Embargo: 00:01 Monday 20th November 2023
The TPA’s Single Income Tax presents a comprehensive plan for growth, vital to address problems within the current tax system and sluggish growth
Implementing the Single Income Tax in full would propel the UK from 30th to 5th in the Tax Foundation’s Tax Competitiveness Index
- Implementing a package of selected interim steps could enhance GDP growth by an average of 0.7 percentage points a year over 10 years, dynamic tax modelling reveals
- Next week’s autumn statement must fire the starting pistol on a long-term plan to reform our broken tax system
Campaigners at the TaxPayers’ Alliance (TPA) have called for a fundamental reform to the tax system to drive growth and ease the burden on households ahead of next week’s autumn statement.
An update to the TPA-convened 2020 Tax Commission’s groundbreaking Single Income Tax report, first published in 2012, calls for the replacement of a complex swathe of direct taxes with a single tax on all income charged at a single rate of 30 per cent.
This system is based on seven overarching principles:
- Taxes should be cut to 33 per cent of national income
- Marginal tax rates should not exceed 30 per cent, and the personal allowance should rise to £14,000
- Taxes on capital and labour income disguised as business taxes should be abolished and replaced with a tax on distributed income
- Transaction, wealth and inheritance taxes should be abolished
- Other consumption taxes need to stay for now, but transport taxes should be cut
- Local authorities should raise three quarters of their spending power from local taxes
Reforming the tax system would not only ease the burden on families and businesses in the short term, but it would drastically improve the UK’s competitiveness in the long term. At present, the UK ranks 30th out of 38 OECD countries in the latest International Tax Competitiveness Index, published annually by the Tax Foundation in Washington DC. In 2022, the UK placed 27th - meaning more tax hikes and complications are sending us in the wrong direction.
According to an analysis of the proposals in the Single Income Tax by the Tax Foundation, full implementation would propel the UK up to 5th in the table - a jump of 25 places.
As part of a transition to this fundamentally reformed tax system, the TPA has recommended a series of policy changes:
- Spending restraint
- Full merger of income tax and national insurance
- Corporation tax cut to 15 per cent
- Capital gains tax cut to 10 per cent and eventually abolished entirely
- Inheritance tax threshold increased to £1 million
- Stamp duty land tax threshold increased to £1 million
- Air passenger duty on EEA flights abolished immediately followed by all flights
The TPA has run these intermediary steps through its dynamic tax model, which assesses tax changes based on how individuals and businesses might respond as opposed to simply calculating lost or gained revenue for the exchequer. Just this week, the Office for Budget Responsibility acknowledged the importance of dynamic scoring and declared itself open to receive more evidence - this set of modelling results provides an insight into the potential gains of tax reform.
Implementing a package of selected changes recommended in the TPA’s intermediary steps towards a Single Income Tax would have a static cost of £45.6 bn in 2024-25, rising to £85.4 bn in 2026-27.
However, according to the TPA’s dynamic tax model, GDP would be £203 billion higher after 10 years and annual growth 0.7 percentage points faster.
In turn, after 10 years, 98 per cent of the annual static cost would be dynamically recouped through higher tax revenues on the larger economy, leaving just £2.2 billion still needing to be balanced with spending restraint. By comparison, nearly £9 billion spent by the government on PPE during the pandemic has been written off.
John O’Connell, chief executive of the TaxPayers' Alliance, said:
"The government’s stated priority is getting inflation down, but next on the list must be strong economic growth to create jobs and ease the pressure on families struggling to make ends meet. Tax reform is essential to make that possible.
“At the same time, taxpayers need to know that they are being treated fairly by the taxman. Taxes are so complicated that trust in the system is through the floor. Only by simplifying the system, eliminating loopholes and culling carve-outs can politicians finally demonstrate that everyone is playing by the same rules.
“The Single Income Tax is a proper plan for a tax system that can restore Britain’s economic fortunes and leave more of their money in taxpayers’ pockets."
Rt Hon Lord Frost welcomed the report, saying
"Britain has one of the most complex tax systems in the world. There are huge potential economic gains from simplifying it. This TPA study shows just how significant these could be, both in reducing the tax burden and encouraging enterprise. It's time for the treasury to listen, and then to act."
Rt Hon Dame Priti Patel, MP for Witham, added:
“Britain’s hard-pressed families and businesses need a tax break and with the autumn statement approaching the chancellor of the exchequer needs to set out an ambitious Conservative programme of economic reforms to support free enterprise, balance the books and control public spending.
“Cutting taxes, reforming income tax and simplifying the tax system will give Britain an economic boost, encourage inward investment and help get our economy growing.”
TPA spokespeople are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)
Media Campaign Manager, TaxPayers' Alliance
24-hour media hotline: 07795 084 113 (no texts)
Notes to editors:
Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers' Alliance (TPA) campaigns to reform taxes and public services, cut waste and speak up for British taxpayers. Find out more at www.taxpayersalliance.com.
TaxPayers' Alliance's advisory council.
About the 2020 Tax Commission.
- About the TPA’s dynamic tax model.