Osborne calls for simpler, flatter taxes
The Conservatives must take a “wholly different approach” to taxation to persuade voters they are serious about cutting and simplifying taxes, the shadow chancellor says today.
George Osborne will tell the Social Market Foundation that his party lost the tax argument in the recent election because people “simply didn’t believe that we would cut taxes”.
A poll taken in April showed that 51 per cent of the public thought taxes would rise under a Conservative government, with just 11 per cent saying taxes would fall.
Today Mr Osborne warns that the party must show lower taxes are not “an ideological obsession” but the necessary part of a wider economic policy, and must make the case for lower, simpler and flatter taxes to distinguish themselves from Labour.
“We need to explain how lower taxes do not jeopardise economic stability or threaten public services, but are instead a vital component for enabling us to compete in the age of globalisation,” he says.
The principles guiding taxation, he said, should be those outlined by economist Adam Smith – that they be transparent, fair simple and efficient.
But Mr Osborne warned that the current system was far too complicated, citing the confusion created over tax credits, an increase of more than 24,000 in the number of tax inspectors and a system that sees doctors and teachers paying the top rate of income tax.
He believes one of the ways out of this problem is through the introduction of flat taxation, which is rapidly gaining converts, particularly in eastern Europe where Poland and Slovakia have already adopted it. Greece and Germany are also debating the idea.
The Treasury insists it is unconvinced about the benefits of the system, which would abolish all exemptions and charge the same rate of tax on all personal and corporate income.
Mr Osborne himself has previously expressed mixed opinions, but today he comes out in favour of a system that proponents argue raises revenue by creating a simpler tax that is harder to avoid.
“Inefficiencies introduced by different rates of tax on different activities are removed. Compliance costs fall, and the war of attrition between accountants searching for loopholes and taxmen trying to sew them up is ended: loopholes are abolished,” he says.
“What’s more a flat tax can be very progressive. Under the current system, most people start paying tax after they have earned just £4,895. A much larger personal allowance would mean that many low income people are taken out of tax altogether. And those on middle incomes find that a big slice of that income is tax-free.”
