“…Denmark’s Land Value Tax. Replacing the UKs council tax, business rates and stamp duty system with a single Land Value Tax will not only simplify our tax system but it will also make it harder for people to avoid tax”.
The Nordic model is famous for three things; free markets, strong public services and high taxes. Free markets and strong public services are popular but the great public services come at the cost of higher taxes. There is, however, a choice between flat taxes or progressive taxation to raise money for these services.
Flat taxes are easy to explain because there isn’t much to them. Regardless of whether you are are earning £1 or a million pounds you will both pay the same amount of tax. This is an extreme version but its the basic idea, in the Nordic countries its not so simple but its closer to this flat tax model than the UK is. “High, but Flat Income and Payroll Taxes” is how the Tax Foundation describes this model and its very accurate.
They have this system alongside low taxes for businesses and capital meaning that whilst the system isn’t totally a flat tax system, it has the characteristics. However, there is an outlier in all of this in Denmark. Its top rates for income tax, dividend taxes and capital gains taxes are actually fairly high. They also have an inheritance tax and a Land Value Tax in the mix.
The question is, why do people in the Nordic countries accept such a high tax levels? In part because there are a lot of expenses that the Nordic countries cover which people in the UK have to pay for out of their income. Capped childcare costs in Sweden, well we just call them childcare costs. The great education system in Finland, middle and upper class families in the UK call it 11+ tutoring, moving to get nearer to a good school, private tutoring or private school costs.
Flat taxation is something we are less used to in the UK with progressive taxation being more popular. These systems are very different to one another. Progressive taxation means those with more money pay more tax than someone with less money. For example if someone earns £200,000 they may pay 45% tax on the top part of their earnings, someone earning £100,000 may pay 40% and someone earning just £10,000 may pay nothing at all. This is due to out system of tax brackets that means those earning more will end up paying more, well in theory anyway.
Its in theory because not all income is taxed in the same way as it depends on how its earnt. Capital gains tax is charged on things like shares, sales of second homes or selling valuable paintings. Income tax the rates are higher with a maximum rate of 28% for capital gains tax whilst the highest rate for income tax is 45%. Whilst the tax system in the UK is progressive, not all types of income are treated the same.
Learning from Denmark
Both the tax systems in the majority of Nordic countries and in the UK have a way to go in order to ensure everyone pays their fair share. I’ve never been too keen on the idea that workers should simply have to pay large amounts of tax because its more difficult to get businesses and wealthy individuals to do so. The problem is best summarised by Professor Mark Blyth when he was talking about the Wallenberg family, a family of bankers from Sweden:
“The Wallenberg family paid no tax and also sent their kids to Harvard, for money. See the thing is the rich at the top, the really top, they always have an exit option, its called cash” – Professor Mark Blyth
I think the first part of the answer to this issue is something I mentioned earlier, Denmark’s Land Value Tax. Replacing the UKs council tax, business rates and stamp duty system with a single Land Value Tax will not only simplify our tax system but it will also make it harder for people to avoid tax. Its very difficult to move land or to hide it meaning as a tax its more reliable than other taxes on wealthy individuals. Thats why it needs to be up there in the top three taxes in the UK, the other two being on income and business.
The second area is how we fix our income tax system. As I mentioned earlier those earning money from selling paintings or houses will pay less tax than workers most of the time. A solution to this is a Consolidated Income Tax where Capital Gains Tax and National Insurance are merged into income tax. This would mean they have to pay the same rates and would have the same set of deductions. Its simpler as well removing multiple taxes each with different rules. In Denmark they have a 42% capital gains tax rate which is closer to a single income tax than the UK.
The final part is perhaps the most important and it means looking at a global level rather than learning just from Denmark. Its the idea of a global minimum corporation tax level proposed by Joe Biden. This would weaken the ability to go abroad that helps large companies and wealthy individuals to avoid paying as much in corporation tax.
Written by Torrin Wilkins, the Director and Founder of Centre. He also has a degree in Political Studies from Aberystwyth University and has been interviewed on both the BBC and LBC.