Can 30% income tax save the UK economy?

Britain has fallen into recession for the second time since the financial crisis but this time we are facing a double whammy of the eurozone fall out.
As Greece edges closer to a euro exit, deputy prime minister Nick Clegg has warned of a 'chain reaction of great uncertainty' that will follow. The uncertainty around the future of the euro means the prospects for Britain's recovery are unpredictable.

One possible outcome will be another round of quantitative easing (QE), which has been halted at a not unsubstantial £325 billion, to try and boost the economy.

But the 2020 Tax Commission, a group made up of the Institute of Directors and Taxpayers' Alliance, believes it has come up with a way to boost GDP 8.4% through a series of radical tax reforms.

It wants eight taxes to be scrapped, including inheritance tax and stamp duty, but the main thrust of the reforms is around income tax.

A report by the group is championing a single proportionate 30% income tax that would see national insurance merged into income tax – something that successive governments have talked about but never made steps to execute.

Corporation tax and capital gains tax would also be replaced with a single tax on capital income, such as dividends, interest and property rent, at the magic number of 30%. And it would follow through on the coalition plans to bring in a £10,000 personal allowance.

In short, the group wants to simplify the tax system and tax distributed income, and it claims will save the average two-earner household £3,400 in tax.

Plans that simplify tax should be welcomed by the coalition, which is furiously trying to cut red tape and simplify the rules from pensions to business.

However, the claim that the reforms would boost the economy 8.4% would please the government even more.

The idea is that reducing taxes and public spending to 33% of GDP (it currently stands at 48%) would lead to growth.

The group claims the tax reforms would be the equivalent to loaning each UK family £5,000 – money that they would spend on new TVs and cars helping to boost the economy.

But the critics have said the report cuts taxes paid by the wealthy and allows the poorer in society to subsidise the cuts.

Simplification is a worthy concept but the government must look closely at who the real beneficiaries may be before being swayed by economy-boosting policy.
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