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UK tax system slammed for being inefficient, complex and unfair
Posted Sep 16, 2011
The Mirrlees Review has concluded that the UK's tax system is unnecessary complex, inefficient, and often unfair.
The report, released earlier this week, is the most thorough examination of the country's tax system in a generation, and contains wide ranging recommendations for the way individuals and businesses are taxed in the future.
One of the main reasons why the design of tax policy has so often been found wanting is due to the lack of adequate debate on tax issues. The report suggests that 'there has rarely been any clear sense of direction from governments; and expensive and damaging mistakes have been all too common.'
Some of the key recommendations (and findings) from the Mirrlees Review include:
Key findings
- Taxes on housing are a 'mess', with Council Tax bills based on 1991 valuations. Stamp duty is also singled out for abolition - deemed to be 'among the most inefficient and damaging of all taxes.'
- The benefits system is overly complex, and there should be more incentives for people to find work.
- As also mentioned in the Office of Tax Simplification report earlier this year, the income tax and National Insurance regimes should be merged.
- VAT is another inefficient tax due to the way it is inconsistently applied to different goods and services.
- Environmental taxes are also applied inconsistently.
- The tax on petrol and diesel is not an effective way to reduce congestion. Wider congestion charging would be a more effective solution.
- The marginal tax rates on earnings and different kinds of investment returns should be equalised, to reduce distortions in the tax system, and opportunities for avoidance.
- The corporate tax system should ensure the equal treatment of equity- and debt-financed investments. This reform alone may increase national income by 1.4%.
No getting away from the need to make changes
Commenting on the recommendations laid out in his report, Sir James Mirrlees said:
"(The UK tax system) could raise as much revenue and achieve as much redistribution as it currently does in far less costly ways. We propose a clear long-term vision and direction of reform.
"While some of the reforms we recommend involve tweaks to current policy others involve change which is radical and is for the longer term. There is no getting away from the political difficulty associated with some of the proposed changes. But there is also no getting away from the enduring costs of failure to reform."
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