The Daily Telegraph - Saturday - Money
PERSONAL ACCOUNT
A new report has radical ideas on reforming tax – ministers should listen
There was chatter this week in favour of slapping green taxes on steak and roast beef. It made me see red. Luckily, even Theresa May seems unlikely to fall for such a dismal, nannying and illiberal idea. But the Conservatives’ economic policy still lacks red meat of a less literal kind. After an uneventful Budget, the search for visionary policy ideas to steal a march on Jeremy Corbyn continues.
Those new ideas will have to come from outside the current government, which seems to have all its creative ingenuity focused on finding more ways to grab tax. This week saw the announcement of a new death tax via probate fees (see page 5), the launch of a consultation to make it harder to use trusts for inheritance planning and another intended to raise costs for second homes run as holiday lets.
But meat levies and ever-higher taxes are not the only options on the menu. A free market think tank, the Centre for Policy Studies (CPS), has just published a cleareyed, wide-ranging look at the perversities and complexities of Britain’s tax system, with practical, aspirational ideas to make it better. The report is called “Make Work Pay: a new agenda for fairer taxes”. Its author, Tom Clougherty, argues that National Insurance is really a second income tax. He proposes two simple principles: government should not take any of your earnings for income tax or NI until they reach a minimum threshold of £12,000 – and then should never take more than 50p from each extra pound that you earn.
Paying more in tax on additional earnings than you get to keep happens all too often. Our complex tax code causes a range of shockingly high effective marginal tax rates to apply in certain conditions. For example, the withdrawal of the personal allowance from high earners means that people with incomes between £100,000 and £123,700 face an effective marginal tax rate of 62pc. And it’s not just the very wealthy who are affected: child benefit rules create punitive rates for parents who earn £50,000 a year.
Mr Clougherty’s report lays out a number of reforms that are not only sensible and principled but also eye-catching, such as his idea for a “universal working income” of £1,000 a month tax-free for all. And the proposed plans to pay for the reforms are similarly radical, especially where they follow previous work for the CPS by Michael Johnson on how to reform pensions tax relief.
The CPS has a long history of its