30% income tax and no NI, says report
By Andrew Saunders Monday, 21 May 2012
The 2020 Tax Commission report recommends that income tax should be fixed at a flat rate of 30% and National Insurance abolished.
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The report also calls for a 30% limit on the government portion of total spending and for the abolition of Air Passenger Duty and Stamp Duty, and for a rise in the basic personal tax allowance to £10,000.
In the arcane world of fiscal policy, this is pretty strong stuff – the government currently collects about 38% of national income, while it is responsible for no less than 46% of total spending. So to cut both back to 30% would amount to a huge reduction in state involvement in the economy – hard to sell that to the Treasury.
The report (not a Royal Commission despite the name) is a joint undertaking from the Institute of Directors and the Taxpayers Alliance and says that implementing a flat 30% income tax rate would add £49.1bn to the national deficit in the first year (assuming no cut in spending). But it reckons that after 15 years it would reduce overall spending by £35bn. Sounds good, but a lot else could happen in 15 years.
It also calculates that the changes would result in a two-earner household with an income of £28,000 paying £3,400 less in tax per annum, although critics suggest that the measures would amount to a much greater percentage reduction in tax for the rich than for the less well off.
All the same, the proposal are likely to go down well in the business community, not least because the idea of such a hugely simplified tax regime is music to the ears of firms which grapple with the complexity of the current arrangements every day. And the abolition of National Insurance, widely seen as a tax on jobs, would be equally welcome.
By contrast, the kind of reductions in public spending implicit in the report’s assumptions would make the current dose of austerity look like a picnic, and might not be so popular with those private firms which rely on government contracts for their bread and butter.
Of course the chances of much of this making it onto the statute books are pretty small, but it does highlight the continuing debate between the ‘austerity max’ school of economic recovery and the ‘stimulate to accumulate’ brigade. And what makes it all such endless fun to argue about is the fact that nobody really knows which approach works best. Remember, we’re all in it together…