Eight years after George Osborne called for the Conservative party to “make a bold case for lower and simpler taxes” after seeing Estonia’s single-rate proportionate tax system in action, David Cameron yesterday praised the “obvious attractions” of flatter taxes after seeing Latvia’s system. When asked whether a Conservative government would make the British tax system more like Latvia’s, where Corporation and Capital Gains Tax rates are 15 per cent and income is taxed at a flat rate of 25 per cent, he said:
As for the very attractive sounding Latvian tax system, obviously there are advantages if you are able to redesign your tax system when you achieve your independence and start with a wholly new approach. But the idea of flatter and simpler tax rates and tax systems has its attractions. We have been able to do that in some cases in the UK. For instance, our corporation tax rate is heading down towards 21%, and there was a report by KPMG just this week saying that, in the course of just three years, the UK has gone from having one of the least competitive corporate tax systems to having one of the most competitive corporate tax systems. So, we have made good progress on that front.
Up to a point.
The Coalition has made some positive moves towards simpler and lighter taxes. Cutting the main rate of Corporation Tax is a good example. But these moves have been both timid and largely counteracted by other measures which have increased complexity and the weight of the burden. After adjusting for inflation, the total tax bill has risen from £549 billion in 2009-10 to £594 billion this year. As a percentage of national income, the figures are 36.5 per cent rising to 38 per cent.
Recent TaxPayers' Alliance research showed that the Coalition has already implemented 254 tax separate rises against just 109 tax cuts. By the end of the Parliament these numbers will have risen to 299 tax rises and 119 cuts. So the truth is that, overall, the Coalition has been busy lightening taxpayers' wallets rather than the British tax burden.
It’s great that the Prime Minister and the Chancellor see the attraction of simpler, lower taxes when they visit Baltic countries which are enjoying the benefits they provide. But they need to take bolder action when they get back home and start serious reform here, such as with moves towards the 2020 Tax Commission’s Single Income Tax. They've had nearly three years to take action and it's time they got serious about tax reform. Otherwise the economy will carry on spluttering without growth.
We can't afford to wait any longer to tackle our mess of a tax system. Implementing our plan to abolish National Insurance together with bold cuts on Capital Gains Tax and Corporation Tax would be a great place to start.