TaxPayers’ Alliance urges George Osborne to maintain spending cuts until 2020 then usher in 30% single-rate income tax
George Osborne should prolong the coalition’s spending cuts by an extra five years to allow for dramatic tax reductions, with a single rate of income tax set at 30%, according to a report by one of Downing Street’s favourite thinktanks.
The TaxPayers’ Alliance, whose director Matthew Elliott was recently sounded out for a job in No 10, says in its 2020 Tax Commission that tax cuts are vital to promote growth and help hard-pressed families.
The most eye-catching proposal in the 417-page report, which is jointly published by the Taxpayers’ Alliance and the Institute of Directors, is a call for a “single proportionate income tax rate” of 30%.
This would be achieved by cutting the ratio of spending and taxation to 33% of national income, forcing Osborne to maintain the current level of spending cuts until 2020.
In his original fiscal mandate, outlined in his emergency budget in June 2010, Osborne had expected the austerity plan to continue until 2015. But in his autumn statement last year Osborne announced that the cuts would be extended for a further two years.
The report by the Taxpayers’ Alliance says that a single income tax could be introduced in six steps:
• Cut taxes to 33% of national income. Taxes currently account for 37.5% of national income.
• Ensure that marginal tax rates do not exceed 30% and the personal tax allowance should rise to £10,000.
• 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 tax should be abolished.
• Consumption taxes should remain for the moment but transport taxes should be cut.
• Local authorities should raise half of their spending power from local taxes.
Matthew Elliott, chief executive of the TaxPayers’ Alliance, said: “Right now the government’s first priority has to 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, the tax system has to be fair, and seen to be fair.
“Our current, complicated tax code where income is too often either taxed repeatedly or not at all doesn’t pass that test. The single income tax is a serious plan for a tax system that can restore Britain’s economic fortunes and leave more of their money in taxpayers’ pockets.”
Allister Heath, editor of City AM and chairman of the 2020 Tax Commission, said: “It is time for Britain to make a vital choice between tweaking the status quo and letting our economy continue to be crippled by complex and punitive taxes, and drastically changing course with a radical but realistic plan for a tax system fit for the 21st century.
“The 2020 Tax Commission has set out that plan and would ensure that income is taxed once at a single, much more reasonable, rate. It could create the conditions to establish the UK as a global trading hub, generating renewed prosperity for all those who live and work here. Politicians who are serious about Britain’s future need to take it up.”
The introduction of a single income tax would have echoes of Osborne’s flirtation with a flatter rates of tax. In an interview with Radio 4’s Today programme in September 2005, two months after his appointment as shadow chancellor, Osborne said: “I am fully conscious that we may not be able to introduce a pure flat tax, but we may be able to move towards simpler and flatter taxes.
“What I am really talking about is removing a lot of the complexity from the tax system – a lot of the reliefs and exemptions – in return for either a lower rate or a bigger tax allowance. The rest of the world, including many countries in Europe, are reducing taxes.”