A recent review of the UK tax system by the Institute for Fiscal Studies (IFS) has stated that it is inefficient and complex.
The Mirrlees Review has called for an overhaul of the current system of taxation in the UK and has outlined a number of changes which could be made to help reform it. They have suggested that these changes will help to save the economy tens of billions of pounds. At the same time, they could create thousands of new jobs.
The report claimed that there is no clear direction for tax policy in the UK. A number of ideas have been suggested to improve the way tax in the UK is administered.
The report suggested that the current fuel duty which is applied to petrol and diesel should be removed and replaced with a comprehensive system of congestion charging. This short term recommendation was justified as improvements in fuel efficiency and electric cars would gradually erode the current income raised from these taxes.
The system of taxation on housing is a mess, according to the authors of the report. It suggested that stamp duty should be abolished and Council Tax should be reformed to take into account the current value of the property, rather than the 1991 valuation.
Income Tax and National Insurance are currently applied separately. The report suggested that this was pointless and unclear, adding that they should be merged into one tax.
Currently, VAT is not applied to a variety of items, including food and children’s clothing. It was suggested that VAT should now be extended to include nearly all spending.
The report indicated that if all risk free savings were exempt from tax, this would encourage people to save more.
The report also suggested making an alteration to corporation tax to encourage businesses to
avoid an excess reliance on debt.
An alteration to Tax Credits was proposed to reduce the amount a person receives once their child reaches the age of 5. This would encourage more people to go back to work once their children start going to school.
The review indicated that these changes have the potential to create £3 billion in revenue and also create 200,000 new jobs.
Paul Johnson, from IFS, pointed out that there would be some losers should any changes bemade to the tax system, but argued that a failure to make these changes will cost the country money in the long term.
Mr Johnson also said: “Successive governments have failed to set out a coherent strategy for tax. As a result the current set of taxes is complex and often incoherent and they impose a much greater cost on the economy than need be.”
Other experts have suggested that whilst the changes seem to make sense, there is little political will to carry them out and it would take a long time to get the government to agree and implement them.
The Treasury indicated that some of the proposed changes are already on the way and that they have created the Office of Tax Simplification.