For all the chaos of the tax system over recent decades, one thing has remained remarkably consistent.
As the graph below shows, the amount of tax raised as a percentage of GDP has remained remarkably stable at around 35 per cent despite huge changes to the thresholds and rates of just about every tax in the country.
But while the amount of tax being collected relative to the size of the economy hasn’t changed much, where it comes from has.
A new report from the Institute for Fiscal Studies shows that compared with 2010, by the end of the parliament the taxman will raise more from VAT, less from Corporation Tax, Business Rates and Council Tax and about the same from Income Tax.
However given the increases in the personal allowance and taxes on “the rich” since 2010, the government is increasingly reliant on a small group of higher earners for income tax receipts. This is an acceleration of a long term trend: in 1978-79 the top 1 per cent of earners paid 11 per cent of income tax, but in 2015-16 the figure was 27.5 per cent.
Given that the personal allowance is set to increase further, this reliance on a smaller group of high earners will likely increase yet further. These taxpayers are often highly mobile and have higher taxable income elasticities. Higher rates are therefore unlikely to increase revenues.
But the government is also increasingly reliant on a number of smaller taxes. Revenues from Stamp Duty Land Tax are forecast to be £17.4bn in 2020-21, an increase of 255 per cent on the 2009-10 figure. Likewise Insurance Premium Tax revenues are forecast to be 117 per cent higher in 2020-21 than they were in 2009-10.
A raft of new taxes have also been introduced – the Bank Levy, apprenticeship levy and the proposed soft drinks industry levy to name just a few. All too often these are introduced out of the blue with scant consideration given to how they will work in practice.
So while the government’s commitment not to raise Income Tax, National Insurance or VAT is a good thing, they are perfectly adept at finding new ways to lighten taxpayers’ wallets.
Instead of fiddling round with small taxes and thinking of new ones, the government should be eliminating disproportionately damaging taxes like stamp duties and Air Passenger Duty altogether.
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