Excess green taxes were thus £18.1bn, £293 per person. Even if you assume that the overall environmental and social costs of using cars were three times higher than these figures indicate, you still find that motorists were being treated like milchcows.

Tourists and business travellers are also getting hammered.

Anybody flying economy class to Australia gets hit by a £94 air passenger duty– almost £400 for a family of four. The price of European flights has also gone up: the tax is now £13 per person. Britain charges the highest air passenger duty rates in the world, which isn't exactly clever for a small island seeking to encourage flights to and from this country. On top of that, travel insurance purchases are hit by insurance premium tax.

The price of gas and electricity keeps going up and here also politicians have only themselves to blame. Policy and regulation costs will have increased from 7pc of the average energy bill in 2007 to 22pc by 2020, a huge rise.

Much of this is off-balance sheet public spending: the Government orders nominally private companies to spend money on its behalf, passing on the costs to consumers. It thus pretends that the tax burden is lower than it really is, and is able to pin the blame for higher prices on greedy capitalists.

Needless to say, the price of food and drink is also being pushed up artificially. The EU's Common Agricultural Policy is a key culprit, making produce more expensive than it would be were the UK allowed to trade freely with the world, in a stealth subsidy to some farmers.

Insanely exorbitant business rates that few consumers realise the existence of are crippling retailers and costing far more than corporation tax; those shops that are not going bust are being forced to charge much higher prices to survive.

Taxes on alcohol are prohibitive, of course: the average price of a bottle of wine is now £5. Of this, VAT will be 83p and alcohol duty will be £2, accounting for 57pc of the price. No less than 79pc of the cost of a bottle of vodka is tax. The average pint of beer has reached £3.03, of which 94p, or 31pc, goes directly to the Treasury.

Government action is also driving up the cost of land. In theory, it ought to be quite cheap: just 10pc of England's mass is developed, and that includes gardens, parks as well as homes, offices, roads and factories. There is lots of agricultural land left. Market prices back this up: in Oxford, a hectare of agricultural land with no planning permission is worth just £20,000. But that is where the planning rules come in: the same space is worth £1m with industrial planning permission and £4m with residential planning permission.

Residential and commercial property prices are being fuelled by the fact that developable land is so strictly rationed by the planning system. Higher land prices push up all other prices; people need to earn more to be able to afford somewhere to live and this filters through the economy.

Taxes designed to ensure that the state grabs a slice of the gains from development are also inflating prices, with councils routinely charging £200 and in one case up to £575 per square metre as part of the Community Infrastructure Levy. The outcome, yet again, is to push up costs and to reduce the supply of new homes; consumers always pay, one way or the other.

The Institute of Economic Affairs has exposed the shocking scale of how indirect taxes are impoverishing the poorest. The bottom 20pc of households spend £1,286 per year on so-called sin taxes, including betting taxes, vehicle excise duty, air passenger duty, green taxes and duty on tobacco, alcohol and motor fuels, as well as £1,165 on VAT.

It's madness: the state provides benefits, but then quietly grabs the cash back through these levies.

People in the bottom fifth of the income distribution who drink moderately, smoke and drive spend 37pc of their disposable household income on sin taxes and VAT, an entirely indefensible state of affairs. For people in the top fifth, the figure is 15pc, still a very high figure. Smoking may be a filthy habit, but the average smoker in the bottom fifth spends an astonishing 15-17pc of disposable income on cigarette tax, making it an astonishingly regressive levy.

There is only one answer to the cost of living crisis: we need to slash and simplify taxes and deregulate the economy. That requires a significant downsizing of the size of the state, eliminating subsidies for those who don't need them, embracing a more rational housing market and finding cheaper and more efficient ways of providing health, pensions and education for all. One thing is certain: the tinkering being discussed by the main parties won't make enough of a difference to assuage an increasingly angry electorate.

A great read indeed. I do feel they went to great lengths to ignore why we have sin taxes. Having said that I'm a big supporter in the radical changes that this article gently hints at.

This article harks at taxes I didn't even know existed, and the most telling line is "It's madness: the state provides benefits, but then quietly grabs the cash back through these levies."

Taxing doesn't need to be as complicated as the government makes it, nor does the benefit system which is why I believe there should be a "living wage" and not a minimum wage. Anyone should have a minimum of £10000 to live on through some means, so if someone works and gets £8000 the state should then provide the £2000. However at the same time the state is far too generous in other areas which leads to an interesting problem... The state commonly leaves those behind who genuinely need help, yet gives to them who do not need it. It's the same principle as Alan Sugar getting winter heating allowance. Families who have a combined income of over £30000 should not receive any state benefit.

I would suggest skimming it as I recognize it's quite a read. He's absolutely spot on with everything he says. The taxes are just astronomical on everything, which includes simple living needs such as petrol and food.

Well worth the read.

http://www.telegraph.co.uk/finance/comment/10380967/Theres-only-one-answer-to-the-cost-of-living-crisis-a-bonfire-of-the-taxes.html

But simplifiying to that extent causes issuesand perverse incentives (which is why we don't work like that)

A family on £31k would be better off breaking up, and pensioners on £12 would rescent someone at 40 getting £10k for free.
(edit: in fact a couple splittting and not working would get £20k which is 2/3rds of the level before state aid would be withdrawn)

What would the tax regieme look like?

An excellent article.

While i do agree with some of those taxes there are a lot which should be dealt with.

Energy and Rail should have their taxes abolished. Hybrid and electric cars should see VAT abolished. Air passenger duty should be abolished. The government needs to stop funding infrastructure like nuclear power by taking on unfunded liabilities (guaranteeing the debt), instead we need an infrastructure review of what we will need over the next 30 years and then to have a concrete plan so that we can afford to pay for it. CAP does indeed need abolishing. Business rates should be abolished (as should National Insurance). Taxes on alcohol need simplifying (a common tax) rather than different rates for different products. The betting and gambling duty should be abolished.

Two things to note, 30 years may be too long so that would presumably be decided by a parliamentary committee. When i say abolish, i do recognise that some fund useful things (green energy) so these would be paid for via general taxation. To avoid tax rises i would call for spending cuts.

Correct me if I'm wrong but I guess you've suggested tax cuts of circa £115bn
Energy - £3bn
Hybrid/electic car VAT - £150m
Air passenger duty - £2.5bn
Business rates - £25bn
NI - £85bn

Which would effectively double the deficit...

Admittedly abolishing the CAP would cut £4bn, you've then got about £220bn of cuts to make, or revenue from corporation tax and income tax.

Indeed. The first three could probably be paid for by more means testing of benefits and abolition of benefits for those earning £60k+. A Carbon Tax is an interesting option to gain some revenue and there's a lot of revenue to be gained from the implementation of a land value tax although i need to do some reading on that. Corporation Tax would not be cut initially as business already gains from the abolition of business rates and income tax would be raised to take into what was NI (so 31%, 42% and 47% in the current system).

Ideally though i'd like to make further changes such as...

Vat: 15% on goods costing less than £10k, 30% on goods costing more (we'd need some way of enforcing the cut for many businesses though and i would go lower should the EU minimum fall)
Income Tax: Raise the tax threshold to £18,000,
Cut income tax to 15% for those earning upto £59,999 (a cut of 16% upto todays higher rate threshold and a cut of 27% for those close to days higher rate,
cut income tax to 30% for those earning upto £99,999 (a cut of 12%)
cut the 'rich income' tax by 2% to 45% but lower the threshold to £100k (lowering the threshold by £50k) to pay for some of the lower tax changes

OK, to have said 'to avoid tax rises' previously was a bit misleading then.

Although your ideal situatiuon would reduce revenues by a further circa £60bn. You say you'd drop the threshold for top rate by £50k, but it would raise bugger all, you're effectively lifting the rate between 100-150k by 3%.

Indeed. The first three could probably be paid for by more means testing of benefits and abolition of benefits for those earning £60k+. A Carbon Tax is an interesting option to gain some revenue and there's a lot of revenue to be gained from the implementation of a land value tax although i need to do some reading on that. Corporation Tax would not be cut initially as business already gains from the abolition of business rates and income tax would be raised to take into what was NI (so 31%, 42% and 47% in the current system).

Ideally though i'd like to make further changes such as...

Vat: 15% on goods costing less than £10k, 30% on goods costing more (we'd need some way of enforcing the cut for many businesses though and i would go lower should the EU minimum fall)
Income Tax: Raise the tax threshold to £18,000,
Cut income tax to 15% for those earning upto £59,999 (a cut of 16% upto todays higher rate threshold and a cut of 27% for those close to days higher rate,
cut income tax to 30% for those earning upto £99,999 (a cut of 12%)
cut the 'rich income' tax by 2% to 45% but lower the threshold to £100k (lowering the threshold by £50k) to pay for some of the lower tax changes

Brilliant, well thought-out, totally workable. Makes sense, too - the country's economy has been doing too well lately, despite those £60k p.a. benefit scroungers taking everything. It'd be really great if the deficit were to increase much, much more.

Of the ~£100bn (from my 2 posts) which could not be paid for you'll note that i do mention a Carbon Tax as a possibility (no reason to think £10bn could not be raised annually) and additionally a land value tax could feasibly provide hundreds of billions if you don't mind pissing off homeowners.

You suggest that this would impact the economy in a negative way but actually my proposals give those with a higher marginal propensity to spend the biggest tax cuts they have ever seen, it cuts business rates which is positive for business and it pays for it all by a combination of welfare cuts and the introduction primarily of a land value tax which certainly does not appear to have harmed Hong Kong.

The article that you described as 'excellent' thinks the tax on fuel is outrageously high. Surely a carbon tax would increase fuel duty?
Also, please explain these welfare cuts in more detail - which groups would have their benefits cut, how they would afford to live, and the approximate amount that this would save. Ps. the money that people on benefits spend tends to stay in the economy. It's the richer people that save money, go on foreign holidays and import cars.