Mary Dejevsky: Why the political left should adopt the 'flat tax'

Ed Miliband could become the advocate of low tax, the 'squeezed middle' and an effective state

Share

How many tax inspectors does it take to boost the Treasury's coffers by an extra billion? Combining yesterday's report by the Commons Public Accounts Committee and claims by trade unions, one answer would be around 3,000 – that is the number of jobs lost from HM Revenue and Customs that could, theoretically, have brought in the additional amount.

But there is another answer, and that figure plunges deep into minus territory. Radically simplify the tax system, and no government would need anything like the 26,000 staff currently employed at HMRC on compliance, let alone that supposedly missing 3,000. The wage bill, the buildings bill and the expenses bills could all be slashed – leaving every single taxpayer better off. So why is there no serious constituency for reforming the system along the lines of the fabled flat tax – for this is what it would essentially be?

This week saw publication of a comprehensive study of the flat tax – recast as a "single income tax" – as it might work in Britain. Compiled by a group of experts, calling themselves the 2020 Tax Commission, the report argues that Britons are taxed far more heavily than most realise, when income tax, national insurance and marginal benefits rates are all taken into account. Under a single tax system, many would be taken out of tax altogether, as the personal allowance was raised beyond the £10,000 envisaged now, and made partially transferable within households.

Set at a notional 30 per cent levied on all income above that, the tax would be simple and transparent. No income would be exempt. There would be no loopholes and no incentives for particular types of investment or behaviour, but the effect of lower tax generally could spur additional growth of around 6 per cent within 10 years.

So why on earth, the question bears repetition, is such a patent good still regarded as the plaything of mavericks and a small bunch of tax fetishists? One reason has to be the widespread perception that the flat tax is a creature of the political right, and so likely – indeed bound – to favour the rich and penalise the poor. This prejudice is only reinforced by the fact that the most committed proponents of the flat tax are to be found on the right, albeit its libertarian wing.

Another is the huge construct of vested interests and the reality that a single tax presupposes changes that would go far beyond major demolition at the tax inspectorate. So long as the political left regards a big state as inherently better than a small state, regardless of how well it does the job, it will dismiss a flat tax out of hand.

Yet the secret that lurks in the economics of the single tax is that, if it penalises anyone, it is likely to be those who have found ingenious ways not to pay the tax they should be paying. Whether you call it avoidance or evasion, either would be more difficult under a transparent system. And with the single rate lower than the present higher rates, the incentives for avoidance would decline. Now that wealthy tax-avoiders are the villains of our age, the single income tax warrants at least a glance from the policy gurus of the left.

If they could be coaxed to take a closer look, they might find a lot more to like, for the most dramatic, and welcome, impact would be on those identified by Labour as the "squeezed middle". The combination of a higher tax allowance, the single tax rate, and the possibility for an individual to transfer some income to a non-working partner and children for tax purposes, would leave everyone with more of their own money. The benefit for the "squeezed middle" could be more than £3,000 a year.

Nor should the shrinking of the state be approached with too much apprehension – except by its supernumerary employees. Escalating rows between Coalition ministers and senior civil servants stem largely from the awkward coexistence of deregulated agencies and an old-style civil service, still operating to almost full strength. This duplication of functions is untenable.

In opposition, David Cameron outflanked the Labour government by seizing the populist ground on state benefits. With low and middle incomes stagnating, and resentment rife against tax-dodging, Ed Miliband could do something similar on household finances and tax. Indeed, the rise in personal allowances and Iain Duncan Smith's moves to integrate tax and benefits mean that the foundations have already been laid.

Simple, transparent and fair, a single tax has at least as much to recommend it for those of modest or average means, as it does for bankers and big business. It offers Mr Miliband an opportunity to reinvent himself as the advocate at once of lower tax, the "squeezed middle" and an effective state, which he could propose to slim down not on US, but on Australian or Swedish lines. His Labour could be the party of 30 per cent maximum taxation; no extortionate marginal rates; no hair-splitting about child benefit; no advantages to be derived from clever accountancy, and no special deals over lunch with HMRC. The 2020 Commission's report runs to 400-plus pages. Mr Miliband and his new policy chief, Jon Cruddas, should get reading.

m.dejevsky@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

The Jenrick Group: Quality Inspector

£20000 - £21000 per annum: The Jenrick Group: This high quality manufacturer o...

The Jenrick Group: Electrical Maintenance Engineer

£30000 - £35000 per annum + pension + holidays: The Jenrick Group: Electrical ...

Recruitment Genius: Photo Booth Host

Negotiable: Recruitment Genius: This company offers London's best photo booth ...

Recruitment Genius: Domestic Gas Service Engineers



£25000 - £30000 per annum: Recruitment Genius: Domestic Gas Service Engineers ...

Day In a Page

Read Next
Elton John and David Furnish finalise their marriage paperwork  

Don't be blinded by the confetti — the fight for marriage equality in the UK isn't over yet

Siobhan Fenton
Freeman, centre, with Lord Gladwyn, left, and Harold Wilson on the programme The Great Divide in 1963  

John Freeman was a man of note who chose to erase himself from history

Terence Blacker
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'