The 2020 Tax Commission has called for a single 30% rate of income tax, in order to boost growth in the UK economy.
In their report, they also suggest that the income tax personal allowance should be increased to £10,000, something that the coalition government is committed to doing.
If both of these changes were implemented, it is suggested that an average household with two earners on a combined £28,000 would see a tax cut of £3,400.
A simpler income tax system would be beneficial to all UK taxpayers, removing layers of red tape and bureaucracy. It would however result in further public spending cuts.
Whilst the suggestions made in the 2020 Tax Commission Report go further than those previously made by the Office for Tax Simplification, they are similar to the suggestion that income tax and National Insurance should be merged into a single type of income tax, albeit at different effective rates.
We see combining income tax and National Insurance as far more likely than the introduction of a single rate of income tax, although it is not without its challenges.
Pensioners and company directors in particular would need to be treated differently. It would be unreasonable to expect those in retirement to pay the equivalent of National Insurance on their pensions income. Company directors pay National Insurance contributions in a different way due to their dividend income.
Tax simplification is in the interests of every taxpayer and also the wider economy. The 2020 Tax Commission report adds a useful dimension to this ongoing debate.
Photo credit: Flickr/Tax Credits
