Summary
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- The five-year average tax burden in the UK is now at a 70-year high. The impact and opportunities of Brexit, coupled with the need to revitalise the economy in the wake of the Covid-19 crisis, mean 2021 would be a good time for the government to embark on a tax-cutting programme.
- This paper analyses 20 taxes that could be scrapped or significantly changed. If carried out, these reforms would simplify the tax system, reduce the overall burden of taxation, and eliminate many harmful distortions that stifle the UK’s productivity and prosperity.
- The UK could have a tax system that has a low negative effect on welfare and efficiency, with small compliance and administration costs; a system that is nondiscriminatory, avoids double taxation, and that is transparent and easy to understand.
- As such, we suggest that the TV Licence, Inheritance Tax, Stamp Duty Land Tax, the stamp duties on buying shares, the Apprenticeship Levy, Vehicle Excise Duty, Capital Gains Tax, the bank surcharge, and duties on alcohol, tobacco, and gambling, could be scrapped.
- Other property taxes such as Council Tax, the Community Infrastructure Levy, business rates and affordable housing and other s106 obligations, could be replaced with a single land value tax. Under this proposed system, disincentives for property improvements and housebuilding would be removed.
- Although not originally intended as such, Air Passenger Duty has morphed into a green tax, but its discriminatory and incoherent application means there is a strong case for its abolition. Emissions from aviation can instead be addressed by the government’s general environmental policies.
- The Climate Change Levy and renewables obligations add economic distortion and complexity to the tax system. These levies could be brought into a single, less distortionary, environmental taxation system – either through the Emissions Trading Scheme or a comprehensive carbon tax.
- Finally, Corporation Tax and the Diverted Profit Tax could be replaced with a single tax on capital income administered at the corporate level, similar to how PAYE works on wages. Doing so would promote neutrality between capital income and labour, eliminate the debt-capital bias, and spur productivity growth.
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Education
22 February 2021
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11 October 2021