There just might be, according to The Centre for the Analysis of Taxation or CenTax, but first, who are they? Well, CenTax is an independent organisation, largely funded by private philanthropic support, with some state funding. It was set up to improve the public’s understanding of tax policy and help to design a better tax system, by generating evidence that is rigorous and relevant to policymakers and the public.
On their website they state that their three guiding principles are:
- To undertake peer-reviewed academic research
- To prepare ”agenda-setting” policy reports
- To provide impartial comment & analysis on all UK taxes
Today I am looking at the latest CenTax report, which analyses a number of potential major tax reforms that could simplify the UK’s tax system and promote economic growth. This report closely follows on the heels of Rachel Reeves’ late November budget, which managed to introduce even more contortions and complexities into our tax system, so that she could avoid raising the main rates of Income Tax, VAT, Corporation Tax and National Insurance.
The latest CenTax report, titled Tax Reforms for Growth, sets out a framework to work towards a better tax system rather than a precise blueprint. It addresses a number of key problem areas of UK tax with some broad-brush solutions. So which key areas of taxation did CenTax suggest could be reformed?
- Abolish SDLT
Pretty much every financial expert in the land agrees that Stamp duty land tax (SDLT) is one of the most distorting taxes in the UK and CenTax advocates abolishing it. They’ve also suggested that the revenue lost could be largely replaced by a root and branch reform of council tax and business rates, something all politicians agree on. The problem is, will such a reform replace all of the lost revenue?
CenTax proposes revaluing all residential properties at regular intervals of 5 years, perhaps using Ai, as most of the information needed is publicly available. and base council tax on those current up-to-date values. Business rates should also be revalued at regular intervals, but instead of using building values, the tax should be based on site values. They also advocate abolishing empty property relief for business rates.
- Rents should be taxed as ‘other’ income
Abolish the special income tax rules for property income that block deductions for mortgage interest and finance costs. To counteract these additional deductible costs, the income tax rate for this class of income should be raised to bring in the same amount of tax. Additionally, the CenTax report suggests that rental income should be subject to national insurance contributions (NIC), similar to PAYE and Self-employed income.
- Close CGT loopholes
There are only two ways to avoid capital gains tax (CGT): dying and moving abroad. CenTax have suggested that collecting CGT on death could be achieved by wiping out the gains on a person’s death, with the inheritor acquiring the inherited assets at their base cost as held by the deceased. This however would need inheritance tax reform to avoid any potential double taxation of gains.
Secondly, when moving abroad, CGT should be charged on gains accrued on assets while the taxpayer is in the UK. This would require a rebasing of all assets on the taxpayer’s arrival in the UK or on the date of purchase if bought whilst he/she is in the UK. Taxpayers who leave the UK permanently would then be taxed on a deemed disposal of all their assets as at their date of departure.
- Merge Income Tax and NIC
Pretty much everyone agrees that NIC is no longer fit for purpose as is not only a tax on employment but also distorts the taxation of different types of workers. CenTax have suggested that NIC should be abolished, with a higher base rate of income tax ensuring that the change is fiscally neutral for employees, something I’ve regularly championed in various Blogs over the years
More radically, CenTax have also suggested abolishing employer NICs, a suggestion originally proposed in 2011 by the Mirrlees Review of the Tax System. CenTax have suggested that the employers’ element of NIC could be replaced by a small increase in the rate of Corporation Tax. This would make the change broadly neutral for employers, whilst boosting recruitment as there would no longer be a ‘tax on jobs’.
- Broaden VAT base
As VAT is charged on only around 50% of all spending, CenTax suggest a significant widening of the base by applying VAT to a much wider selection of goods and services. This would allow the headline rate of VAT to be reduced across the board or, alternatively, it could provide Rachel Reeves more tax income to perhaps increase defence spending.
CenTax recognise that lower-income groups on state benefits would need some protection from the instant rise in the cost of food, energy and housing and rates of benefits would need to be raised proportionally.
- Adjust income tax marginal rates
The interaction of the tax and benefit systems create some eye-watering marginal rates of up to 80% as Dan Neidle of Tax Policy Associates has pointed out regularly. CenTax have suggested a gradual taper on the removal of child benefit and a reduction in the marginal rate that applies to the removal of childcare subsidies.
- Remove the distinction between revenue and capital spending
Businesses should be free to decide what capital spending they need without tax interfering with that decision. To facilitate this freedom, CenTax suggests the revenue/capital distinction should be removed entirely from tax law. This would affect unincorporated businesses as well as companies, but the increased tax reduction could be counterbalanced by a modest rise in CT tax rates to make this change revenue-neutral.
Accountant’s view
Sadly, despite my support for most of CenTax’s proposed changes, I am acutely aware that the process of moving from the current messy and unfair tax system to one that is more logical, fairer and operates to promote growth will be extremely difficult.
As always, the losers will always shout louder than the winners, and although I’m in the glass-half-full camp, I fear that pressure from interested parties will inevitably tip the scales in favour of the status quo.
