Latest Public Sector News

21.05.12

Call to standardise income tax rate to 30%

A flat 30% rate of income tax on all workers would boost UK growth, a report by the 2020 Tax Commission suggests. The commission is a joint project between the Taxpayers’Allianceand the Institute of Directors, which both favour lower state spending.

Other recommendations in the radical 421-page report include abolishing national insurance and raising the basic personal allowance to £10,000, as well as abolishing taxes on transactions, wealth and inheritance.

The report is unlikely to go down well in the public sector, which is written off as “mismanaged and inefficient” in a foreword by the Commission’s chairman, Allister Heath, who adds: “The level of economic and policy debate has long been poor in theUK. There is very little awareness of the oodles of academic research on how high marginal tax rates or punitive income or capital taxes reduce growth and jobs. There is even less of a debate on the optimal size of government, or on the moral case for small government and lower taxes.

“In the very rare instances when they are mentioned, respectable and important studies are dismissed out of hand or not properly understood; the only ‘moral’ arguments ever referred to are those that advocate the state seizing ever greater proportions of individuals’ incomes.”

Introducing a single rate could add £49.1bn to the national deficit in the first year, but after 15 years would reduce overall borrowing by £35bn, the report suggests. Limiting income tax and spending to a third of the national income would mean public expenditure cuts would be extended to 2020.

A spokesperson for the Treasury said: “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.

“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.”

To view the report, visit www.2020tax.org/2020tc.pdf

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