The tax system in Britain should be replaced with a single rate on all forms of income, claims a thinktank.
A report by the Institute for Public Policy Research (IPPR) has outlined its recommendations to improve the British tax system.
In order to make the system more “progressive and efficient”, the proposed reforms would involve two elements.
Firstly, it would combine all rates and allowances for employee national insurance contributions and income tax in a single tax schedule, which would apply to all incomes on an annual basis.
Secondly, it would abolish tax bands in favour of a formula-based system where the marginal rate would rise according to each taxpayer’s precise level of income.
If the recommendations were brought in, the IPPR believes work incentives could be improved and tax avoidance could be reduced as tax would not vary based on different sources of income.
It could also allow the government to raise taxes without as much political opposition, the IPPR claims.
The report stated:
“This variable treatment of different sources of incomes, combined with sharp ‘cliffs’ in the marginal rate between tax bands, creates perverse economic incentives, makes tax avoidance more likely and is far from transparent.”
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