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Should there be a 30% flat rate of income tax?

by John Fitzsimons 21 May 2012 |

17 comments | Love

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A report from the 20/20 Commission has suggested that the Chancellor should introduce a flat rate of income tax at 30%.

The change would allow us to keep more of our earnings, which we could then spend on the high street and boost the economy.

The commission also called for the abolition of NI and Stamp Duty, and cuts to fuel duty.

Would such changes help? Are they even possible, or is this just fantasy talk?

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Comments (17)

878

MikeGG1 posted
NO NO NO!!!

Pensioners have already had their incomes crippled by QE dropping interest rates to a minimal level.

Then we were told that we would lose our age-related tax allowance.

Now they are suggesting that we pay an extra 10% tax.

It would be a good idea for employees. Tax should be progressive in total and not made up of all sorts of bits and pieces which come and go at various levels.

There should however be a suplementary rate of an extra 10% coming in at £50,000 per year, or thereabouts and another over £100,000.
Posted on 21 May 2012 | Love 1 love Report
45

LiamT posted
ive been looking at this and most people seem to be better off from it. i never thought about pensioners Mike.

i wonder how this will help the deficit as everyone will pay less (top end being much better off). i guess it stops the super rich avoiding tax left, right and centre!
Posted on 22 May 2012 | Love 0 loves Report
11

jimgardner posted
ABSOLUTELY NO!!! This is Robin Hood in reverse (take money from the low paid and redistribute it to the rich!!) I don't pay NI as I'm retired and this would increase the amount of tax I pay by 50% ! All so that people on high rate tax get a reduction in the amount of tax they pay! The crux of the problem is that tax receipts are not enough to cover spending. The Govt needs to either reduce spending (overseas aid would be a start - this is simply enforced charity donations!) and/or increase tax receipts. There are plenty of opportunites to do the latter by focussing on tax avoidance schemes used by wealthy individuals and corporations. Applying a one size fits all solution to the tax system is the wrong solution to the problem!
Posted on 22 May 2012 | Love 1 love Report
0

guyrobinson posted
YES with some modifications!

We need a dramatic simplification of our tax system. We should all be able to understand it and believe it is fair.

I would get rid of all personal allowances and introduce a flat rate tax of just 10%. This means that everyone becomes a tax payer and therefore values the tax they pay, and have a personal interest in how it is spent. Free things have no value to us.

The rate should increase to 20% then 30%, and I suspect there will be no need for higher rates, and 20% may only kick in at about £50,000!

Further everyone should pay these rates of tax, so that whatever tax schemes you come up with, you cannot reduce your tax bill below 30%, making tax avaoidance redundant!
Posted on 22 May 2012 | Love 0 loves Report
81

rbgos posted
The current system is far too complex, so the abolition of NI and other taxes and a flat income tax (on top of a generous tax-free allowance to ensure the poorest are not adversely affected) is a good idea. But I suspect that 30% is too low a figure - for tax receipts to be sufficient to cover spending (and servicing govt. debt) I'm sure it would need to be higher.

There must be a critical combination of tax-free allowance and flat tax rate that ensures that the poorest are the same or better off, and still achieves a far simpler system than we have now. Say £15k tax-free and 40% on everything above that? Including dividends, capital gains, and all the other ways the most well-off collect their money in a way that reduces their tax bills. And get rid of NI, IHT, Stamp Duty...

(N.B. I'd be worse off under such a system, so I'm not arguing this from a selfish perspective on what would suit me best, but what I think is morally correct!!).
Posted on 22 May 2012 | Love 0 loves Report
643

electricblue posted
Nothing will prevent the super rich avoiding tax on personal wealth unless restrictions are made on residency and how long they can stay in the UK. If I won the lottery, I'd be resident in Gibraltar with a flat rate of under £30K a year in tax regardless of income. No-one wants to pay a lot of tax and everyone wants all the benefit they can get of being in the UK.
Posted on 22 May 2012 | Love 1 love Report
67

r posted
YES with some modifications! I don't know if 30% would be the correct rate but let's assume it is. I think we do need a zero rate tax band (=personal allowance) so that the lowest earners (part-timers, pensioners etc.) do not pay much tax. Also, if there is not a zero rate tax band, we will find a black market in lowly paid jobs. It would certainly be nice to get rid of a lot of the complexities in the tax system; VAT is a simple method to understand and I would be happy with 20% VAT if the income tax system was improved.

I think the "progressive" system of taxing the higher earners at a higher rate is misguided and misunderstood. For example, if we had a fixed, flat rate of 30% income tax and a personal allowance of £10k, an average earner on £25k p.a. would pay £4,500 in income tax. Someone on an income of £100,000 would pay £27,000 in income tax - 6 times the amount of tax for four times the income. That is progressive taxation - we don't need the higher bands. Introducing higher tax bands just discourages the really clever people and our entrepreneurs from staying in the country.

Of course, the real need is for all governments and for Team GB to get out of things we can't afford - why is nobody realising this?

r.
Posted on 22 May 2012 | Love 1 love Report
0

111BJD posted
As an employer with 12 employees, this idea is brilliant and will save me hours of work. The downside is that pensioners will lose out but why should pensions be taxed anyway; the contributions to them were after tax.
However, it will never be allowed to work as the whole NI/Tax system is operated by thousands and thousands of civil servants who will no longer be required. Do you think they will assist in implementing the system? Do turkeys vote for Christmas?
Posted on 22 May 2012 | Love 0 loves Report
27

grelly posted
As most currently pay 25% tax, plus 12% National Insurance (38% total), 30% seems too low. How are they going to address the shortfall?

Secondly, can't the "pensioners don't pay NI" problem be solved by raising their tax free threshold?
Posted on 22 May 2012 | Love 0 loves Report
26

rpb posted
"The change would allow us to keep more of our earnings, which we could then spend on the high street and boost the economy."

This sounds like the classic "the country's in debt so let's fix this by borrowing a lot more (reduce government income but not spending)" line. Surely if we already have a budget deficit, cutting tax isn't the thing to do, is it? How about we consider reducing tax rates when we have a budget surplus and the national debt has been quartered?!

I like the idea of a flat(ter) rate, but like earlier posters I don't think setting it at 30% AND eliminating national insurance contributions is going to balance. I also agree there should be a very low band (or tax free, notwithstanding @guyrobinson's comments) for the lowest earners.

I wonder if one of the researchers at lovemoney (or elsewhere) could give us a rough formula for what the flat rate would need to be to match current taxation, perhaps with an introductory band at a low or zero rate, so the readers don't have to speculate!
Posted on 22 May 2012 | Love 1 love Report
38

Aquasponge posted
What is income? Its a very loose term, unclear as to dates when actually earned, unclear as to costs that can be netted off, unclear as what is capital, unclear where it was actually earned and easy avoided.

We need to tax wealth to eliminate avoidance.
Posted on 22 May 2012 | Love 0 loves Report
38

Aquasponge posted
The wealthy get wealthier while the middle and working classes pay their income tax and continue to struggle.

You work for your income. Your wealth increases through speculation, luck or family connections.
Posted on 22 May 2012 | Love 0 loves Report
599

Mike10613 posted
This isn't the answer, but typical of 'expert' thinking. The tax system needs to be simpler so the revenue service can investigate why the rich avoid so much tax and companies avoid corporation tax. No change will be effective until all the fiddles and loop holes are closed and that means MP's expense fiddles too. Al Capone was sent to prison for tax evasion on the basis that he couldn't be that rich had he paid all his taxes. The same could be said for many of our celebrities and politicians.
Posted on 22 May 2012 | Love 0 loves Report
362

CuNNaXXa posted
Why not do away with income tax altogether and increase VAT instead.

The essentials will still be zero VAT, but the government would earn on money spent on luxuries and non essentials (iPads, Plasma TVs etc.).

Also, if you tax spending instead of earnings, you get over the problem of tax avoidance.

Point to note: Money has absolutely no value whatsoever, except in that it can exchanged for items of value. £1,000,000 has no value, except what can be bought for it. Until exchange, money is worthless, and money remains worthless, except the worth we place on the exchange of goods. This is why forty years ago, you could buy a three bed semi for about £9,000, yet today the same property is worth more like £200,000. The property hasn't changed, yet the number of one pounds required to purchase it has, meaning each one pound has less value today than it did have forty years ago.

Posted on 22 May 2012 | Love 2 loves Report
6

The Ultimate Worrier posted
I've thought for some time that NI is nothing more than income tax by another name. The money is not ringfenced so why bother with it?
Either roll it into income tax (with the correct tax free allowance for pensioners etc) or make NI fit for purpose.
Why not turn NI into an individual "Insurance policy" that would kick in with payments if you were made unemployed, or pay a lump-sum on retirement if you never claimed. People who never pay NI would not be entitled to the extra benefits.
Surely someone who has worked hard for 25 years and is made redundant should get more benefit than someone who never works a day in their lives? Wasn't this (along with funding the NHS) the original purpose of NI all those years ago.
Posted on 24 May 2012 | Love 0 loves Report
878

MikeGG1 posted
Increasing the Personal Allowance for pensioners to offset the effect of the extra 10% doesn't work because that would remove from tax some who are currently on 20% for their top slice.

What could happen is that pensioners could be on one tax table (20%) and the rest on another (30%).

Both could have supplementary rates over certain incomes.

Back in 1975, Barbara Castle (Labour) scrapped the Conservative (Keith Joseph) plans to make the second tier state pension funded. That was a huge mistake and has caused a lot of the pension problems that we now have. Finally, they are getting around to funding it but that means the current generation of workers having to pay for their own pensions and to pay for those of the current pensioners.

If only they had funded it back in 1975 there wouldn't have been existing pensioners with second tier pensions for the employees at the time to fund as well as their own pensions.

For those who are thinking that the second tier pensions didn't start until 1978, that is correct. The Conservative plan was due to start in 1975 but scrapping it meant that Labour took another 3 years to implement their own plan.

Mike
Posted on 24 May 2012 | Love 0 loves Report
41

Arblaster posted
YES, JA, DA, OUI, SI, TAK, SIC! One of the problems is that the tax system is so complicated that the staff at the tax office, who are not fit for purpose, cannot calculate your tax without screwing it up somehow. In Cardiff you have a new computer system where you can have more than one tax code. Problem is, none of the staff know how to use this new system, which is why you have to ring them up year after year to put right the chaos that these so-called tax professionals have caused, because they cannot do basic calculations that I could do when I was seven years old. Then there is the Newcastle office whose rude and thuggish staff screw up your National Insurance contributions. Simplifying the tax code will stop the chaos, and we will be able to cut the number of civil servants, and get these Newcastle staff off our payroll and onto the dole, where they will do less damage. It is ridiculous that we have one set of civil servants to take money off us, and another set to pay it back to us again. Cutting the number of civil servants will mean that the amount of tax we pay will be lower.
Posted on 25 May 2012 | Love 0 loves Report