Coronavirus is the most significant new health emergency in a lifetime. But its economic fallout could dwarf the great recession. To maximise the chances of bouncing back, the government should pledge that there will be no austerity for taxpayers but instead a package of reforms to sharpen the supply side of the economy, both to fix long-term problems and to enable the economy to best adapt to longer-term consequences from the pandemic on both consumer preferences and corporate operations. The enormity of the emergency means bold, ambitious reforms are needed fast.
In 2012, the TaxPayers’ Alliance launched its landmark tax reform proposal The Single Income Tax. We recommended a substantial, thorough package of tax reforms designed with the whole system in mind to be phased in by 2020. But rather than an eight-year horizon, significant reform should now be implemented immediately to provide much-needed support to the economy as it pulls out of the pandemic. But instead of just cutting tax rates, whole sections of Britain’s enormous 25,000 page tax code should be jettisoned entirely by abolishing entire taxes and scrapping rates to create a leaner, more efficient system.
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The five key recommendations are:
1. A restart for jobs:
Employer national insurance should be entirely abolished with immediate effect and replaced with a temporary payroll tax of 10 per cent on wages and salaries (above £4,500 per employee) from October. This would cut a typical payroll tax bill by 38 per cent this year, meaning that fewer companies will have to lose staff and more will be able to hire.
2. A stimulus for staff:
Employee national insurance should be entirely abolished with immediate effect and replaced next year with a basic rate surcharge of 10 per cent on PAYE income tax. This would make a worker on average wages £1,622 better off this year and £300 better off next year.
3. A catalyst for capital:
Capital gains tax should be abolished entirely with immediate effect. This could grow the economy by 3 per cent.
4. A fillip for factories:
Corporation tax is particularly damaging to investment and the government should extend their increase of the annual investment allowance from £200,000 to £1 million by increasing it again to £5 million. This would deliver a tax cut on investment worth £5 billion, boosting it by up to 8 per cent.
5. A release for movers:
Stamp duty land tax makes it harder to move home, despite many people now reassessing where they want to live and work. All homes under £1 million should be taken out of stamp duty by raising the threshold with immediate effect. This would increase transaction numbers by 31 per cent, or 220,000.
Using estimates calculated before the pandemic was known, these measures would amount to tax cuts worth £100 billion this year, falling to £51 billion next year, before adjusting for dynamic effects on economic activity. However, the true impact on receipts is likely to be substantially lower than these estimates because of their powerful effect on economic activity and the impact of the pandemic.