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."

Direction

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.

'Tyranny'

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
    0

    Comment number 94.

    Meany mouth Cameron will love this. He can implement even more radical right wing nonsense and down tread the working class even more while helping his Con compatriots become richer.

  • rate this
    0

    Comment number 93.

    Yes the system needs simplification but also needs thinking about carefully.
    VAT on food will affect the poor far more than the rich.
    Duty on petrol means everyone pays according to their usage, which is fair.
    House prices vary from home to home, the more care you take the more valuable the home therefore you will be penalised for maintaining your home and neighbourhood.
    Care is needed.

  • rate this
    -1

    Comment number 92.

    1. The fuel duty is at 57.95p per litre and will increase to 60.97p per litre. it won't be a good idea to scrap it totally instead they should half the cost as motorists will see a significant difference.
    2.The benefits system needs to be changed drastically as that is where most of the cost is going and should not help free loading immigrants. Why should they get preference over deserving people?

  • rate this
    0

    Comment number 91.

    ichabod
    85
    Where i live there are no pavements,so are you seriously suggesting that pedestrians should be paying to walk on country roads without pavements.,maybe they could have a tax disc stuck to their foreheads,and if they are caught without a valid disc police could seize their shoes.God i wish people would put sensible posts on here.

  • rate this
    0

    Comment number 90.

    Banks are flexing thier muscles were the government is concerned.Why arent banks helping small companys.They the banks dont like the government telling them how to run thier buisness.I think there is a behind the doors battle going on and the country is suffering for it.

  • rate this
    +4

    Comment number 89.

    No one likes taxes (unless your a politician) and any changes benefit some whilst disadvataging others.
    Benefits not taxes are our biggest problem paying benefits for having more children or indeed any children should be stopped, cant afford children then dont have them most countries in the world operate this way.

  • rate this
    0

    Comment number 88.

    Either this report was simplistically reported or the authors in stating charge council tax on the market value of the property are being idiots. A value of a property does not relate directly to what someone earns I could live 30miles outside London with a cheaper house to someone in London with a dearer house but lower wage. Ability to pay is the key not a property value.

  • rate this
    +1

    Comment number 87.

    Will we see a campaign similar to that run by PR firm Westbourne Communications and its director James Bethell for the cut in the top rate of income tax? Looking at the proposals they seem to fall in line with the governments aim of redistributing wealth upwards, most certainly with the VAT proposal and therefore lobbying would help greatly.

  • rate this
    0

    Comment number 86.

    Fuel duty is a fair taxation. Why change. The issue is how high it is. I seem to remember the last government saying they would reduce road tax to compensate for higher fuel duty. How long did that last? I think it was only 1 or 2 cars that qualified for the lowest rate anyway. The government will never reduce the tax they take, they'll juggle the figures so you don't see where it's coming from.

  • rate this
    0

    Comment number 85.

    I can understand why vehicle users should pay for the roads they use
    But then should pedestrians and cyclists pay for the roads/pavements they use?
    And should fuel duty cross subsidise other public services?
    Problem is that fuel duty is a cash cow for the government and as we all are discovering, we love governments to spend money on us but not to pay for it - hence the deficit.

  • rate this
    +4

    Comment number 84.

    Oh for goodness sake, just use the current systems to drag the non-payers and non-doms into a reality that is taxed. The system isn't broke, it just has too many loopholes.

    No one drawing on the public purse should be allowed to get paid without being taxed at source PAYE style either... just like the rest of us.

  • rate this
    0

    Comment number 83.

    As far as the Green thing it's plain old tax avoidance the £1.1Bn dividend etc.should have tax paid over here she can set that against her Monaco tax yes. It only goes to show the rich still want more how greedy is that!! Any system that get the Green's and their cohorts to pay their share would be good but probably costly. I was always taught to eat your Green's what about HMRC trying that.

  • rate this
    +1

    Comment number 82.

    Fuel duty cannot be avoided,as such it is one of the easiest taxes to collect.It's here to stay.

  • rate this
    0

    Comment number 81.

    There is a reason why income tax and NI is separate. Governments can raise NI and leave income tax as is and say 'but we haven't raised tax'. As for the folly surrounding NI and the NHS, I don't believe the contibutions are ringfenced, so it goes into one big pot. One of the biggest cons played on the public are the Enviromental taxes we now suffer - How are they ringfenced I wonder?

  • rate this
    0

    Comment number 80.

    There needs to be a change, but the change should be fair. Big companies need to pay their fair share. And families should have the ability to return to work after a child has been born without having to worry about not being able to afford child care costs and the like. I would also agree with congestion charges and a reduce fuel costs.

  • rate this
    +1

    Comment number 79.

    If this was about efficiency... then why did they advise to redo the council tax valuations? Sounds like a monstrous, expensive, and arbitrary task. The value of a house is what someone wants to pay for it, differs every time.

    Efficiencies lie in adding this tax as a percentage to income tax (PAYE system). Makes it fairer, and saves councils a fortune in administration.

  • rate this
    +2

    Comment number 78.

    @74. RonC "everyone has the same tax burden"

    That solution sounds great, especially if you are rich - oh and we could put the really poor who didn't have x/y in camps. Why not go even simpler and just abolish tax (and by implication the government). I bet the Somalians pay very little tax. I think I prefer the current system, even with its many faults.

  • rate this
    +2

    Comment number 77.

    70.soarerman0264
    How about council tax being linked to what you earn ie the more you earn the more you pay,i cant in a million years see that happening though as that would mean that the poor would pay less and the well off would pay more,not something this government would ever want
    = =
    That was a policy Charlie Kennedy pushed - as you say, unacceptable because the poor would pay too little

  • rate this
    +3

    Comment number 76.

    @43. newsaholic_professor

    "Road charging has to be the most sensible idea"

    In theory yes, in practice probably no. This would involve tracking every vehicle and involve a huge IT project and then a huge bureaucracy chasing down non-payers. We all know what happens with huge government IT projects. Simpler to collect tax from a smaller number of suppliers and use congestion charges sparingly.

  • rate this
    +2

    Comment number 75.

    Part of my 'O' level economics course was standards of a good tax. One of the standards was that is would be easy to collect like income tax and VAT. How easy would it be to keep going through congestion charge zones it would be a nightmare to administer and collect. Merge NI and tax it hasn't had any relevance for years. Once what you paid, to what you got changed, what's the point.

 

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