Ow cuurent taxation system reflects the concept of equity (fairness)Adam Smith Theory-PRE-BUDGET REPORT 9 DECEMBER 2009


Consider to what extent the current taxation system reflects the
concept of equity. Illustrate your answer with reference to current
taxes and the measures proposed by the Chancellor of the
Exchequer in the Pre-Budget Report of December 2009.
Pre-Budget Report (PBR), 9 December 2009


Main points from the pre-Budget Report 2009

” Time to pay tax arrangements extended for  as along as necessary
” Business rate exemption for empty premises extended to 2010/2011, for properties with rateable value below ?18,000.
” ?500m capital growth fund to aid business access to credit.
” 100,000 offshore accounts to be looked at to protect ?5bn tax revenue.
” ?5bn saving in government spending by outsourcing prisons together with the reform of legal aid.

Corporation Tax
” Small business rate increase from 21% to 22% is deferred.
” Pharma and bio tech patents profits to be subject to CT rate of 10%
” Electric vans to be given 100% FYA

” Bingo duty cut from 22% to 20%
” VAT rate to be restored to 17.5% from 1 January 2010
” Electric cars to be exempt from company car tax for the next 5 years
” Households are to be taxed at 50p per month on landline telephones to enable the expansion of Broadband.
” 10,000 students from low income backgrounds to receive financial support and help to access training in business.
” Pension tax relief to be cut for those earning ?150,000+
” IHT threshold frozen at ?325,000 (married couples ?650,000)
” NIC rise from April 2011 of 0.5% for employers, employees and the self-employed, excluding those earning less than ?20,000 p.a.

” One off levy on banking bonuses of ?25,000+, to raise ?550bn and encourage banks to rebuild their reserves and increase lending.
The main reported headline was for the tax on bonuses paid by the banks, to try to change the culture of rewarding employees via bonuses rather than annual salary and to appease public opinion.

How effective will it be?
Is it fair if to penalise some employees in this way?

How fair is a tax on landline telephones and an increase in NIC compared with a cut in Bingo duty?

Who will be affected by these measures?

How fair is VAT?

Compare the CT rate of 20% with the sole trader income tax rate of 40%, on profits of ?50,000.

Compare the annual allowances for income tax and capital gains tax.