IfG: Old-fashioned tax system needs major overhaul

15 Jul 19

The erosion of traditional tax revenues, losing the government billions each year, highlights the need for transparency about the need to reform Britain’s tax system, according to a report by the Institute for Government released today.

A range of flaws in the tax system mean that “major structural reform” is necessary, the report said.

The government must start “speaking openly” about the need for change, with existing tax bases already being undermined by technological and behavioural change.

For instance, the rise of fuel-efficient and electric vehicles and a reduction in smoking mean the government will receive around £10bn a year less revenue from fuel and tobacco duties by 2030-31 in today’s terms.

“The dual challenges of growing public spending pressures and declining revenues mean future governments will face a stark choice: raise more revenue through taxation or additional borrowing, or reduce the scope and scale of public services,” the report said.

In addition, the current tax system has been made complicated by “decades of piecemeal changes.” The report also pointed to “lightly taxed” activities such as self-employment and company owner-management which are becoming more common.

Nowadays this type of employment accounts for nearly one third of workforce growth in the last decade, it said.

Joe Marshall, researcher at the IFG and author of the report, said: “It is not only the amount of tax revenue raised that matters. How it is raised is also important.”

He added: “Politicians of all political stripes must start thinking seriously – and speaking seriously – about the need for tax reform and how they can help overcome the barriers that stand in the way of change.”

And Bronwen Maddox, director of the IFG, said: “Successive administrations have taken tax policy for granted. “Given these changes – entirely foreseeable ones – are underway, we need to start taking tax policy seriously.”

The new research chimes with similar findings from the Institute of Public Policy Research last month which said that council tax has become regressive and inefficient.

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