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How Much Are You Really Taxed?

The true cost of government...

HOW MUCH tax do you actually pay? asks Tim Lucas, writing for the Cobden Centre...

In order to do the calculation, VAT, national insurance contributions from both employees and employers, property taxes, various goods duties, council taxes, motor taxes, fuel taxes, cigarette taxes, environmental levies and a host of others need to be added to the more widely known income tax.

Fortunately the Adam Smith institute calculates this for the average Briton, and presents it as "tax freedom day".

Currently the answer for the average Briton is that he spends just over 40% of his time working for the government and 60% for himself.

However, imagine you’re an industry that the government doesn’t like too much. As a tobacco, alcohol, energy or energy-related enterprise, the government sees you (or at least can paint you) as being responsible for a wide variety of social ills – cancer/alcoholism/global warming. But how far would it really go in raising taxes from you as a justified measure for all the pain it believes you cause?

In its latest earnings announcement, the UK pub operator JD Wetherspoon stated the following:

In the period under review, Wetherspoon made profit after tax of £22.1 million, but total taxes paid to the government were over £220 million, including VAT of £95.1 million, excise duty of £57.5 million, PAYE and National Insurance of £32.9 million, property taxes of £20.6 million and corporation tax of £11.1 million. This and the previous government have zealously increased taxes and regulation for pubs to levels which are, we believe, unsustainable. This has greatly increased the price of drinks in pubs and has widened the price gap between pubs and supermarkets, with a predictably huge increase in sales volumes for supermarkets, combined with a decrease in sales for pubs. The situation in Britain is in marked contrast to the approach in France, for example, where excise duties are far lower and where VAT, in respect of food in bars and restaurants, has been reduced to 5.5%. This has produced an increase in taxes and jobs for the French economy, through a reduction in the black economy and greater PAYE and corporation tax receipts. In contrast to previous decades, Britain has now become a high tax and regulation environment for business, with the effects of this being seen in many thousands of closed pubs and other small businesses across Britain, as well as a marked increase in unemployment.

Of course the government can get away with this extreme taxation because in addition to its implicit claim that pubs are responsible for alcoholism, the nature of their business means that pub groups cannot take their business offshore. They are fixed to the UK and therefore sitting ducks. The government can squeeze the life out of this industry and there is nothing the owners of these businesses can do about it.

The lessons to the businessman wanting to escape government persecution are:

  • Don't be unpopular with the government
  • Don't engage in any activity that you cannot threaten to take elsewhere

Meanwhile, those of us who enjoy a quiet afternoon in our local countrypub are forced to pay for it through higher prices and less choice as lovely old pubs with hundreds of years of history close each year.

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Built on anti-Corn Law radical Richard Cobden's vision that "Peace will come to earth when the people have more to do with each other and governments less," the Cobden Centre promotes sound scholarship on honest money and free trade. Chaired by Toby Baxendale, founder of the Hayek Visiting Teaching Fellowship Program at the London School of Economics, the Cobden Centre brings together economists, businesspeople and finance professionals to better help these ideas influence policy.

Cobden Centre articles

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