By Richard Johnstone | 21 May 2012
A single 30% flat tax, merging National Insurance and income tax, should be introduced within the next eight years to boost economic growth, the Institute of Directors and the Taxpayers’ Alliance said today.
That is one of the recommendations published today by the 2020 Tax Commission, which was set up by the two lobbying groups 18 months ago.The commission calls for the abolition of eight taxes in total, including inheritance tax and stamp duty. It also suggests that corporation tax and capital gains tax should be merged into a single tax on capital, also set at 30%.
Public sector spending should be reduced to 33% of gross domestic product by 2020, from around 48% in 2009/10, the report says. The reductions set out in the Comprehensive Spending Review to 2015/16 should be extended to 2020. This would allow for the introduction of the new taxation regime.
The full set of tax changes could boost GDP by 8.4% over 15 years, according to an analysis carried out for the commission by the Centre for Economic and Business Research and included in the report.
The commission claims that the full set of proposals would lead to ‘substantial’ tax cuts for all households. It concludes that the tax bill for a two-earner household with an income of around £28,000 would be cut by around £3,400.
There is also a call for greater powers over taxation to be given to local authorities to ensure that councils raise half of their income from local sources. Increasing the proportion of directly locally raised funds from the current level of around 17% – mainly council tax – would allow town halls to deliver more responsive local public services, the report concluded.
Among the charges that authorities should be able to levy are local income and sales taxes. They should also be given greater control over business rates to allow areas to lower taxes to compete for businesses. Under current government plans, half of business rate revenue will be localised to town halls from next year, but councils will not be able to vary it.
Graeme Leach, director of policy at the Institute of Directors and a member of the commission, said the ‘radical and practical plan’ would make the tax system ‘fairer and better for the economy’.
He added: ‘Fiddling with the system causes more complexity and has little benefit to growth – this proposal would put a rocket under economic confidence. This is a real opportunity to make life easier for people, get more money on the high street and give Britain a tax system which is right in principle and works in practice. We need radical action to kick-start the economy, and this is a comprehensive way to do that in one go.’
Allister Heath, chair of the commission and editor of City AM newspaper, said that Britain had to make ‘a vital choice’ on the future of the tax system.
He added: ‘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. Politicians who are serious about Britain’s future need to take it up.’
