'Unfair and too complex': tax rules attacked in IFS report

The tax system is "inefficient, overly complex and frequently unfair", according to a report by the Institute for Fiscal Studies think tank. The report also warned that it is "not clear" whether the 50p tax rate on incomes over £150,000, introduced by the previous Labour government, will raise any revenue at all.

The IFS review of the UK taxation system, led by the Nobel laureate Sir James Mirrlees, proposes that VAT be extended to all spending and that fuel duty be replaced by a tax on road congestion. Other suggestions are for a single rate of corporation tax for firms, regardless of size, and an end to tax breaks for companies that fund their operations through debt. The report also advocates a "lifetime wealth-transfer tax" to replace an inheritance tax that is only levied on assets transferred at, or near, death.

Sir James voices support for Iain Duncan Smith's plans to simplify the benefits system, calling the present arrangements "unnecessarily complex". The report also urges politicians to summon up the political courage to reform council tax by conducting a new survey of home values and establishing new tax brackets based on the results.

"There is no getting away from the political difficulty associated with some of the proposed changes", writes Sir James. "But there is also no getting away from the enduring costs of failure to reform".