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Coffee House

George Osborne needs to deliver serious tax reform

21 February 2013

4:01 PM

21 February 2013

4:01 PM

‘Isn’t there a case for looking at the whole system at some point?’ whispered Isabel on Tuesday when MPs criticised the taxman again. Well, yes, there is.

Last May, the 2020 Tax Commission published its final report, setting out the moral, economic and practical case for lower, simpler taxes. The Commission deliberated for 18 months before coming to a fundamental rethink of the UK tax system. It proposed to sweep away a multitude of fiddly taxes that hit the same income on multiple occasions and replace them all with a reformed, simple Single Income Tax.

Simpler taxes would mean fewer loopholes for clever accountants to exploit while freeing up HMRC staff to concentrate on the things that matter: detecting evasion and helping taxpayers to pay the right amount of tax. But lower taxes are needed, too. Firstly, to stimulate economic growth by making work pay and loosening the throttle on investment. But secondly they are also needed to ensure the voices of the winners from a simpler tax system aren’t drowned out by those who benefit from the status quo.

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The Single Income Tax is the fair and proportionate tax we need. We modelled the public finances under our the Single Income Tax with a 5p per litre cut in Fuel Duty and Air Passenger Duty abolished. We found that the rate would need to be 30 per cent if the Government spent a third of national income, roughly the same as in Australia.

Capital Gains Tax, Corporation Tax, stamp duty on shares, Stamp Duty Land Tax, Inheritance Tax and National Insurance would all go, with all the various rates and schedules of Income Tax replaced with a generous personal allowance of around £11,000 and a single rate of tax above that on all income, whether from labour or capital. The principle would be simple: people should not be taxed on the money they need to cover the bare minimum but above that level how much you pay should be in proportion to how much you earn. Those who earn twice as much should pay twice as much.

Britain would become a magnet for foreign investment. Company spreadsheets analysing potential expansion projects would be transformed, turning red lights to green across the country. The result would be more economic growth, more jobs and higher profitability and higher wages.

The Chancellor might be worried about the political consequences of such a bold plan. But the lessons he should learn from his own budget are merely the mirror of the lessons from the budgets of Nigel Lawson, who famously abolished one tax on each occasion. Broadly welcome moves such as simplifying age-related personal allowances get bogged down in politics unless the majority of groups are better off and pay less tax. Those who lose out rightly feel aggrieved.

Osborne should bear that in mind and deliver the kind of serious tax reform set out in the Single Income Tax.

Rory Meakin is head of tax policy at the TaxPayers’ Alliance.

Subscribe to The Spectator today for a quality of argument not found in any other publication. Get more Spectator for less – just £12 for 12 issues.


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