A Taxing Question

Britain’s tax system is “ripe for reform in ways that could significantly increase people’s welfare and improve the performance of the economy”. A report out today, the Mirrlees Review, condemns Britain’s tax system as ‘costly and inequitable’. You bet it is.

Very much like the welfare system, our tax system is in desperate need of radical reform. Years of tinkering and tweaking by politicians has resulted in a tax system which is a complicated mess, incredibly inefficient and costly to run. Its complexity a benefit only to those who wish to conceal and avoid and the lawyers that help them do so.

Contentiously, one of the report’s recommendations is that income tax should be merged with NI. This appears to have ruffled the feathers of some experts, but NI is a misnomer. It’s just another way of collecting more tax and like so many taxes, just adds to the lack of transparency in the system. It is an unnecessary complication.

I have argued before for the introduction of hypothecated tax so that we can see clearly where our taxes are going and how much things are actually costing. It’s not part of the report’s recommendations, but I hope it will be part of any future debate on tax reform.

That our tax system is inequitable is beyond doubt, and it is good that the report makes this point. It’s crazy that we have a system that taxes people into poverty. It’s even more crazy that we have had to construct a welfare safety net to take account of the people the system has impoverished. Don’t politicians or the Treasury ever do any joined-up thinking?

I hope that the Institute of Fiscal Studies, and others, will use this report to add pressure for a fundamental reform of the tax system. Perhaps Comrade Chote, formerly director of the IFS, now ensconced in the Treasury as head of the Office for Budget Responsibility, will have some influence on the Chancellor’s thinking. Ever the optimist!

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