Income.
Council.
Corporation.
VAT.
Fuel Duty.
Alcohol duty.
… so many different taxes, convoluted in their implementation.
Even the evil IHT.
Abolish the lot, focus on VAT.
To implement this it would require balancing significant sweeping cuts of the state over spending and would require Trump style doge mass firings of all government waste.
But we’re uniquely able to see their tactics and learn from them.
One simple economic reality that is often forgotton about in campaigns is that to boost tax revenue, you can actually achieve this by lowering tax itself. a simple 20% reduction more than doubles the amount of purchases in some scenarios. You get 20% less, but then you get x2. So in the end, an increase of 80% is achieved, this including reinvestment means that will continue to grow.
This is what growth is. Its not mere words like Rachel Reeves appears to think.
The simplification of taxes will also have the added benefits of user friendliness, because it is easier for businesses to function, the UK becomes far more appealing to do business. Couple that with the Public very clearly knowing the value of their tax on their earnings and we create a far more healthy political and economic civilization.
Yes. This is honest. We need to be able to easily see how much of our money the government is taking - and then of course, we need to see exactly what they’re spending it on.
I agree with the gripe and a single tax would be better.
But I would argue that VAT completely hobbles any attempt at wealth generation economics.
Because the movement of money in the economy is good and healthy and VAT stops that, or more accurately siphons it off to the government
It basically penalises exchanges between willing people.
Any wealth created in the country after 10 exchanges is 90% in the governments coffer. This is bad as it reduces the ability to do business.
Fully agree that simplification of the tax system is needed.
I also agree however with James’s concerns about VAT reducing commercial activity. The amount of VAT increase needed to replace all other taxes would be huge.
I think where we need taxes they should relate where possible to the costs associated. So alcohol and cigarette tax revenue should go towards the health service. Fuel duty should be spent on maintaining the roads etc. These kinds of taxes can influence consumption that then reduces associated costs. (There probably should be a sugar tax).
Income tax would likely have to take the rest of the strain. But I am also happy to debate other ideas.
Reducing government waste and bureaucracy helps all of the above of course.
Its a difficult one to consider. We need to grab an honest economist to talk about the causality of each tax so we can figure out which type would be the best for a unified tax system.
I think a proper evaluation of budget is in order for this. You mention DOGE but this wouldn’t just be in the input of funds i.e taxes. It would be what it’s being spent on. As someone else mentioned, the increase in VAT needed to facilitate this would be huge, however, it wouldn’t be as huge if we didn’t have to spend so much. If things were ran properly and perhaps that means changing out thinking of how things are set up and ran, trying to promote a more free market exchange even in these publicly funded sectors. It seems like a complete rehaul of how we manage funds in Government is needed.
The reason not to do this under VAT is quite simple: the VAT burden falls hardest on the poorest in society, who have higher rates of consumption of their money compared to the richest. It would also be very hard to balance the VAT rate to not reduce the consumption of goods too much.
The better option would be a single flat rate of income tax, set at about 30%, and have capital gains count as income for the sake of income tax.
Any policy like this though has to then address what happens to the state pension which is currently tied to NIC.
Tax simplification should start with notion that it is totally unjust and counterproductive to take in excess of 50% of anyone’s earnings. When you aggregate all the taxes we pay, we are taxed well over 50%. It is correct though that the taxation rate should progressively increase on earnings a simple scale (ending at a max of 50%).
Ideally NICs should be consolidated into income tax altogether, but as a half measure. employers’ contributions (a hidden tax) should be made more visible to the voter/tax payer by adding it both to earnings and deductions on their pay slip, so they see the true cost of their employment. The bandings for both income tax and NICs should be harmonised. The higher marginal rate for income tax falls far too low and needs to be adjusted up.
Inheritance taxes should be abandoned altogether.
On the flip side of this. Government spending must be within its means. Endless borrowing is not a solution. Considering how deep we are in debt; this would have to be a slow tapered drop in spending. The bloated size of the civil service and the amount of GDP it consumes is far too high. Endless tax rises to prop it up are unsustainable and crushing UK economic growth, and has been for many decades.
There is probably a sweet spot where the tax burden sufficiently supports the services rendered by state institutions but does not impede the private sector economy. This tax point is probably going to be in the region of 33% for an average income.
Do you have a source for this? The best that I have is that it is closer to 30-35% based on the combined effect of direct and indirect taxation. The data is annoying because they give direct as a proportion of gross income and indirect as a proportion of disposable. Perhaps if you include employer NICs you get closer to 50% (I don’t know, though, as I don’t have the data.)
This is why whenever you see flat tax suggestions, it is always suggesting around the 30% mark.
Not sure if my maths are up to your scratch, but I work out that with just employment taxes alone and not including the vast array of other taxes, such as VAT and council tax the burden is already over 50%. It no doubt exceeds it when aggregating all the other taxes.
I think that you have made a mistake in your NICs (and coincidentally missed that above £100,000 personal allowance starts decreasing and so you get to a 60% marginal rate.
Of course this assumes that people earning £250,000 a year are being paid a salary rather than getting money in a way which is more tax efficient.
From the data, the 20% of top earners (gross salary >£48k in 2022-23) pay on average 9% of their disposable income in indirect taxation, and the bottom 20% (<£18.5k in 2022-23) pay 29% in indirect taxation.
Whilst I think that the very top (earning £100k+ in non-tax efficient ways) of earners are paying more than 50% when you combine everything, everyone else from these back-of-the-envelope calculations seems to be under 50%, albeit perhaps getting uncomfortably close to 50%.
Actually I was trying to illustrate the injustice at £100k, which is why there is a £110k band. Perhaps not as clear as I would have liked. You are right the effective tax on the earnings between £100k and £112k are at rate over 60% as the 12.5k personal allowance falls away. NICs is very complicated. I simplified it to just “table A” at 8% and 2% for over. That complexity needs to be removed. Employers NICs is a cost of employment linked to earnings and a hidden charge to the employee. Rates close to 50% should be reserved for war time emergency measures and not an ongoing peace time economy. Imagine all the growth stifled from this, and ironically vast lost tax revenue.
I’m not sure if we are agreeing with each other here or not tbh
IMO, an employee is worth their gross salary + employer NICs to their employer, this means that if employer NICs were £0, that money could/would be going to the employee as gross salary, hence I consider it fair to add it to an employees gross salary and consider it taken away as tax.
I created the table first as you have mentioned in your first point and then changed it. Employer NICS added both to earnings and taxes. I agree it is a cost of employment linked to earnings which reduces cash available to pay the employee. Its a strange tax, and I wanted to highlight how strange it seems to me.
NICS would make more sense if it was split out into a medical insurance fee, unemployment insurance, and pension contribution, but the funds go into the general treasury pool. Its just more tax with more complex rules.
Talking about marginal tax rates, as far as I can tell, the top effective marginal tax rate in the England is 77%. That is 60% income tax, 2% NIC, 9% student loans, and 6% postgraduate loans (the latter act more like a tax than debt).
If you are unfortunate enough to live in Scotland whilst having been English when you went to uni, you could be subject to a marginal rate of 84.5% because their top marginal rate is 67.5% as you start to lose your personal allowance.
This is if we don’t consider the employer’s 15% NIC as part of your salary, which is taxed away. If we did, it would be 80% in England and 86.5% in Scotland. I can think of nothing worse for productivity than working harder only to be able to keep 20% of what extra you earn.
They should rename the UK civil service “Ungoliant.” This is unsustainable. Rising debt and rising taxes bite ever deeper into the economy. I do not understand how we can be in this position after 14 years of Tory rule.
If I have paid I dont know 20% in tax on my salary.
When I spend any of that take home an amount of it is taxed.
So for example fuel duty is 65% if I spend 10% of my take home on fuel, there goes another 6.5%,
If I go and buy something in a supermarket there is a 20% VAT, so there goes 20% of whatever I have spent there.
And that is before council tax which may be another 10% of income.
And all of that is before considering the cost of items adjusted for salaries and profits.
How much of what I bought is to account for corporation tax?
How much is the tax on the salaries of the employees.
Etc. Etc.
How much of the cost of say energy bill are the taxes on salaries or other costs that the government inflict on the distributor.
