Tax can be made simpler and faire
Sir, John Kay (March 22) and Thomas Piketty (March 29) have set out some interesting ideas on tax. Can I add a few thoughts on each of the main UK taxes?
On national insurance: if it can’t be abolished, then at least align rates with income tax. Despite the Budget announcement, people won’t really start paying tax only when they earn £10,000; they start paying NI (a tax in all but name) at 12 per cent on earnings of £7,956, up to £41,865, and at 2 per cent thereafter.
On income tax: tax rates should be enshrined in legislation, so that discussion is about the income bands at which those rates are paid, rather than totemising particular rates of tax. We probably need more smoothly rising bands, and it might be generally agreed that the government should not take more than 50 per cent in income (including NI), so I’d suggest 10, 20, 30, 40 and 50 per cent bands.
On stamp duty: this is a tax on transactions, so its much wider use could approximate to Professor Kay’s proposed tax on expenditure. And if it is levied primarily on the sorts of transactions that wealthier people undertake, it can be progressive as well. Collection and enforcement is easy, as unstamped documents make the transaction unenforceable in law.
On inheritance tax: we need to accept that substantial revenue is generated principally by lots of people paying small amounts of tax. When people receive an inheritance, they are best able to pay and, as it’s a windfall, perhaps less resistant to tax. A stamp duty-type tax on inheritances could start at, say, 2 per cent on £100,000 and rise on a sliding scale in bands of £100,000 to generate the required revenue – perhaps to pay for the increasing cost of care.
On capital gains tax: abolish this, as it generates only currently around £3.3bn, and can distort the allocation of resources.
As a new tax, an annual wealth tax on the richest people would be a quid pro quo for extending IHT and abolishing CGT.