Fuel duty should be replaced, says IFS tax review

Mirrlees Review books The Mirrlees Review was conducted over five years and produced two volumes

Replacement of fuel duty with a congestion charge is among a number of measures suggested in a blueprint for the tax system by a leading think tank.

The Mirrlees Review, by the Institute for Fiscal Studies, claimed that the UK tax system was inefficient and complex.

In a blueprint for long-term reform, it said an overhaul of the system would benefit the economy by tens of billions of pounds and create thousands of jobs.

Ideas included abolishing property stamp duty and expanding VAT.

"[The tax system] could raise as much revenue and achieve as much redistribution as it currently does in far less costly ways," said Nobel Prize-winning economist Sir James Mirrlees, who led the review.

"There is no getting away from the political difficulty associated with some of the proposed changes. But there is also no getting away from the enduring costs of failure to reform."

A spokeswoman for the Treasury said: "The government has embarked on a programme of ambitious reforms of the tax system to address the instability of recent years.

"These are based on clear principles to support growth, reward work, reduce complexity and increase fairness."


The review, which took five years to complete, said in its final report that the government took about £4 in every £10 earned in the economy in taxation.

But the authors claimed that, despite the huge sums involved, there was no clear direction for tax policy.

Woman studying a council tax bill Council tax is "unnecessarily regressive", the review suggests

They suggested that taxation of housing was a "mess", income tax and National Insurance were pointlessly separate, and environmental taxes were "arbitrary and inconsistent".

One of the most striking - and shorter term - recommendations was to bring in a comprehensive system of congestion charging to replace duty on petrol and diesel.

It said that greater fuel efficiency and the advance of electric cars would reduce the income for the government anyway from this form of taxation.

Other recommendations included:

  • Linking council tax to up-to-date values of homes, rather than a 1991 valuation, and abolishing stamp duty
  • Merging income tax and National Insurance. Confusion of the system was clear when many basic rate taxpayers paid more in National Insurance contributions than income tax
  • Extending VAT to nearly all spending. The current system sees means consumers are not charged VAT on items such as food and children's clothing
  • Making all savings tax free if they do not involve any risk, to avoid saving being discouraged by the tax system
  • Changing corporation tax in order for businesses to avoid an excess reliance on debt

One additional recommendation that could be made a priority, according to the review's authors, was changing the tax system to provide more incentives for 55 to 70-year-olds and parents of school age children to go to work.

For example, this could include making child tax credits more generous for families whose youngest child was under five, but less generous after they reached five years old.

For the older generation, one idea would be to reduce the age at which a more generous tax-free personal allowance was available from 65 to 55, but to raise the eligibility age for Pension Credit to 70.

The review said that such changes could put 200,000 more people in work and increase total earnings by nearly £3bn.


The review did not comment on the fairness of the system, or the level at which tax was levied, but on the way the UK system operated.

Paul Johnson, director of the Institute for Fiscal Studies, said that the "tyranny of the status quo" meant that there would always be some losers if a tax system was altered.

Start Quote

I expect the political will to engage in this level of radicalism is not quite there”

End Quote Francesca Lagerberg Grant Thornton

But he argued that failure to come up with long-term changes was costing the country.

"Successive governments have failed to set out a coherent strategy for tax. As a result the current set of taxes is complex and often incoherent and they impose a much greater cost on the economy than need be," he said.

He accepted that many of the recommended changes would be difficult politically, and he said the blueprint was aimed at providing direction for the tax system over the next 10 to 20 years.

Regarding current debate about the 50p top rate of income tax, he said it was difficult to tell at present whether this was bringing in more income for the government.

Reacting to the Mirrlees Review, Francesca Lagerberg, from Grant Thornton, said: "If you were starting today, without any of the baggage from the patchwork quilt of the tax system, a lot of what they are saying is very sensible.

"The problem is we are not starting with a clean sheet. To get these issues agreed by politicians and implemented is a massive change that could take a long, long time.

"In the current economic climate, I expect the political will to engage in this level of radicalism is not quite there."

The Treasury said that it would need to look carefully at any costing of tax reforms, which had not been addressed in the Mirrlees Review.

It added that some of the reforms suggested in the review were already in the pipeline, such as simplification of the benefits system and integrating the operation of National Insurance and income tax.

It had also formed the Office of Tax Simplification, and was reforming the state pension.

Meanwhile, proposals would be published in the autumn that would make the personal tax system more transparent.


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  • rate this

    Comment number 54.

    #29 I was wondering how long it would take somebody to mention Philip Green

    Philip Green does pay the tax he is supposed to. What you are complaining about is that his wife owns the shares and collects dividends and lives in Monaco. Are you suggesting going back to the old rule that women are not allowed to have an independency for tax purposes?

  • rate this

    Comment number 53.

    Fuel duty should be replaced, says IFS tax review.

    Maybe replace it with a fool duty

  • rate this

    Comment number 52.

    1 Merge NI and income tax, remove employers NI
    2 Merge income and capital gains for individuals and tax via one set of progressive rates
    3 Raise personal allowance to poverty-threshold and review each year
    4 Tax banks on the £50 billion of free insurance provided by tax-payers
    5 Drop council tax, bring in local income tax
    6 Drop all duties on home buying and inheritance
    7 imprison ALL tax dodgers

  • rate this

    Comment number 51.

    How well would this sit with Phillip hammond & his "rich mans toy" of a train set?
    All the proles, free to spend money on movement, easier access to jobs further afield?
    The tories will never go for social mobility, but then neither will the Lib dems or labour...

  • rate this

    Comment number 50.

    Problem is that governments creep.
    It start off with congestion charging for tax purposes using a camera network.
    The the police will demand the movements data, then before you know it there will be routine and widespread tracking of where people go.
    I think the vehicle excise tax should be scrapped and moved onto fuel.
    Its an indirect way of implementing, drive more, pay more.

  • rate this

    Comment number 49.

    Hi Total Mass Retain.

    As always your point is valid, but I do not believe that I can influence the electoral or administrative process. I pay my taxes in full and love England, it's daft weather and country pubs and enjoy these forums to let out some steam.

    There is too much wrong with the way taxes are collected and administered to understand how to overhaul to achieve socio-economic fairness.

  • rate this

    Comment number 48.

    They will be weighing what we flush down the toilet and taxing us on that.

    If they remove this tax, put it to congestion charges etc., then tis will drive teh cost of consumables through the roof as transport costs will increase - so, we still get the tax but fromm a different source.

    Simply put - remove the deficit in income that is paid to immigrants in benefits - that would be my solution

  • rate this

    Comment number 47.

    The problem with fuel duty is not fairness, it is very fair, you pay what you use, the problem is the duty rate is just too high, its crippling the economy, causing inflation, and it has to come down now. There is also the greed of fuel companies and that can be solved by legal action or law changes or windfall taxes or nationalisation or switching supplier (i.e. depends on who is in government).

  • rate this

    Comment number 46.

    I want to know why its barely 50p a ltr in some countries and why its a complete rip off here!!! oh yeah that's right the Governmet insist on taken nearly £1 of that for there coffers! robbing thieves.

  • rate this

    Comment number 45.

    A French style Wealth Tax would be a good idea. Currently anyone whose world wide assets are greater than €1.3million pays 10%. Due taxes, bank loans and other debts are deductible when calculating total asset value.. The value of your principal residence is ignored, second homes are not .
    There has been no flight of the rich from La Belle France to evade this tax.

  • rate this

    Comment number 44.

    IFS are as out of touch with reality as they have always been - get out of your ivory tower guys!

    Fuel Duty: - my idea is to replace it with fuel VAT. What's the difference vat can be reclaimed as an input tax by business so business transport costs will be slashed.

    Really, rail needs a negative VAT for goods and commuting to clear up congestion.

    We waste far too much on travel.

  • rate this

    Comment number 43.

    Road charging has to be the most sensible idea. Scrap fuel duty and charge motorists according to which roads and what time of day they use them.

    And scrap vehicle excise duty (car tax) and replace it with a sticker issued annually when the vehicle is insured.

  • rate this

    Comment number 42.

    Rob H
    I agree but how can taxing high wages and lower wages be spread out fair? rich feel penalised for being taxed! yet its the working class that have the highest tax burden as hole and any it's a fact taht a lot of the very rich avoid taxes here by having accounts in another countrys why not attack that loophole ?

  • rate this

    Comment number 41.

    Here in Wales the assembly government changed the way we pay council tax based on house prices several years ago. Just because your house goes up in value it doesn't necessarily mean that you could afford to pay more tax, especially if you've lived in the same house for a number of years - like most people, I'd imagine. House prices shot up dramatically, but our wages didn't!

  • rate this

    Comment number 40.

    At least Dick Turpin apologised every time he held up his gun"

    People have this idea that the government is some independent agent that "does" stuff to us and "takes" money from us to fund that stuff. The government is US. It is our agent to implement programmes and services that we collectively decide we need. If it does thinks you don't want, then vote differently or move abroad.

  • rate this

    Comment number 39.

    Merging income tax and NI is sure to lose the pensioner vote as pensions are currently exempt from NI so pensioners would see a tax increase from 20% to 32%. Increasing personal allowances might help compensate those at the low end but "middle income" and above pensioners would be the ones hardest hit. Nigel Lawson avoided this poisoned chalice for a good reason.

  • rate this

    Comment number 38.

    The problem with extending VAT is that it hits the pooorest most as would abolishing property stamp duty. Congestion charging tends to hit those who have no choice but to drive into congestion areas - The richer you are the easier it is to avoid if you wishi
    Otherwise much of it is sensible.

  • rate this

    Comment number 37.

    fuel duty at the moment is reasonably fair - the more you drive/use the more you pay

    i CHOOSE to drive a V8 at 15mpg - i accept i pay more

    BUY if everyone drove a Pious at 80mpg duty would have to increase to cover the loss of revenue

  • rate this

    Comment number 36.

    Nullus Querror
    6 Minutes ago

    energy is too cheap.

    Double the rate of fuel duty and see how far tesco want to drive your radishes before they get to a shop."

    More importantly let's see how many people give up work because its too expensive. Then they cant afford to shop at Tesco or probably anywhere else.

  • rate this

    Comment number 35.

    What I find most bizarre is that the government spends so much time money and effort in trying to make out they are doing us a favour by robbing us blind in a new more user friendly manner every time they lower one tax and hike up another.

    At least Dick Turpin apologised every time he held up his gun.....


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