Sunak must simplify Britain's 'burdensome' tax code

According to a briefing paper from the IEA, authored by Sam Collins and Alexander Hammond, economic growth in the UK must be a priority for legislators. 

Moreover, the paper - 20 Taxes to Scrap: How to grow the UK economy by simplifying the tax system, - suggested eliminating or replacing a score of unnecessary taxes which, the authors argued, could "reduce the overall burden of taxation and eliminate many harmful distortions".

Ahead of chancellor Rishi Sunak's despatch-box briefing tomorrow (Wednesday 3), the paper criticised the UK's burdensome tax code, which is more wordy than the Lord of the Rings trilogy or the Holy Bible.

The authors wrote: "At over 10m words, our tax code is not only the world’s longest – 48 times that of Hong Kong – but is packed with offsets, loopholes and distortions."

The Bible, by the way, has approximately 740,000 words, while the Lord of the Rings trilogy has 576,459, according to Wikipedia.

The authors called for a "tax system that has a low negative effect on welfare and efficiency, with small compliance and administration costs. A system that is non-discriminatory, avoids double taxation, and that is transparent and easy to understand."

Suggested taxes that ought to go by the wayside include: 

• Abolishing or significantly changing inheritance tax, Stamp Duty Land Tax, both the stamp duties that exist for buying shares, the apprenticeship levy, the licence fee, Vehicle Excise Duty, the bank surcharge and duties on alcohol, tobacco and gambling. 
• Replacing other property taxes – including council tax, the community infrastructure levy, business rates, affordable housing and other s106 obligations – with a single land value tax. This would remove the current disincentives for property improvements and housebuilding. 
• Scrapping Air Passenger Duty, and wrapping it into the government’s general environmental policies and emissions trading scheme management. 
• Introducing a single, non-distortionary, environmental taxation system – either through an Emissions Trading Scheme (which, now the UK is outside the EU, can be refined to best suit the country's needs) or through a carbon tax – to replace environmental taxes such as the climate change levy or renewable obligations. 
• Replacing Corporation Tax and the diverted profit tax with a single income tax on capital income administered at the corporate level, similar to how PAYE works on wages. This would ensure neutrality between capital income and labour, eliminate the debt capital bias, and spur productivity growth, as returns on successful investments would no longer be penalised.  

Hammond commented: “A low and radically simplified tax system is the best way for our economy to recover from repeated lockdowns and prosper for decades to come.

"Given our newfound post-Brexit freedoms, now is the time for a brave chancellor to embark on a radical tax-scrapping bonanza. The UK is in the unfortunate position of having many regressive taxes, and this paper suggests a number that could be among the first to go.”

Co-author Collins said: “Retaining or increasing distortional taxes will be a block to the British economy growing and harm all of us in the long-term.

"Now is not the time to clamp down harder on people and businesses by raising tax. Now is the time to go for growth and reform our complex and outdated tax code.”

Their comments were echoed in a pre-Budget briefing note from right-wing think-tank the Centre for Policy Studies, which urged Sunak to "set out a vision of how the private sector can lead a robust recovery".

The CPS briefing note, called Budget 2021: A recipe for recovery, said: "There is a strong consensus among economists that the immediate priority needs to be growth rather than deficit reduction.

"Yet setting out a trajectory of future tax rises – and in particular tax rises on business – risks damping investment and consumer confidence."

Now is the time to go for growth and reform our complex and outdated tax code. Sam Collins

Author Tom Clougherty, head of tax at the CPS, also urged the chancellor to extend the furlough scheme, welfare support, the business rates holiday and the stamp duty holiday through the next few months - and make the latter permanent.

To further help business, he argued for various measures to encourage investment and productivity, such as a reform of business rates and the introduction of a form of ‘full expensing’.

Clougherty added: "There will be a time for fiscal conservatism, and for a balanced approach to deficit reduction, but for now the overriding objective must be to go for growth.

"That means rejecting rumoured tax increases on business and investment, which would only undermine the recovery, and instead charting a clear course towards an increasingly competitive tax system."

simoney.kyriakou@ft.com