Simpler tax could help to create jobs

Tim Wallace
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HUNDREDS of thousands of jobs and tens of billions of pounds in national income could be created if the government created a simple, sensible tax regime, according to the Institute for Fiscal Studies’ (IFS) Mirrlees Review out today.

And all that can be achieved with no reduction in tax revenues, it said.

Current taxes remove incentives to work, distort the savings market and hurt the poor because there is no unified tax strategy, the report claims.

In an effort to target groups with low employment rates, the report proposes reducing income taxes on 55 to 70 year olds and better targeting benefits for parents of young children. -- making work more attractive and boosting employment.

Areas like savings are studied, where the IFS calls for cash in normal bank accounts to go untaxed.

Housing, too, is poorly taxed, distorting the market, the report says. The 1991 valuations currently used for calculating council tax, for example, are viewed as hopelessly outdated, but – as with many features of the tax system – are ignored for political reasons.

As cars’ fuel efficiency rises, tax revenues fall, leaving a gap in takings. Mirrlees calls for a road tax to combat congestion – a major cost drivers impose on other people, it said – and to repair state finances.

Policies working in opposite directions also plague the tax system, according to the report.

“Stamp duty is the most obviously stupid tax,” said IFS director Paul Johnson. “In taxing transactions it reduces mobility in housing.” The banding structure is criticised too, as the most expensive properties are taxed on five per cent of their whole value, whilst their council tax payments are capped at the level paid by far cheaper houses.

Apparent contradictions like this are cited throughout the report, which concludes that the tax system should “be designed to do least harm to the productive potential of the economy” – and it says that is certainly not done by the current system in the UK.

“Other policy areas – education, healthcare, defence – have green papers issued and policy direction is laid out by successive governments so we know where they are trying to go. Why is it not the same in tax policy?” asked Johnson.