The Taxpayer's Alliance and Institute of Directors have released a report calling for the tax system to be redesigned from scratch, around a much lower target of public spending and taxation revenue, and with most of the income coming from a new flat-rate 30 per cent tax.
The pressure groups recommend a six-step process to introduce the changes:
- Cut taxes to 33% of national income. Taxes currently account for 37.5% of national income.
- Ensure that marginal tax rates do not exceed 30% and the personal tax allowance should rise to £10,000.
- Taxes on capital and labour income “disguised” as business taxes should be abolished and replaced with a tax on distributed income.
- Transaction, wealth and inheritance tax should be abolished.
- Consumption taxes should remain for the moment but transport taxes should be cut.
- Local authorities should raise half of their spending power from local taxes.
If fully enacted, the plan would require cuts in spending to continue beyond 2017, when the current coalition plan sees the budget deficit finally being eliminated, to 2020. As Will Straw of IPPR pointed out this morning, the extra cuts required total around £160bn, roughly the entire budget of the NHS.
The report itself minimises the effect of these spending cuts, arguing that the extra growth which would be induced would more than make up for them. While it accepts that this growth would take 10 to 15 years to accumulate, it doesn't address the impact of potential unequal distribution of the benefits of economic growth.
As we have seen in the last twenty years, extra income often disproportionally ends up with the wealthiest in society. While the argument may be made that increased inequality is fine providing everyone is being made better off, the concern is that if the growth is coming from a destruction of the social safety net, it is in effect a transfer of wealth from the poorest to the richest in the nation.
The full report weighs in at a hefty 420 pages, but throughout the week we will be dipping in to various parts of it for analysis and comment.