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Eight radical taxes that have been floated

Campaigner for so-called Robin Hood tax, dressed as Robin Hood, stands outside parliament, 2010 Image copyright Getty Images

The "Robin Hood tax" is in the headlines. It's one of a slew of radical tax proposals that have been debated in the last few years.

"Robin Hood" tax

Shadow Chancellor John McDonnell wants to launch a debate within Labour about making the "Robin Hood tax" party policy.

"It's a tax on financial activities, with an emphasis on risky financial activities," explains Rita de la Feria, professor in tax Law at Durham University.

It would mean a small levy on financial transactions involving currencies, bonds and shares. The Robin Hood Tax campaign, which has managed to get more than a million signatures on its petition, says that a tax of about 0.05% on transactions like shares, bonds and foreign currencies would raise billions globally.

After the global financial crisis there was a big push to try and get back some of the money that had been put into financial institutions, de la Feria says. Countries also wanted to discourage some of the risky behaviour that had helped lead to the crisis. There was also a desire to "punish" the banks.

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Image caption Shadow chancellor John McDonnell is in favour of a "Robin Hood" tax

A financial transaction tax was one suggestion. It's not a new idea. A similar tax was proposed by the Nobel-prize winning economist James Tobin more than 40 years ago. The suggested rate has varied - Tobin favoured 0.5% but anything up to 1% has been suggested. The money raised would go to public services.

But there has been some trouble in getting governments across the world to agree to it. Eleven EU member countries have finally decided to go it alone. De la Feria says that a tax within this group could be introduced as early as next year.

"It's there, it's designed already so it would only be a question of the UK opting in," she explains. The UK government has so far been reluctant to do so, saying that the move could harm the City and lead to banks passing the tax's cost onto their customers. "It's easy to say and very difficult to actually put into practice," says Natalie Lee, tax law professor at Southampton University.

Flat tax

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Image caption The Central European country of Slovakia introduced a flat tax rate in 2004 and abolished it in 2013

In contrast with the current progressive tax system, where wealthier people pay a higher marginal rate of tax, this would introduce a single fixed rate, regardless of income. Several countries already have variations of this, particularly in Eastern Europe.

The Conservatives have in the past debated the merits of "flatter taxes" but have not pushed the idea any further. UKIP used to back a 31% flat rate of tax but changed their policy before the last election.

Supporters of a flat tax rate have said that it would encourage people to earn more because high earners would no longer be penalised. The TaxPayers' Alliance pressure group has also argued that it would be a simpler system that would be easier for most people to understand.

But critics say that it's unfair because it would mean giving big tax cuts to those best off and that those on the lowest incomes would end up paying more.

Mansion tax

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A proposed tax on high-value homes has caused controversy over the last few years, but has been supported by both the Liberal Democrats and Labour.

"It's a form of wealth tax," argues Lee. The tax would mean that owners of properties worth more than £2m would face a yearly charge.

Some of the controversy lies in the uncertainty over how much money the tax would actually raise, says Barra Roantree, a research economist at the Institute for Fiscal Studies (IFS).

"It's not clear how many 'mansions' there actually are," he explains. This makes it hard to know how many people would be affected by the tax.

There has also been debate over needing a "little old lady clause" that would help people in expensive homes who are cash-poor. Lee explains: "You have little old ladies that are sitting in homes that are worth a huge amount now, particularly in London and the South East but that have no cash and therefore no means of paying the tax."

The IFS has said that a mansions tax had a "sensible logic" underpinning it but that it would be better to reform council tax so that it was proportional to current property values.

'Google tax'

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The government introduced the Diverted Profits Tax earlier this year, and it was quickly nicknamed the "Google tax". It was designed to try and put off large companies from making millions in the UK but having their headquarters elsewhere so they could collect their profits in a country where the corporation tax is lower.

Companies including Starbucks and Amazon have been criticised for the low amount of corporation tax they pay in the UK.

Chancellor George Osborne has said the new tax is expected to raise £3.1bn over the next five years.

It's not the first time that the UK has tried to tackle large-scale tax avoidance. "We've had a general anti-abuse rule, we've had the disclosure rule, now we've got the diverted profit tax," explains Lee.

But some critics say that the problem is just too complex to be solved with a tax and that lawyers can always find new loopholes.

"Essentially you have a cat and mouse situation," argue de la Feria. "There will be gaps, words that can be interpreted in different ways, so in essence anti-avoidance rules are a good short term measure but they can never really work in the medium to long term."

Bankers' bonus tax

Introduced as a one-off by the Labour government in 2009, this was a 50% tax on bonuses in excess of £25,000.

The measure had been designed to discourage banks from paying out excessive sums of money but it ended up being effective at raising revenue, says John Cullinane, head of policy at the Chartered Institute of Taxation.

The tax ended up raising £3.4bn. Earlier this year, Labour said that it would consider introducing it again.

But critics have said that a repeat could affect banks' decisions about whether they should remain headquartered in the UK.

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Image caption Canary Wharf: Would a tax on bankers' bonuses result in an financial services exodus from London

"A lot of these investment banks operate on a global basis," explains Cullinane. "There was a lot of anecdotal evidence that the tax was being borne by the global bonus pool so it's almost like, contrary to what you'd expect, it siphoned money into the UK.

"It's rather doubtful that that would go on being the case," he says, adding that many would come to the conclusion that they could just move their big-bonus paying activities out of London.

A single earnings tax

The debate over merging income tax and National Insurance Contribution (NIC) has been going on for years.

There are those who argue that it would make it easier to see how much of what people earn actually goes to the state. "The logic of it is widely accepted," says Cullinane.

The chancellor has already asked the Office of Tax Simplification to see whether closer alignment of the income tax and NIC could be a good idea.

But there are issues. There is still an idea in some quarters that National Insurance is not really a tax, says Cullinane. "The other thing is that if you did combine the two - so you merged it all into a higher income tax rate - what about all the other taxed income people have, including pension income, which isn't subject to NI?"

Sugar tax

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A tax on sugary drinks has been proposed several times in different forms. The British Medical Association (BMA) said in July that imposing a 20% tax on sugary drinks should be used to tackle obesity in the UK. There have also been calls for a sugar tax from celebrity chef Jamie Oliver who has been campaigning on the issue. He has said that problems such as tooth decay are costing the NHS thousands.

But some people say that similar taxes in Europe have not been very successful. In 2011, Denmark brought in a "fat tax" on foods containing more than 2.3% saturated fat. But the higher prices led to customers going to Germany for products. The policy was dropped a year later.

"There is also this discussion of whether you should use the tax system to control people's behaviour," says Lee, adding that similar taxes could end up clogging the UK's already complex tax system. Like other "behavioural taxes", there is an inherent confusion in that the tax is not primarily intended to raise money. In fact, raising consistently large sums of money would suggest that the tax was failing to have an effect.

Land value tax

One of the longest running debates over taxation is in the area of a land value tax. The measure focuses on the value of the land itself, rather than the value of things added to it such as buildings or crops.

Campaigners say that an annual charge on the rental value of land would be a "natural source" of public revenue and could replace taxes such as stamp duty and council tax.

The Land Revenue Taxation campaign says that the measure would encourage house building and put people off hoarding big areas of empty land or keeping empty houses.

"From an economic theory point of view, it's very attractive," says Cullinane. "But the more difficult thing is to value the land independently of what's built on it."

There is also a similar issue to the mansion tax, he adds, in that some people such as farmers may have big areas of land but not much money to pay the tax. "You can be very wealthy but does it necessarily mean you have ready cash?"

More from the Magazine

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The rich people who say they are happy to pay their taxes (February 2015)

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