Adam Smith Institute

The idea of a flat rate income tax system is attractive, and the arguments in favour are well rehearsed. It is simple, transparent to the taxpayer and easy to manage, with low administrative costs; it enhances the incentive to work; if it is extended to investment income it encourages the saving and investment necessary to stimulate economic growth in a competitive global market; it attracts entrepreneurs from abroad to a business friendly environment; it provides the conditions for increased employment; counter-intuitively, and given a sufficiently generous non-taxable personal allowance, it favours the lower paid over the affluent; and it quickly leads to higher tax receipts that enable government spending elsewhere.

Flat rate income tax has existed for many years, but has only recently attracted widespread attention after its adoption, to good effect, by several East European countries. On the evidence, which is becoming extensive, there is little to object to and, yet, it is likely to be difficult to introduce such a system to the UK, principally for reasons of short-term affordability and popular perception. It is an unfortunate fact that, whilst the benefits of a flat tax have been widely discussed by a growing number of advocates, the considerable obstacles that could decisively frustrate its realisation in the UK have largely been ignored. These difficulties need properly to be exposed and addressed if flat tax is not to remain wishful thinking.