Ukip wrong to ditch flat tax – but Farage’s party is on a roll

IT is a great shame that Ukip, which did spectacularly well in last week’s local elections, has ditched its long-standing commitment to a flat tax. It still wants to simplify the current system, and to levy a top rate that is no higher than 40 per cent, which would be significantly better than the current 45 per cent in income tax plus two per cent in extra national insurance (on top of employers’ national insurance, which economists argue is in fact a tax on employees, who end up being paid less than they would otherwise be).

But a flat tax, thought through properly and phased in carefully over a number of years, would hugely benefit the British economy. The 2020 Tax Commission, which I chaired, recommended cutting taxes and spending to 33 per cent of GDP, and introducing a single income tax of 30 per cent on all distributed income from labour and capital, above a generous tax-free personal allowance.

This new system would replace a range of existing taxes, including our flawed and horrendously complicated national insurance contributions (on employees as well as employers), corporation tax and several other damaging levies. We showed how the numbers would add up and how the new tax would unleash much greater economic growth and slash tax avoidance – and because of the overall lower tax burden, virtually every group’s marginal tax rate would fall. While the 33 per cent of GDP target for spending as a share of GDP might sound optimistic, it was actually generated by extending George Osborne’s current plans to shrink the size of the state by a few additional years.

But even though it has got it wrong on tax, and doesn’t have a coherent, properly worked out set of policies, Ukip will continue to gain ground, and win the European elections, creating terminal problems for David Cameron. Ukip could even start electing MPs at by-elections under the right circumstances.

There is much pent-up anger at the UK political establishment’s self-righteousness, at its refusal to engage with many voters’ concerns and at the narrowness of permitted opinions on major issues. The EU, immigration, cultural change, globalisation, individual freedom, falling real wages, values and much more besides – on all these issues, some of which are in contradiction with others on this list, millions of people – in some but not all cases the majority – feel unrepresented by all three major parties, or don’t trust their promises.

As it happens, I think Ukip is broadly right in its critique of the EU, though it needs to come up with proper alternatives and transition plans – but I largely disagree with its stance on immigration, as I’m a consistent classical liberal.

But Ukip has spotted what the polls have shown for years. There is widespread disenchantment – yet the system is unable, or unwilling to respond. Ukip’s success comes from it being able to convince the public that voting for it is an acceptable alternative. Those who dismiss its rise by making parochial comparisons with previous instances of new British parties – such as the SDP, led by established political grandees – are missing the point. This is about economics, yes, but also ideological dislocation and culture wars. It’s not a rerun of the 1980s.

Paradoxically, British politics is becoming more European: just as a large chunk of the Italian public no longer trusts established parties to deliver change, and votes for Beppe Grillo, many Brits have become disillusioned with the elite consensus and are voting for Nigel Farage. Regardless of what one thinks of him, he is making British politics interesting again.

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

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