Left and rightwing think tanks join to call for ‘pro-growth’ tax reform
Several think tanks from across the political divide have joined forces to call for sweeping tax reforms in a report that seeks to prioritise productivity growth and fairness in the wider system.
Economists and policy officials from the left-leaning IPPR, the right-leaning Centre for Policy Studies and the likes of the Adam Smith Institute and Labour Together have said key tax reforms would sweep away “many arbitrary and nonsensical rules”.
The report, which is led by the London School of Economics’ Centre for the Analysis of Taxation (CenTax), said proposals provided a “framework” for improving making systems more “rational” and “effective”, as opposed to a “precise blueprint”.
It represents a last-ditch plea for the Chancellor to address complex rules at the Budget in three weeks where she is expected to raise tens of billions of pounds in taxes.
Think tanks said brief proposals listed in the report were “revenue neutral” as researchers took no judgements on the “appropriate size of the state” and on whether tax intake should be increased or decreased.
Among the key proposals is the abolition of the stamp duty land tax and to base council taxes on current house values, rather than valuations from 1991.
The report also said taxes on landlords’ revenue should include a full deduction for mortgage interest costs and national insurance on rental income, with adjustments on income tax rates to cover differences in revenue.
Economists also said business rates should be based on site values while empty property reliefs should end.
Tax system ‘riddled with inconsistencies’
Another key problem identified in the report was VAT.
Policy researchers and economists agreed that the VAT base should be broadened to include more goods and services, reducing administrative costs for businesses.
In return, the headline rate of VAT should be reduced and lower income groups should be compensated for higher costs on basic goods.
The Tufton Street coalition also called for the Chancellor to fix the £100,000 tax trap by reducing the marginal rate that applies to the removal of childcare subsidies and by introducing a more gradual taper for the removal of child benefits.
The government was also urged to stop incentives for investment in assets that grow in value from being distorted by introducing new allowances and an exit tax, with capital gains tax rates to be adjusted to ensure revenue remains the same.
Corporation tax reform is also a key demand made to end the bias towards debt over equity investment.
Arun Advani, director of CenTax, said HMRC’s code was “riddled with inconsistencies and distortions that discourage investment, penalise work and hold back productivity”.
“The upcoming Budget is an opportunity for the Chancellor to look at the tax system as a whole, and ensure that whatever the total tax take, any changes are also serving her growth mission.”