PwC senior economist and former Bank of England Monetary Policy Committee member Andrew Sentance has called for political parties to embrace a ‘serious tax overhaul’ in an article for the Telegraph. The ‘Citizens’ Jury’ convened by the consulting group recommended substantial tax reform which echoes much of the findings of our own 2020 Tax Commission’s Single Income Tax.
The group’s report, ‘Taxation in the UK: a citzens’ view‘, recommended ending the slab rate structure of Stamp Duty, abolishing Inheritance Tax and abolishing National Insurance, replacing it with a single tax on income. It reported on the views of a panel of 22 members of the public selected to broadly represent national demographics. Perhaps unsurprisingly, they found that National Insurance was ‘sneaky’, that the system ‘should just be upfront’ and that it ‘should all be rolled into one’. They also objected to a Mansion Tax.
Not all the recommendations were advisable. Calls to change the rules on VAT to include non-essential foodstuffs such as caviar, for example, would lead to a field-day for lawyers with an inevitable slew of new legal questions along the lines of whether Jaffa Cakes are ‘cakes’ and so excepted from VAT or ‘biscuits’ and therefore subject on account of being chocolate covered. The argument against expanding VAT was best made by Telegraph deputy editor (and chairman of the 2020 Tax Commission) Allister Heath in his recent column.
Perhaps most interestingly of all, the group backed the principle of a single rate of Income Tax but nonetheless shied away from recommending it. They thought that a single Income Tax rate ‘felt fair’ and had benefits in terms of simplicity, clarity and transparency. But they did not want to implement such a system now because they rightly opposed increasing benefits to ensure nobody would be worse off:
I think if we were one of those states after the breakup of the Soviet Union, this would be the one to go for. But you just can’t do it here and now, can you?
Here’s the thing: yes, you can. But it requires a serious rethinking of what the Government is for and what it needs to do. As our 2020 Tax Commission found, you can implement a Single Income Tax at a rate of 30 per cent, which would provide a cut for all taxpayers. That would raise 33 per cent of national income for the Treasury, compared to the 37 per cent the current system raises. In other words we’d need a Government like Switzerland or Australia’s rather than Spain or New Zealand’s.
Not only would such a system be much clearer, simpler and fairer, it would also provide significant economic benefits by sharpening incentives to work, save and invest in Britain. Dr Sentance is right, politicians should take note.