It’s time to shred Britain’s complex and punitive tax system

 
Allister Heath

WHEN this government was first elected, it promised to simplify Britain’s tax code, which over the years has become one of the lengthiest in the world. To say that it failed would be a pathetic understatement. Our horrendous, maddening tax system keeps getting more complicated, with thousands of pages of incomprehensible nonsense added since 2010, continuing the trend started under Labour.


On top of that, marginal tax rates are becoming ever more complex. Take income tax: while the tax-free personal allowance has rightly gone up, national insurance (another, parallel tax on income which, contrary to what people imagine, doesn’t actually finance the welfare state) hasn’t.

The marginal tax rate on those with children has also shot up for those earning £50-60,000 a year; it will also rise for married couples where one spouse earns just under £10,000 and the other just under £42,000. The £100-£118,880 band now suffers from cripplingly high rates as result of the withdrawal of the personal allowance.

Stamp duty is another mad tax, with rates now ranging from 0 to seven per cent; instead of taxing the marginal value of properties, the rate applies to the whole value, in a bizarre slab structure that violates all of the tenets of good taxation. If you buy a £250,000 property you are taxed 1 per cent of its value, or £2,500. But if you buy one for £250,001, you are taxed at 3 per cent, or £7,500.

So it was great to hear Simon Walker, boss of the Institute of Directors, which represents tens of thousands of top business leaders and entrepreneurs, call for a flat tax yesterday morning on Sky News’ Murnaghan programme.


Walker is spot on: we need a completely new tax system with a wide base, where all income – from labour or capital – is taxed at the same, low rate, with no loopholes. Until we adopt such a system – of the sort outlined by the 2020 Tax Commission, which I chaired, and the findings of which the IoD co-published – injustices and inequities will remain rife, and Britain will continue to fall behind when it comes to its competitiveness and ability to attract talent and capital.

We are often rightly told that the UK is suffering from a defective infrastructure: trains and tubes are crammed; Heathrow is being crippled by a dreadful lack of capacity; the M25 and many of London’s roads are hopelessly congested, and so on. Critics also rightly point out that broadband remains a problem, even in London but especially in some other parts of the UK.

But what analysts usually forget is that the tax system itself is a key part of this country’s infrastructure. Nations with a simple, easy to use and non-distortionary tax system have a great advantage – one, in fact, that is more powerful than anything that even the greatest of physical infrastructures can provide – and those that have a complex, punitive tax code are lumbered with a great disadvantage. It’s time for more business leaders to follow Simon Walker’s lead, and come out in favour of a flat tax.

CHANGING OF THE GUARD
THE government’s long-awaited reshuffle has finally started, with two relatively unknown players quitting last night. This follows the news that a rail minister was stepping down to run for the deputy speakership of the House of Commons.

A reshuffle is an opportunity for prime ministers to shake things up, weed out the under performers and reward talent. Unfortunately, this one will be limited to the lower ranks of his government – but within those constraints, he must be bold and radical. One of Cameron’s flaws is that he has been too reluctant to fire those who aren’t up to the job, hanging on to second rate ministers for far too long. Now is the perfect opportunity to begin to rectify that.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath