Executive summary
The Single Income Tax was published in 2012 and is a proposal to fundamentally reform Britain’s tax system, replacing a complex swathe of direct taxes with a single tax on all income charged at a single rate of 30 per cent.
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The Single Income Tax has seven overarching principles:
Taxes in Britain are too high and have become increasingly complicated
There is a comprehensive literature demonstrating that higher taxes lead to smaller economies and slower growth. The UK tax code has expanded enormously, reflected in the number of pages of tax guides and the number of tax professionals.
Taxes should be cut to 33 per cent of national income
Studies show that while the fastest growth would be achieved with taxes and spending constituting perhaps 20 or 25 per cent of national income, other priorities mean 33 per cent would reflect a more balanced level that would achieve substantially greater prosperity than the status quo.
Marginal tax rates should not exceed 30 per cent, and the personal allowance should rise to £14,000
The true basic rate of income taxes, incorporating both national insurance charges as well as income tax, now stands at 40 per cent but the Single Income Tax recommendation on the personal allowance has broadly been delivered. A myriad of rates and taxes on incomes remain and should be swept away.
Taxes on capital and labour income disguised as business taxes should be abolished and replaced with a tax on distributed income
Despite the label, employers don’t pay ‘employer’s national insurance’. Employees do in the form of lower wages. Similarly, some mix of employees, customers, and shareholders (usually pension funds) pay corporation tax in the form of lower wages, higher prices and lower dividends (usually distributed as pensions). The pretence should be ended, and they should be folded into income tax.
Transaction, wealth, and inheritance taxes should be abolished
Stamp duty on shares and property are highly damaging taxes while inheritance tax is unpopular and unfair. Capital gains tax is usually a levy on after-tax returns. They should all be abolished.
Other consumption taxes need to stay for now, but transport taxes should be cut
Adjusted for inflation, the recommendation to cut fuel duty by 5 pence per litre was delivered five years ago and, following the 5p cut last year, in cash terms too. But air passenger duty remains, as does vehicle excise duty. Value added tax (VAT) is probably more efficient than a sales tax given the revenue expectations placed on it.
Local authorities should raise three quarters of their spending power from local taxes
Local authorities should raise 75 per cent of their revenues locally. Business rates should be devolved to local authorities along with the power to raise a flat rate local income tax and an optional local sales tax.