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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.

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Show comments
  • Grrr8

    A classic Rory / ASI piece. Not a word about winners and losers of the single income tax. And lots of random “pie in the sky” bs eg “Britain will be a magnet for foreign investment”. But here is a simple guess: if you are poor you lose, if you are rich you win. And foreign investors, taking one look at the govts welcoming door to their managers/ skilled workers will flee.

  • Daniel Maris

    Simpler taxation is easily achieved.

    Property taxation could easily be put in place with self assessment. The vast majority of people would be able to cope with that.

    Put income tax on a flat rate.

    Bring in a Citizens Income for all citizens.

    • Colonel Mustard

      Bring in communism? No thanks. Been there, done that, got the T-shirt.

  • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

    The shift over 30 years has been from Corporation Tax to Income Tax and VAT and User Fees intentionally moving the tax burden onto ordinary citizens. This has resulted in high corporate profits but falling consumer demand which had been sustained by lavish credit, now going into reverse through de-leveraging and default. The stupidity of Air Passenger Duty exceeding the air fare is a good reason to fly from Schiphol where it has been abolished. The ludicrous nature of VAt is evident when you buy something for £13.32 and find HMRC wants a £2.66 levy in addition for doing nothing but extracting money by threat. It is a huge levy at 20% and makes any factor cost savings by retailer and manufacturer almost irrelevant; as does the fact that the UK with 10% EU population pays 40% of total alcohol duties inside the EU

  • http://www.facebook.com/roger.hudson.946 Roger Hudson

    Could we also have a system that taxes fairly and only taxes once, if someone gains wealth from labour or capital why are they taxed twice (at least), once when they earn it and once again when they spend it. When VAT was introduced ( a French invention beloved of the EU) it seems to have been levied on top of other taxes, fuel duty being one example.
    First cut the things the ‘state ‘ does down to a minimum and then fund it with a simple yet progressive system, of course jewels should be taxed more than food ingredients etc.

    The current confusion is good for vested interests, not the society as a whole.

    • Grrr8

      Not quite correct. VAT is a consumption tax. The state wants to influence whether you save or spend your income.

      • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

        Not really. VAT is imposed on Commercial Property but not yet Domestic Housebuilding. It is imposed on Legal Fees which is a bit unpleasant when forced to defend yourself. VAT is levied on male contraception but not female contraception; it is levied on heating and lighting but not on water. It is a cumbersome tax levied at each stage of the distribution chain but is Unrelieved for more businesses than you might suspect

        • Grrr8

          We are not disagreeing. The state wants to influence not just the quantum of consumption vs. income but what is consumed.

  • Smithersjones2013

    The Single Income Tax is the fair and proportionate tax we need

    I always get a sense of foreboding and that I’m about to be screwed royally when someone starts using the language of the dishonest left. This article has a bad smell surrounding it.

    Why should stamp duty go? Its a purchase tax not an income tax? Furthermore scrapping inheritance tax (which is a double tax on assets) for an income tax seems equally dubious given it would penalise many more beneficiaries than it does now seemingly if this plan was implemented.

    By all means lets have flat income tax rates but lets leave the purchase and despicable asset taxes (which should just be scrapped or in regard to council tax replaced) out of it!

    And there is nothing ‘generous’ about £11,000 tax allowance either. UKIP already are proposing higher than that for just unifying Income Tax and NI. Has the Taypayers alliance suddenly become a mouthpiece for our money-grubbing Treasury and corporate vested interests?

    Somehow the concept of lower taxes seems to be being corrupted here by some sort of bureaucratic and corporate administrative expedience?

    Before any of that is done the whole concept of taxation needs to be reviewed in terms of actually what really is Government there for? No longer should Government consider that they have an open cheque from the taxpayer to do with as they feel fit.

  • HooksLaw

    Its all very commendable, and would be helpful. But given the number of losers that it would throw up then reform is better undertaken in smoother economic times rather than as a solution to poor economic times.
    For instance would lower rates be accompanied by the same starting allowances?

    Everyone would like lower taxes but everyone would complain when services suffered.

    • andagain

      It seems to me that this is what the Office of Tax Simplification is for. Assuming that Labour do not scrap it in 2015, of course.

  • kyalami

    In the meanwhile, here’s a tax change that would help everyone: take 50p per litre off the tax on fuel.

  • Ron Todd

    Fewer jobs for accountants, fewer jobs for lawyers, fewer jobs in the public sector. Too many powerful interests benefit from a complicated system. I predict that by 2020 who ever wins the next election or the one after that the tax/benefits system will be more complicated than it is now.

  • JP

    It was a great document. Problem was you bombed it by asking for a single band of income tax which makes it easy for people to ridicule as unfair. The tiering of income tax bands isn’t what makes our tax system difficult to comprehend anyway.

    • HooksLaw

      And the ways the likes of Starbucks and Jimmy Carr avoid tax are nothing to do with rates its setting up special vehicles and companies to offset taxes.

      • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

        You mean like HMRC Estate held in Grand Cayman ? Or do you mean BSF and PFI Schools and Hospitals held in Jersey companies ? Or do you refer to BAe and its offshore slush funds which provide luxury flats for certain key executives in Mayfair ? Or perhaps you are referring to the way Cameron Sr. parked assets before he died ?

  • Jupiter

    It’s a great idea, but it’s never going to happen.

  • telemachus

    Yes
    A flat rate income tax- rate to be decided-say 30%
    And a wealth tax escalating from 500k
    Done
    Autumn budget 2015

    • Jebediah

      Wealth taxes are theft pure and simple. You’ve already paid tax on your earnings, what remains is sacrosanct. Otherwise you will never know what is really yours. In addition it would create a murderous marginal tax rate for the asset rich and income poor, these are often older people.

      • telemachus

        But the wealthy avoid tax by trading assets
        How do you tap into that?

        • the baracus

          Why should you tap into that you greedy idiot. Why don’t you go away and earn something instead of constantly whining that life is not fair?

          • telemachus

            I perceive you misunderstand

            Life is very fair and I am very gainfully self employed to a level where I should be glad of the 5% pay rise due to come to me in April

            But I am not. I feel that those who can contribute should. I am about to depart on a trade mission when I hope to help the UK and myself more

            I use spare moments at my PC spreading reasonableness not whining

            I decry those in priveleged positions who do not understand noblesse oblige

            • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

              “I am very gainfully self employed to a level where I should be glad of
              the 5% pay rise due to come to me in April” No pay rise more a tax relief.

            • the baracus

              I think you delusional, mistaken, foolish and stupid. You also have a childish need to try and provoke people, along with clear self esteem issues that mean that you have to try and convince people that they must be evil if they don’t share a collective socialist mentality.
              It is a shame that you don’t spend as much effort looking at the major shortcomings to your beliefs.

              If you are self employed, then you would probably more then 5% pay rise if you didn’t waste your time ranting on this website.

              Those that earn more DO pay more, as tax is proportional.

              Go away and get a calculator, some perceptive and a life.

              • telemachus

                I do not wish to provoke
                I wish to point out that there is another way than self aggrandisement
                If you dislike social egalitarianism we need to return to Victorian philanthropy

                • Colonel Mustard

                  Come, come. The baracus has the complete measure of you and most lefties. It never ceases to amaze me how you manage to con not just the people of the UK but yourselves too into believing this ‘holier than thou’ tripe. Do you know what the word humility means?

                • telemachus

                  The first test of a truly great man is his humility. By humility I don’t mean doubt of his powers or hesitation in speaking his opinion, but merely an understanding of the relationship of what he can say and what he can do.

                  John Ruskin

                  You will see the action side in 2015

        • Colonel Mustard

          And government’s waste billions of taxpayers money. How do you stop that?

          • telemachus

            How else to we get succour to the needy if the government does not intercede
            I hear a lot of good christian principles on this blog but feel few are willing to act out

            • Colonel Mustard

              Which has nothing to do with government waste. Get real telemachus. Do try to distinguish between politics and religion. Labour is simply a political party and a pretty ghastly one at that, not a deity to be worshipped in blind faith and delusion. Try not to overdo the national socialism. Europe had enough of the consequences of that last time.

              Democracy. Diversity. Plurality. Respect the existence of the opposite viewpoint and the competing party. Don’t go down the national socialist or Stalinist paths, despite your rose-tinted romanticism for them. The NSDAP, Stalin and Hezbollah in just three days is desperate, even for you.

              • telemachus

                Again I have to say you deliberately misunderstand
                Hezbollah are a reprehensible terrorist organisation
                Rather like the Birmingham rucksack folk from yesterday such monsters are created by alienation by holier than thou attitudes of the so called Christian West

                • Colonel Mustard

                  That is rubbish and I fully understand. If you believe such terrorists are only made by the actions of the Western powers then you are not just deluded but dangerous. You lefties cannot keep excusing evil by making it only a justifiable consequence of the actions of the well intended, even though it is your primary contribution to life in Britain (evil consequences from good intentions).

                • telemachus

                  Within every society there is a kernel of dissatisfaction
                  If you belittle and maginalise you will feed on this
                  We conquered India, maginalised the Muslims to Pakistan
                  Those with a right sought to better themselves here but found only hatred
                  The deluded few therefore felt justified in an abhorrent response

                • Colonel Mustard

                  Partition of India was not the work of the British. You should study history more carefully and not believe so much leftist revisionist tripe.

                  I’m plenty dissatisfied with lots of things but I don’t go round blowing people up or cutting innocent peoples heads off and filming it. Your leftist “criminal/terrorist is always a victim” codswallop merely excuses, apologises for and/or justifies evil.

      • Kernow Castellan

        Wealth taxes are also complicated (just how do you value an asset?), which leads to loopholes, wizard wheezes and the whole avoidance industry.

        Taxes on flows, as we currently have, are much easier – as you know exactly how much money is flowing.

        • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

          So you like Capital Transfer Tax – you are weird !

          • Kernow Castellan

            Wow – how on earth did you read that into what I said.

            I dislike all wealth taxes because they are complicated (among other reasons).

            I prefer we tax flows of money in exchange for things – primarily employment (income tax) and goods/services (VAT).

            • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

              Taxes on flows, as we currently have, are much easier

              • Kernow Castellan

                I agree with that.

                Taxes on flows which we do not currently have, such the capital transfer tax you brought up, would be both wrong, and very hard to implement.

    • http://www.facebook.com/profile.php?id=100004981542519 Tom Tom

      So you can earn £500k a year @30% tax but if you buy a house with a year’s gross income it is to be taxed again ?

      • telemachus

        Not a realistic scenario
        The wealthy hide income and trade assets

        • Colonel Mustard

          And the left hide their true intentions and peddle propaganda so lets tax them.

          • telemachus

            The only aim of the reasonable is to ensure fairness in our selfish society.
            This aim supplants all

            • the baracus

              If everyone contributed the same proportion of tax, then isn’t that fair?

              It is about time that you realised that life is not fair, and trying to redistribute wealth can never make up for that.

              You for example, were born with a narrow, tribal mindset that means you are childishly slavish to socialist dogma. You believe that the state should control and be responsible for your short comings.

              That you were born with this mindset is in itself unfair, but I cannot see why trying to tax us more will fix that. Sorry..

            • Colonel Mustard

              But it doesn’t work and creates more misery and angst. And even when proven not to work ideologues like you still keep promoting it and attempting it. Equating socialism with being reasonable is a delusion. You are applying absolute morality to politics. You are the political equivalent of a jihadi – an extremist.

  • andagain

    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.

    It would be a lot easier to do that if people did not assume that this would simply be an excuse to shift more of the burden of taxation from the rich to the poor.

    Put another way: Labour or the LibDems could sell this as a reform. The Conservatives cannot.

    • CharlietheChump

      Yet Conservatives led by someone other than Cameron and Osborne would be able to sell it

      • andagain

        There have been a lot of polls over the last twenty years showing that the mere fact that the Conservatives favour something turns other people against it.

        • the baracus

          Yes – lets run the country on the basis of what is politically expedient…
          If something is right in principle, then it defends itself…

          • andagain

            If that is true, and tax simplification is right in principle, why did the tax system become so much more complicated under Gordon Brown?

            • the baracus

              Because he was the champion of political expediency. He was never in politics to benefit people, but for self grandiosity and to fight the notional “evil tories”. He was self deluded and a fool.

              • andagain

                Well, if something that was right in principle failed to defend itself for three Parliaments in a row, what makes you assume it will succeed in defending itself in the near future?

        • Colonel Mustard

          And yet the General Election in 2010 didn’t show that.

          Nice try continuing the scripted demonisation of the Tory party but you should respect political plurality and diversity, not try to undermine it. A one party state is not good for democracy.

          • andagain

            In 2010 most voters voted for Labour or the LibDems. That does not demonstrate widespread trust in the Conservative Party.

            It is twenty years since the Tories last won a majority – that is not the performance of a party that is widely trusted.

            • Colonel Mustard

              A sly and cunning reply. Labour and the Lib Dems are separate parties. The votes for them cannot be miraculously conjoined in hindsight by some lefty sleight of hand because somehow they represent a single cosy, rainbow alliance of voter purpose. A notion that a vote for Lib Dems is good enough as a vote for Labour and vice versa, merely because they share and espouse lefty ideas. Goodness, how you people conjure and connive at such tripe until I really think you must believe it yourselves. What charlatans you all are. If that is true amalgamate! Bring your two wretched socialist parties together as one – throw in the despicable communist Greens too – might as well! No, the Conservatives attracted the most votes of a single party and in an environment where Labour possess an unfair advantage.

              Despite this unfair advantage both Labour and the Lib Dems lost seats, 91 and 5 respectively, whereas the Tories gained 97. In any fair contest the Tories would have won hands down but the game is always rigged against them.

              But your reply also reveals the pernicious deceit of the lefty mindset. You always have to believe in your right to rule and any result that does not favour you must somehow be unfair or unwarranted. Then, whatever might be good for the country, you rail against and obstruct the legitimate government at every turn, employing every measure of misrepresentation to do so. Somehow the left have managed to translate the 2010 result results into a belief that they have majority support and speak on behalf of the whole nation (one nation – ha!). This arrogance is typical.

              I hope, sincerely, that when you and the comrades win in 2015 and Britain is plunged once more into another era of lefty cultural revolution and darkness, that beyond the gloating and triumphalism, you get your just deserts and are railed against, obstructed and conspired against as much as the poor Tories.

              • andagain

                I think that Goves reforms to the education system do not go far enough. I think that the NHS ought to be replaced by a system of subsidised private insurance. I think that the entire welfare state ought to be replaced by a system of subsidised insurance.

                And I think that people like you are the reason the Conservatives have not won a majority in a generation, and perhaps never will again.

      • HooksLaw

        Selling an increase in the basic rate from 20% to 30%??
        Name the personality who could sell that… Charlie the Clown perhaps?

        • http://twitter.com/rorymeakin Rory Meakin

          Except that Corporation Tax is a stealth tax that cuts wages. And the real basic rate is 40.2%, not 20%. Only Charlie the Clown would talk about Income Tax as if National Insurance didn’t exist.

          • Grrr8

            How do you get to 40.2%. I accept that the marginal rate is the tax rate + the NI rate (employer and employee). But that doesn’t get me to 40.2%. What are you allocating to labour from corporate tax and on what grounds?

            • http://twitter.com/rorymeakin Rory Meakin

              40.2% is even before you consider the effect of Corporation Tax.

              If you earn an extra £100 of gross labour income, you pay £20 Income Tax
              plus £12 of employee’s National Insurance. In addition, your employer pays £13.80
              of employer’s National Insurance. So the total amount you earn is really £113.80. The total income taxes you pay is £45.80. Dividing the total taxes paid (£45.80) by the real amount earned (£113.80) gives you the real basic rate of 40.2%

              • Grrr8

                Fair point. I did not realise employer NI was that high.

    • C Cole

      And the poor wouldn’t be better off with a personal allowance of £11,000? Great piece, Rory.

      • Grrr8

        For Rory’s sums to work, govt expenditure must fall to 33% of GDP according to the above article. Today it’s about 50%. Even assuming bounteous growth as a result of his tax policies, I find it hard to see how the per capita absolute £ amount per head of govt spending can stay static if its limited to 33% of GDP. Ergo, govt spends less per capita and those who will be hurt by this will be the poor. This article is sophistry.

        • http://twitter.com/rorymeakin Rory Meakin

          Except it’s not quite at 50%. Autumn statement 2012 shows 2010-11 spending as a proportion of GDP at 45.2%, falling to 40.9% by 2016-17. Continuing that projected austerity beyond that date would bring spending down to 37.5% by 2020-21, still higher than it was in this country in 1999-2000 and higher than countries such as Australia. It’s called the 2020 Tax Commission for a reason, and that reason wasn’t to imply that everything should be implemented in 2013.

          • Grrr8

            In your model, to get G going from 45% to 33% of NI, how much of the decline is assumed to come from austerity in spending (the numerator) and how much from growth in GDP( the denominator.)? Thanks.

    • Archimedes

      In reality, the Conservative voter base is holding together pretty well through grim times. Now would be a good opportunity to pack it in with a truly reforming tax agenda – if anything it would be likely to regain some of the core vote lost to UKIP. It would be good for market confidence also, and it would relieve some of the media pressure that is pressing complaints that the Conservatives are doing nothing for growth.

      In future campaigns, when the Conservatives say “We’ll cut income tax”, everyone will know that that will be for them. There will be no ambiguity over who the “Nasty Party” will be cutting taxes for, and that’s how you detoxify the brand.

      • andagain

        There will be ambiguity when you make the initial reform. So you need to be trusted when you make the initial reform. And the Conservative Party is not.

        • Archimedes

          Untrue. The general public reluctantly trusts the Conservatives on economic matters. They are the party that can push through radical economic reforms.

          • andagain

            So when they cut the top rate of income tax last year, everyone was sure that they did it to boost the economy? It polled rather badly as I recall.

            • Archimedes

              I didn’t claim that they liked it, I claimed that they reluctantly trust the Conservatives on it.

              • andagain

                If they trusted the Conservatives on this policy, they would have favoured the discision the Conservative made after they had made it.

                If I say that X is true, and you trust me, you will conclude that X is probably true.

                • Archimedes

                  Look. You get a policy, you push it through, everyone screams “Ghastly! Horrible! We don’t want it!”, you don’t relent, they scream some more, you push again. Then they say “Goodness me! Well if they’re that serious about it, they must really believe it – maybe they’re right”, and this is the way the world works.

                  Those are the circumstances, and test conditions, in which I trust you, and so only in those circumstances will I conclude that X is probably true. The Conservatives are trusted because they have a history of being relentless in pushing through unpopular reforms. That doesn’t cede to any notion that that trust will be reflected in any polling.

                • andagain

                  What unpopular reforms? The unions were not popular after the Winter of Discontent, nor was inflation. Fighting them was, in and of itself, popular.

                  What unpopular reforms are you thinking of?

                • Archimedes

                  My dear boy, you’re full of rubbish.

                  I’ll meet your logic and raise you. You seem to be suggesting that fighting an unpopular problem popularises the method used to fight it, ergo the method of this tax policy will be popular because the current economic malaise is unpopular. What are you arguing for? There’s a good chap…

                • andagain

                  You said: “The Conservatives are trusted because they have a history of being relentless in pushing through unpopular reforms.”

                  I cannot think of any. Name one of these unpopular reforms.

                • Colin

                  The Poll Tax.

                  It may have been the right reform, but it was very unpopular.

                • andagain

                  And they did not push it through. They abandoned it. There is no way in which they could be said to have pushed through the Poll Tax and were later thought to have been proved right.

                • Colonel Mustard

                  You sound suspiciously like yet another Labour party implant sent here to disrupt right of centre discourse. Take your faux logic and shove it. Not interested. We don’t debate with lefties (© George Galloway).

                • andagain

                  Not many people proudly liken themselves to George Galloway.

                • Colonel Mustard

                  Oh, I’m not likening myself to George Galloway, proudly or otherwise, merely giving you a taste of your own lefty medicine. You can’t disown him you know, he is still basically as red as they come.

                • andagain

                  Galloway was refusing to debate someone who disagreed with him, because he was an Israeli. You said you refused to debate with someone, because you disagreed with him.

                • Colonel Mustard

                  No, I did not say that. Try again. Lefties like you don’t “debate” – you just peddle lies and propaganda. Impossible to debate those.

      • HooksLaw

        Trailing a plan might be a good idea but the reality is that at the moment the economy is not generating sufficient revenues to cover spending.

        Look at the figures quoted – with spending at 30% of GDP the tax rate would be 30%, compared with 20% now. So on top of a massive cut in services there would be an increase in tax for ordinary people.

        Will it be Meakin knocking on doors telling people their taxes are increasing by 10p in the pound and cutting 10% off the NHS budget? NO. He will stick to spouting mindless gibberish.

        There are other taxes besides income taxes and our corporation taxes are not excessive. We need people and companies not to actually behave honestly and not like thieves.

        A huge part of the tax raising part of the economy was destroyed in the recession. its not a good time to be chopping the tax base of from under our feet.

        • Archimedes

          The proposal takes into account the removal of NI. For the vast majority of people, combined with the raising of the threshold to £11,000, that would mean a fairly substantial drop in income tax – before taking into account the abolition of employers NI and the effect that might have on wages.

          Marginal rates are a huge problem that shouldn’t be underestimated. Fixing that is the best thing that can be done right now on the supply side.

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