Politicians and the media are in full song, arguing that a single rate of tax would boost economic growth and increase personal liberty. What rubbish

Those Labour ministers who can remember Antonio Gramsci might care to dust down their copies of his Prison Notebooks. Twenty years ago, Gramsci helped a demoralised left understand how Thatcherism, by turning apparently extreme ideas into the common sense of the age, exerted such a hold on the popular imagination. Central to Margaret Thatcher's success was an advance guard of think-tanks and intellectuals who floated ideas to a sympathetic press to soften up an unsuspecting public.

These old tricks have been on display again this summer, as the new right touts the season's must-have ideological accoutrement: the flat tax. The media have been full of admiring articles, arguing that a single rate of tax at all income levels would boost economic growth, improve tax receipts and increase personal liberty. The flat tax, we are told, is sweeping across eastern Europe, heading towards Berlin faster than the Red Army.

Unfortunately, almost all of these claims are unfounded. A flat tax would not liberate the economy, increase the tax take or benefit the whole of society. Its most likely effect would be to attack the poor. Simply smoothing the current, stepped rates of income tax to a single flat rate would disadvantage low earners and benefit the better off. As Tim Lai from the Adam Smith Institute, leading advocates of the flat tax, himself explains: "A single rate that, on its own, leaves income tax receipts broadly unchanged (around 18.5 per cent) will disadvantage all but the upper quartile."

Stripped of its progressivity, the income tax system would compound the unfair impact of indirect taxes such as VAT. Indirect taxes place the heaviest burden on those least able to afford them - the poorest fifth already pay a larger share of their income (38 per cent) in tax than the richest fifth (35 per cent). If a "no-lose" guarantee is introduced for low earners, then a flat tax simply becomes a tax cut for the rich. To keep budgets balanced, government spending must fall, or other taxes must rise. Among Lai's suggestions for making up the deficit are: a) raising National Insurance contributions, and b) increasing VAT by 2 per cent.

Other flat taxers go straight for the spending cuts. To make the most detailed Adam Smith proposal work, Richard Teather of Bournemouth University assumed an enormous £63bn of cuts, equivalent to 6 per cent of national income. To put this in context, the total education budget in 2005-2006 is £77bn. Just 1 per cent of national income, about £10bn, would be enough to pay for a fully comprehensive, high-quality system of early-years education and child care.

Public services are pro-poor in their distributional impact. Adding together the value of benefits in kind, including health and education, the amount received per person by the poorest 40 per cent is twice that of the top 20 per cent. That is why social injustice, not liberal prosperity, results from deep cuts to public services.

To make their plans stack up, flat-taxers try to make these fiscal consequences disappear. They argue that, in the long run, tax cuts would pay for themselves: the rate would fall, but incentives would be so improved that in a few years the total tax take would increase. Here we are back to the "voodoo economics" of the 1980s. As then, the evidence is against it.

In Russia, a study by the International Monetary Fund and the Institute for Fiscal Studies, tracing individuals before and after the flat tax was introduced, found little evidence that people worked harder. They were more likely to comply with the tax authorities after reform, but the flat tax was introduced at the same time as major changes to tax collection, and compliance is a far bigger problem in Russia than in Britain. The claim that a flat tax increases the incentive to work is simply not supported by the Russian experience. In Estonia, revenue from personal income tax went down, not up, with a flat tax.

Another supposed benefit of a flat tax is simplicity. Although a case can be made for tackling complexity in the tax system, a flat tax solution is not just using a sledgehammer to crack a nut, but putting the nut in an antique bowl before taking a swing.

Computerisation and pay-as-you-earn make the case for a flat tax weaker than at any previous time. If we can run a motoring congestion charge, then the idea that a progressive income tax imposes an intolerable regulatory burden is risible.

In reality, the flat tax is designed to rehabilitate a familiar but stale diet of lower taxes and cuts to public services. Its superficial attractions do not appeal to the more thoughtful Conservatives, who understand that the funeral baked meats of Thatcherism cannot furnish forth the marriage tables of a new union with the British people.

Nick Pearce is director of the Institute for Public Policy Research. This is the last in a series of political columns by guest writers

Next week our new political editor, Martin Bright, begins his column

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