The Single Income Tax would be fairer - it would boost our economic prospects too

June 22, 2012 11:29 AM

All of the talk on taxes this week has been about Jimmy Carr, Take That and notions of fairness. But we shouldn't forget that staggeringly high taxes could have huge economic costs, too. Unless significant changes are made, we’ll continue to suffer from lost investment and lost jobs. A report by Ernst and Young, forecasts an uncomfortable and uncertain future for the UK, predicting that within just two years we could lose our crown to Germany as the leading destination for foreign direct investment (FDI) in Europe.

The Ernst & Young research shows a 7 per cent drop in the number of foreign projects in the UK compared to 2011. A particular concern was the 15 per cent drop in investment in one of the UK’s strongest areas, financial services. Few will be surprised that high taxes were identified as one of the key obstacles to investment in the UK.

Despite the Chancellor’s reduction in Corporation Tax at the last Budget, barely half of investors claim that the UK tax regime is attractive. But there is a way out of the mess. The fundamentally simplified approach to taxation outlined in the final report of our 2020 Tax Commission centres on a Single Income Tax on both labour and capital of 30 per cent that would reinvigorate our ailing economy. That simplification involves abolishing National Insurance, abolishing Corporation Tax and abolishing Capital Gains Tax. The impact on business and consequently on jobs, incomes and living standards would be substantial.

Economic modelling of the Single Income Tax carried out by the Centre for Business and Economics Research shows that it would boost business investment by 61.2 per cent within 15 years. That extra investment would in turn transform the economy, too. Also over 15 years, our proposals would boost GDP by 8.4 per cent. That’s an extra £5,000 per family. In his 2010 Budget speech, George Osborne said ‘I want a sign to go up, over the British economy, that says "Open for Business"’. If he’s serious about that, he has to act and he has to act now.All of the talk on taxes this week has been about Jimmy Carr, Take That and notions of fairness. But we shouldn't forget that staggeringly high taxes could have huge economic costs, too. Unless significant changes are made, we’ll continue to suffer from lost investment and lost jobs. A report by Ernst and Young, forecasts an uncomfortable and uncertain future for the UK, predicting that within just two years we could lose our crown to Germany as the leading destination for foreign direct investment (FDI) in Europe.

The Ernst & Young research shows a 7 per cent drop in the number of foreign projects in the UK compared to 2011. A particular concern was the 15 per cent drop in investment in one of the UK’s strongest areas, financial services. Few will be surprised that high taxes were identified as one of the key obstacles to investment in the UK.

Despite the Chancellor’s reduction in Corporation Tax at the last Budget, barely half of investors claim that the UK tax regime is attractive. But there is a way out of the mess. The fundamentally simplified approach to taxation outlined in the final report of our 2020 Tax Commission centres on a Single Income Tax on both labour and capital of 30 per cent that would reinvigorate our ailing economy. That simplification involves abolishing National Insurance, abolishing Corporation Tax and abolishing Capital Gains Tax. The impact on business and consequently on jobs, incomes and living standards would be substantial.

Economic modelling of the Single Income Tax carried out by the Centre for Business and Economics Research shows that it would boost business investment by 61.2 per cent within 15 years. That extra investment would in turn transform the economy, too. Also over 15 years, our proposals would boost GDP by 8.4 per cent. That’s an extra £5,000 per family. In his 2010 Budget speech, George Osborne said ‘I want a sign to go up, over the British economy, that says "Open for Business"’. If he’s serious about that, he has to act and he has to act now.

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