Leading article: The tax that dare not speak its name


Related Topics

When George Osborne rises today to deliver the second Autumn Statement of his Chancellorship, he will be addressing a House of Commons, and a country, whose mood is very different not just from a year ago, but from April, when he presented his Budget. There is less hope than there was and more anger, along with a greater appreciation, perhaps, of how far this Government, even more than its recent predecessors, is hostage to forces beyond its control.

Yesterday's OECD forecast, predicting as it did a mild recession for the UK and for the eurozone, follows figures for growth and unemployment which suggest many key indicators are moving the wrong way. Mr Osborne's priority must be to convince his audience that he has remedies for a situation that looks even bleaker than it did when the Coalition took office. It matters little, except for purposes of political point-scoring, whether this is called Plan A (continued) or Plan B.

Whatever it is called, major components are expected to be government backing for more lending to small business – a risk, given the recent history of incautious bank-lending – and new, or accelerated, investment in infrastructure projects. We know this because the Government's media machine has been pumping out selective details, naturally emphasising the benefit and not the cost.

Mr Osborne, though, has a chance to do much more. In his short time in office, he has become known for some clever economics and even more adroit politics. With so little room for manoeuvre, he has nothing to lose by taking a broader and longer view. Why not, in that case, set about root and branch reform of the whole revenue system, based on the principle of the so-called "flat tax"?

In some respects, the Coalition has already moved in that direction. The universal tax credit, to be phased in from 2013, is designed to simplify the interaction of tax and benefits. The raising of the income-tax threshold, as favoured by the Liberal Democrats and adopted in part by Mr Osborne last year, takes many low-earners out of tax altogether. A flat tax, equalising income tax at a single rate and eliminating all loopholes, can be seen as a logical next step.

The most frequently rehearsed objections are two sides of the same coin: the poor, it is said, are penalised, because indirect taxes would rise, and the richest would benefit disproportionately from a lower rate. But these objections take little account of the injustice that exists at present. Under a flat tax, the poorest pay no tax at all. Some indirect taxes might rise to the level of the flat tax on income, but food and basic necessities could remain zero-rated for VAT.

As for the rich getting a better deal, recent revelations about the extent of legal tax avoidance by the wealthy – through trusts, tax-efficient companies, off-shoring and special arrangements with HMRC – show how the current system already makes the rich different. A flat tax would have the advantage of being seen to be fair. There would be no special pleading, no exemptions, no sense in lawyers and accountants devising tax-efficient "vehicles", because the tax itself would be efficient.

If Mr Osborne were still bolder, he could also introduce the sort of global tax liability on Britons that the IRS applies to Americans. Then there really would be fewer places for reluctant tax-payers to hide. But the chief advantage of moving to a flat tax under current circumstances would not be fairness or transparency – though these would be benefits in themselves – but the money released into the economy. There are few better ways to foster that elusive growth than a one-off reform of the tax system that un-squeezes the middle, and leaves people with more money to spend, now and in years to come.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Legal Secretary

£17000 - £17800 per annum: Recruitment Genius: This is an opportunity to work ...

Recruitment Genius: Ad Ops Manager - Up to £55K + great benefits

£45000 - £55000 per annum: Recruitment Genius: This company is a digital speci...

The Green Recruitment Company: Operations Manager - Anaerobic Digestion / Biogas

£40000 - £45000 Per Annum: The Green Recruitment Company: Job Title: Operation...

Recruitment Genius: Implementation Consultant

£40000 - £45000 per annum: Recruitment Genius: This global leading software co...

Day In a Page

Read Next

Daily catch-up: How much difference does the wording of a referendum question make?

John Rentoul

An unelectable extremist who hijacked their party has already served as prime minister – her name was Margaret Thatcher

Jacques Peretti
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent