A major review of the UK’s tax system has found that the UK tax system is “ripe for reform in ways that could significantly increase people’s welfare and improve the performance of the economy”.
The Mirrlees Review for the Institute of Fiscal Studies has made a number of recommendations to improve Britain’s ailing income tax system. According to The Guardian, the review ‘argues that a coherent vision for the tax system is needed and lays out recommendations for radical reform.’
Separate tax and National Insurance is too complicated
The review says that a system which includes two separate taxes on earnings – income tax and national insurance (NI) – is unnecessarily complicated. The Guardian reports that ‘the review recommends the rate structure for income tax should be simplified and merged with NI’.
However, not all experts have welcomed the proposals. Angela Beech, a partner with chartered accountants Blick Rothenberg, said such a move would introduce, rather than reduce, complications: “Merging income tax and NI will produce a plethora of ridiculously complex rates of tax, from 0%, then 12% rising to 32%, then 42% and 52%.
“It also takes no account of the reduced rate for married women. Merging the two can only result in more confusion and difficulty for those trying to understand and verify that their payslips are correct.”
Richard Murphy, an adviser to the Tax Justice Network and the TUC, agrees.
“Many of the recommendations in this report would have a very negative impact on people on low incomes,” he said. “Merging income tax with NI would be very unfair to the elderly, who don’t pay NI.”
Welfare benefits also too difficult to understand
The Review also found that the UK’s welfare benefits are too difficult and complicated for people to understand, in addition to them imposing very high tax rates on some low earners. The review recommends that a single integrated benefit should be introduced to replace all or most current benefits.
For example, the zero rate of VAT applied to many goods and services is criticised in the reports as ‘an expensive and highly inefficient’ way of helping people on low incomes. Stamp duty land tax, and council tax are also criticised by the report.
Nobel laureate Sir James Mirrlees, who chaired the review, said: “Some of the recommended reforms involve tweaks to current policy; others involve radical change and are probably for the longer term. It is undeniable that some of the proposed changes would be politically difficult. But failure to reform imposes enduring costs.”