Isn’t Martin Lewis WRONG about the purpose of tax?

Last Updated: March 20, 2024By Tags: , , , ,

Martin Lewis: the Money Saving Expert seems to be slightly less adept at understanding where it comes from and why it is taxed away. Or am I mistaken?

It’s rare for This Site to disagree with Martin Lewis but he seems to have misunderstood the purpose of tax.

Here are his thoughts on it:

He states, “Tax… should pay for society’s law and order, defence, hospitals, education, rubbish collection, legal aid, social care for our elderly, state pensions, special ed needs, disability protection, medical care and help for those who can’t help themselves and more.” But this isn’t true as This Writer understands it.

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All those services are funded by central government by asking the Bank of England to create the money for them. We should all know this because every UK banknote has wording on it that marks it out as belonging to the BoE.

The point is that none of the money we have in our wallets or bank accounts actually belongs to us at all; it is simply a means of creating, accumulating and transferring genuine wealth – the things we are able to make, do and fund with it lubricating the economy.

Taxation is a tool to take money out of the economy after it has washed all the way through it. Cash adds value to the economy wherever it goes, and the more hands it passes through, the more value it provides, so the best place to put it is in the hands of the very poor; those people have to spend it out, simply in order to survive.

The UK’s economy has been falling into disrepair because the nation’s poorest have been deprived of cash in order to make the rich richer. But because those people don’t need it, it tends to get stashed away in banks – often offshore – where it does the bare minimum amount of good.

From This Writer’s point of view, the above points demonstrate that tax doesn’t pay for anything – the payments are carried out before the government takes that money out of the system.

No; tax happens because if the government just kept creating money without removing it again after its natural life was done, the economy would go into an inflationary spiral. Also, by demanding that taxes are paid in pounds, the government ensures that pounds must be used as the standard tokens of exchange in this country.

Does that not seem correct to you?

In other respects – regarding the rich paying tax, not at a flat rate but as a proportion of their wealth – I agree with Mr Lewis and always have. The current situation is a dire imbalance with the richest paying just nine per cent (I believe) while the poorest pay 27 per cent of their money. The system is hugely weighted against the poor.

The reason this is important is that the poor are therefore paying far more than their fair share in tax, especially as it is the rich who have benefited most from the cash that has washed through the economy. Why should people with less be penalised because they have less?

If anybody can find any faults with my reasoning, please let me know what they are.

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  1. Chris Hughes March 22, 2024 at 1:04 pm - Reply

    You say the BoE creates money. I thought banks create 97% of money. As debt.

    • Mike Sivier March 23, 2024 at 5:47 pm - Reply

      The reason it’s described as debt is in the article – the government borrow it from the bank. But when the bank is part of the government, that’s a nonsense.

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