IFS sets out blueprint for UK tax reform

Wednesday, 14 September 2011 12:06

A leading think tank claims that the tax system in the UK is inefficient and too complex.

The Institute of Fiscal Studies (IFS) has taken five years to produce the Mirrlees Review and it concludes that an overhaul of the UK tax system would benefit the economy by tens of billions of pounds and create thousands more jobs.

The main recommendations from the report are to replace fuel duty with a congestion charge, expand VAT and abolish stamp duty on property purchases.

The review says that for every £10 earned in the economy, £4 was taken by the government through taxation. However, according to the report, despite the huge amounts of tax revenue there is no clear direction for tax policy.

The report suggests that income tax and National Insurance should be merged.

On abolishing fuel duty the report recommends that this could be a successful reform that could be implemented quickly. It goes on to say that with the introduction of more fuel efficient cars the government can expect to see a reduction in revenue from this source anyway.

Sir James Mirrlees, who led the review said: "The tax system could raise as much revenue and achieve as much redistribution as it currently does in far less costly ways.
"There is no getting away from the political difficulty associated with some of the proposed changes. But there is also no getting away from the enduring costs of failure to reform."

However, a spokeswoman for the Treasury said: "The government has embarked on a programme of ambitious reforms of the tax system to address the instability of recent years.

"These are based on clear principles to support growth, reward work, reduce complexity and increase fairness."

Other measures to improve the UK tax system that the report explored included updating the valuation of homes for assessing council tax. The current valuation is still based on 1991 values of property.

The report also recommended making all savings tax free if there is no risk involved as a measure to encourage saving.

A further initiative that could be implemented was to change the tax system to encourage those aged 55-70 and parents of schoolchildren to work. This could be done by making child tax credits more generous before children reached school age and then making them less generous once children reached the age where they go to school.

The review estimates that implementing these changes could increase employment by 200,000.

Paul Johnson, director of the Institute for Fiscal Studies, 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."

He also said that the political will was not there for such radical reforms but said the aim of the report was to provide a blueprint for the tax system for the next 10-20 years.

The Treasury said that some of the tax reforms suggested are likely to be implemented such as the merging of income tax and National Insurance.

Use the Myfinances.co.uk comparison tables to find the best deal on a pension or annuity.
 

• Tags:
• child tax credit
,
• fuel duty
,
• income tax
,
• national insurance
,
• news
,
• tax