Tax reform can drive recovery, say think tanks
CUTTING and simplifying taxes would significantly boost the UK economy, according to a report released this morning that urges the government to adopt a comprehensive plan for growth.
Taxes should be reduced to no more than one third of national income by the end of the decade, according to the 2020 Tax Commission, a group of economists, business people and journalists chaired by City A.M.’s editor Allister Heath. Modelling showed the changes would bolster GDP by 8.4 per cent over 15 years.
The proposals, which include a tax-free personal allowance of £10,000, would leave a two-worker family with a combined income of £28,000 more than £3,000 better off – while also merging income tax with National Insurance.
“The tax system has to be fair, and seen to be fair,” commented Matthew Elliott, CEO of the TaxPayers’ Alliance, which together with the Institute of Directors’ founded the Commission 18 months’ ago. “Our current complicated tax code where income is too often either taxed repeatedly or not at all doesn’t pass that test,” Elliott added.
The study calls for corporation tax and capital gains tax to be abolished and replaced by a single tax on all capital income (dividends and share buybacks, interest and rent) at a flat rate of 30 per cent.
Under the scheme, business investment would shoot up by 14.6 per cent in the next five years,
estimates by the Centre for Economics and Business Research (CEBR) show. The Commission also called for local governments to raise more of their own tax.
A spokesperson for the Treasury said: “The government welcomes this report’s contribution to the long-term debate on tax policy, it contains some radical suggestions and will stimulate useful debate. We are already taking action in a number of the areas identified in the report, for example making progress towards increasing the personal allowance and further reducing corporate taxes.”
Read the report at www.2020tax.org
2020 TAX COMMISSION’S RECOMMENDATIONS
■ Tax and spending should be cut to 33 per cent of GDP by 2020, the study says.
■ Marginal tax rates – the level paid on the last pound earned – should be a flat 30 per cent on labour and capital income.
■ The tax-free personal allowance should rise to £10,000.
■ Income tax should also be merged with National Insurance (including employee and employers’ NI), to create a Single Income Tax.
■ The abolition of all “transaction, wealth and inheritance” taxes. This would include stamp duty on new house purchases.
■ While consumption taxes, such as VAT, “need to stay for now”, transport taxes should be cut.
■ Air Passenger Duty, a levy accused of harming tourism, should be scrapped and fuel duty cut by 5p per litre.
■ Corporation Tax and Capital Gains Tax should be replaced with a single tax on distributed capital income.
■ To help families where one parent goes to work, couples should be able to transfer their personal allowances.
■ Local authorities should raise at least half of their money locally.