Tax simplification means a flat tax


One of the more laudable attempts of the government to reduce bureaucracy is a drive towards tax simplification. Two highlights are the abolition of complicated reliefs (though the Taxpayers’ Alliance quickly observed that the benefit was undone by other meddling in the Budget); and the possible merger of National Insurance Contributions with Income Tax. This last one could be a red herring though – the government has only announced a consultation and many seriously doubt whether any Government would ever want to flag up the fact that the basic rate of tax is not 20p but 31p.

The big prize in the lottery is a flat tax. It both simplifies tax and raises revenue. The Coalition Agreement neither mentions, nor excludes it. But it does mention a drive towards more competitive, simpler and fairer taxes: a flat tax ticks all these boxes.

A flat tax would:

1. Increase revenue as the black economy will disappear; tax exiles will repatriate their fortunes; and instead of paying for expensive advisers the rich will simply pay the tax;
2. Increase the revenue as the economy will grow (as was the case when Thatcher and Reagan cut taxes);
3. Maintain a zero rate for those who are less well off by putting the threshold from which tax becomes payable at a high enough level;
4. Do away with a large chunk of the HM Revenue’s expensive administration

It’s win-win. It is not a handout to the rich: in countries where a flat tax rate was introduced the wealthiest people in society ended up paying a larger percentage of the total tax take.

The Government has the choice. By doing not very much, it can conserve the socialist dogmas of yesteryear. Or it can reform. Radically and irreversibly. I guess it takes guts and ambition to go down as leaders rather than followers.