The Conservatives are working on a pilot for a new automated bank-based system that would remove the responsibility of deducting and paying income tax from employers. The new system could save businesses up to £5.5bn according to the Tories and increase revenues to the Exchequer of £1bn., according to the Tories election hopefuls.[From Tories plan biggest shake up of income tax system since Second World War – Telegraph]
I couldn't find any details of how this would actually work — I suppose that HMRC would just deduct 50% of all payments into your bank account and then refund you at the end of the year — so I couldn't form an opinion as to whether it is more or less likely to work than the current system.
HMRC spends about £740m a year in IT. The [Capgemini] contract is one of the biggest outsourcing deals, worth £2.6 bn when was first signed in 2004 and now with the new arrangement extended until 2017 reach a life-time value of £8.5bn.[From HMRC saving costs with IT Shakedown of Outsourced Systems : OrangeGenie]
A much better policy would be to abolish income tax completely, but that's a different point. What if the Tory party really did decide to reduce the use of cash?
You could argue that since tax evasion would fall (or, at least, become more expensive) then it would be a good thing, although I suppose some people might complain about privacy. Not in Norway, apparently.
Tax authorities in Norway have issued the "skatteliste," or "tax list," for 2008 under a law designed to uphold the country's tradition of transparency. The list includes personal income and tax burden — as well as where that individual ranks on a list of national averages.[From Uff da: 2008 tax records go online in Norway]
Transparency is a 2010 trend, according to noted trendwatcher Marian Salzman. Getting rid of cash benefits the poor by making corruption more difficult, as was recently discovered in Afghanistan when Vodafone's M-PESA system was launched there. In addition to the usual P2P payments, there was a trial of using M-PESA for government disbursements.
The trial was a success, despite having to overcome some initial challenges such as a police commander who wanted the service shut down as he was no longer receiving his usual cut of the salaries. The police officers were initially surprised at how large the payments were when they received their full salary, which was a third higher than what they were used to receiving.[From In Afghanistan, going where no bank has gone before]
So the UK isn't Afghanistan, but the governments of the developed world are going to be desperately short of cash for the foreseeable future, and if e-payments can help to make a dent in tax evasion, then the pressure to start a genuine war on cash will grow. Perhaps it will become socially unacceptable not to disclose your income and tax paid (although given the typical Briton's aversion to embarrassment, being forced to admit that you earn more than a neighbour is very hard to take). Mind you, thhere's another good reason for promoting electronic payments as part of a Tory manifesto for IT-led change: fairness. People who are forced to operate in a cash economy pay higher transaction charges than comfortable middle-class internet bank account users. That's just wrong. What's more, cash discriminates. Seriously.
Black and minority ethnic people are more likely to live in areas with fee-charging cash machines which could add additional banking costs of £120 a year.[From Runnymede Trust – Cohesion and Equality]
So, a manifesto commitment to reduce cash from two-thirds of retail transactions to one-third in ten years should be just about right. Let's show Brussels how it should be done.
Cash payments accounted for 78% of the continent's 388 billion retail transactions in 2008. The total cost of distributing, managing, handling, processing and recycling cash and of accepting cash payments was €84 billion – equivalent to 0.6% of Europe's GDP or EUR130 per person… These factors will contribute to a fall of 2.3% per year in cash payments up to 2014. However, despite this slow decline, cash will remain the predominant payment method for some years to come, still representing 63% of the continent's 414 billion payments in 2014.[From Europeans pay the price for dominance of cash ]
Nearly two-thirds of transaction in 2014: not good enough. Dave should show them the way.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]