Calls for single 30% income tax rate

 
Purse with cash The commission wants a rise in the amount of income people can earn that is not taxed

A single 30% rate of income tax is needed in order to boost growth in the UK, a report by lobbying groups says.

The 2020 Tax Commission's report also calls for the abolition of national insurance, and for the basic personal allowance to be raised to £10,000.

It claims that the changes would result in a tax cut of £3,400 for a two-earner household with an income of £28,000.

The Treasury said it was committed to a "simpler, fairer and fiscally sustainable tax system".

The commission is a joint project between the Taxpayers' Alliance and the Institute of Directors.

It wants a simpler tax system in the UK, but also says that further spending cuts are needed.

The commission recommends limiting taxation as a whole to a third of national income, and limiting spending to the same level, which would mean extending cuts in public expenditure to 2020.

BBC political correspondent Mike Sergeant said those spending cuts would be far beyond the cuts planned so far.

Nick Pearce, director of the IPPR think tank, said the plan was "a recipe for increased recession, increased inequality and increased government debt".

The commission cited research that it said indicated that the "optimum size of the state", in terms of maximising economic growth, was about 30-35% of GDP.

"We have got it wrong in this country where we believe that an ever-larger state is good for growth," said Allister Heath, chairman of the commission and editor of the City AM newspaper.

But Mr Pearce told the BBC that there was no link between the size of the state and economic growth.

"Countries like Denmark, Norway and Sweden have higher rates of public spending than we do [in the UK] and they achieve very high levels of employment, of growth and very good quality of life.

"The central arguments don't hold true," he said.

'Vital choice'

The commission says shifting to a single income tax rate would add £49.1bn to the national deficit in the first year, if the changes were not phased in or if spending were not cut further.

But it predicts that after 15 years the change would actually reduce overall borrowing by £35bn.

Its proposals include scrapping stamp duty, inheritance tax and air passenger duty, and cutting fuel duty by 5p.

Start Quote

We are already taking action in a number of the areas identified in the report”

End Quote Treasury spokesman

And it would replace corporation tax and capital gains tax with a 30% tax on dividends, interest and rent.

"It is time for Britain to make a vital choice between tweaking the status quo and letting our economy continue to be crippled by complex and punitive taxes, and drastically changing course with a radical but realistic plan for a tax system fit for the 21st century," said Allister Heath.

"The 2020 Tax Commission has set out that plan and would ensure that income is taxed once at a single, much more reasonable rate. It could create the conditions to establish the UK as a global trading hub, generating renewed prosperity for all those who live and work here."

A spokesman for the Treasury said the government welcomed the report's contribution to the long-term debate on tax policy.

"It contains some radical suggestions and will stimulate useful debate. The government is committed to a simpler, fairer and fiscally sustainable tax system and supports the case for reducing headline rates of tax to support economic growth," the spokesperson said.

"We are already taking action in a number of the areas identified in the report, for example, making progress towards increasing the personal allowance to £10,000 and further reducing corporate taxes in Budget 2012."

The personal allowance - the amount of income you can receive without having to pay tax on it - is £8,105 for the 2012-13 tax year, and will rise to £9,205 from April 2013.

But BBC political correspondent Mike Sergeant pointed out that while the coalition says it is working to simplify taxes, most of the ideas in this report are not even being considered by ministers, he added.

And although it wants to reduce spending, its doesn't go as far as this commission is suggesting.

 

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  • rate this
    +1

    Comment number 581.

    Shades of the poll tax before it was deployed. Yeah, right, we are all equal and fair's fair.[NOT!] Or better still cut the loopholes, non doms, tax incentives and avoidance and such like before you mess with the big system.

  • rate this
    +1

    Comment number 580.

    The first change I would make to the tax system would be to increase the personal allowance threshold to the minimum wage rate and then raise the minimum wage rate to a level whereby anyone in full time employment does not need any further assistance from the state to live at a basic standard.

    It is pointless taking tax off people only to give it back to them in benefits and credits.

  • rate this
    +1

    Comment number 579.

    What they dont tell you of course is the bribe. You get a few grand tax cut but then loose it all through massive hikes in Rents, cost of living and have no health service, welfare to fall back on when/if you fall on bad times. This is simply a proposal to put more into the hands of the Rich. Imoral comes to mind. What they want is for the UK to be THE tax haven where might is right.

  • rate this
    +1

    Comment number 578.

    I would go a stage further and like to see a single negotiated tax (referendum) brought in that would be the only tax paid in this Country, I.E. no vat etc! The thing is Politicians are scared to death of raising Income Tax because the narrow minded electorate cannot see the wood for the trees.

  • rate this
    0

    Comment number 577.

    Have they considered the effect on people like sole traders who pay 20% income tax and 8% NI. That would be a 2% tax rise for them.

    And people who rely on share dividends for income who don't pay NI - their effective tax credit by paying corp. tax cannot reach 30% since CT is less than 30%.

    There's a difference between simple and simplistic.

  • rate this
    0

    Comment number 576.

    This is heading towards the idea of marginal flat tax; why not go further and complement it with negative income where if income drops below the threshold margin the individual is paid at the equivalent rate on the shortfall. Also a review of how business expenses are calculated is required. If you buy a new company is that an expense or an investment?

  • rate this
    +1

    Comment number 575.

    The British economy is dominated by two sectors - financial services and the public sector. Neither generates wealth, but both provide services that should in theory, promote wealth creation. For the last 35 years, the true wealth creation capability of our economy has shrunk, leaving these two top heavy monsters living at a level we cannot afford - both must be cut back to restore stability.

  • rate this
    +2

    Comment number 574.

    This is a regressive tax and would therefore not be fair, no one tax is fair to everyone but this 30% income tax rate for everyone would mean, as usual, the rich benefit and the poor/middle class would not.

    If growth is suddenly what we desire so much instead of austerity i suggest cutting VAT and instead of quantitative easing, just give every household £100 - therefore boosting demand.

  • rate this
    +2

    Comment number 573.

    320. stevewest22

    Great, you got where you are by hard work, not luck. Bad luck could nonetheless strike you whether an uninsured driver, a chronic, long term illness, your business failing 'cos it depended on hard work not innovation. Then you might be grateful for a functioning society that ensured you could weather this bad luck. That functioning society needs a functioning tax system.

  • rate this
    +2

    Comment number 572.

    If you are so inclined to wait tables rather than be a doctor because you don't want to pay the higher tax rate, you probably wouldn't have made a particularly good doctor. And those who continually put "economy" over people, your system is doomed to failure, eventually if you don't feed the caged lion it will bite your hand off! For any tax system to be sustainable it must benefit the majority.

  • rate this
    +2

    Comment number 571.

    In future years tax forms will be much simpler consisting of only two questions ...

    1/ How much do you earn?

    2/ How would you like to send it?

  • rate this
    +2

    Comment number 570.

    Most rich people inherited it.
    The 30th Lord of Trumpton, or the spawn of a lottery winner.
    Anyone who genuinely is capable of earning a massive amount of money would accept a tax rate of 40 or 45% as opposed to 30% by doing something clever with the money they have.

  • rate this
    +5

    Comment number 569.

    "559.SeeDubya

    You should have worked harder at school."

    Simplistic. I have a BSc, but have to be a carer. My mate Bob has no qualifications whatsoever, but he's really good with wood and makes a mint. There is no 'follow steps 1 to 10 for success' - you can't be a carer unless you're prepared to be skint, you can have a Phd and not be able to saw a straight line. Ask unemployed graduates.

  • rate this
    0

    Comment number 568.

    And how does reducing the majority of people's spending power by 10% stimulate growth? And why should we give the government that extra 10%, they'll only use it to bail out their cronies in the financial sector again, we should let companies which are unable to trade profitably fail, so the capital can be reallocated to companies which can operate profitably, without handouts.

  • rate this
    +3

    Comment number 567.

    #551. AndyTheScientist

    How would low wage earners be any worse off?

    ------------

    Did you not read the article?

    Low wage earners are, generally, those most reliant on public services. This includes the tax credit system, which in effect, subsidises employment.

    This call for a 30% rate, may initially put a few pence in the pocket of the low paid, but it will cost them so much more.

  • rate this
    0

    Comment number 566.

    551.AndyTheScientist
    "" How would low wage earners be any worse off? It wanted a raise in the tax free allowance to 10k, anyone earning above that already pays 30% (Tax+NI) "

    Wrong! They currently pay a lot less than this and this system would drastically reduce the incentive to work for the least skilled and lowest paid (aka - the majority of voters).

  • rate this
    0

    Comment number 565.

    @561

    Thanks for calling me utterly stupid!

    I am fully aware that I would be paying 40% on the earnings above the threshold. Whatever gave you the opinion that I thought otherwise?

  • rate this
    +2

    Comment number 564.

    I have recently retired on a modest pension of £23,000 p.a. Last year I paid £3200 tax, whilst these proposals would see my tax increase to £4360! Income from my savings will also be hit (20% to 30% tax) as will dividends on shares.

    Page 191 of the full report shows who will benefit most from these proposals, not pensioners but those earning in excess of £50,000 p.a.

  • rate this
    +3

    Comment number 563.

    521. abaxter

    'a billionaire trying to offshore will have a different view to a real person in terms of fairness.'
    also, are you arrogant enough to believe that your version of fairness is more right than a billionaire?
    ------
    I think the concept of fairness does not enter or impede their thought processes - that's how they got there. That's how it 'works'.

    Oh,and yes,but that's not arrogance.

  • rate this
    +1

    Comment number 562.

    @ 320. stevewest22 - Because those who benefit the most from our society should perhaps pay more; Those who can afford more should pay more ; and those with more can typically game the system to pay less.

 

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