The myth that the poor benefit from high tax rates must now be cast aside. High rates of taxation reduce revenue by removing the incentive to work or invest, while the benefits system serves to keep people poor. Labour’s policy of increasing the tax burden is self-defeating and even although many of their taxes are hidden they still feed through and stifle enterprise.
Introduce a flat tax on all incomes
We are committed to a radical shake-up of the tax system so that those on lower incomes would stop paying income tax altogether and everyone else would pay a flat rate. Under our proposals for a flat-rate income tax (the ‘flat tax’), personal allowances would be increased so that no-one on the minimum wage would pay income tax. On present figures, the personal allowance would be £12,000 and everyone would pay 22 per cent on all earnings above this level. The shift to Flat Tax would be phased to avoid any sudden loss of revenue before its beneficial effects started to feed through.
Taxation would also be simplified by removing complex tax credits and exemptions. The combination of a low tax rate with few exemptions would mean less incentive to fiddle and much lower administration costs. Countries which have already adopted a flat tax have found that revenue from higher earners has actually increased as they no longer have the incentive to avoid taxation in their home country. By implementing this measure, we would ensure that high earners pay their tax in Britain rather than employing armies of accountants to filter their money through tax havens and elaborate avoidance schemes. We would also use some of the £35 billion saved by cutting wasteful public spending programmes (see Cutting the Cost of the State) to replace any short-term loss in tax revenue.
A low flat tax will also reduce the ‘tax wedge’ – the difference between the cost of employing a worker and the income that the worker actually receives, another well known disincentive to work.
The benefits of flat tax would be felt most by the low paid. A study by the Adam Smith Institute found that:
- The poorest third of families currently pay 9% of their income in tax, but under the flat tax proposal they would pay nothing. Around 10 million taxpayers would no longer have to pay income tax.
- Families on below average incomes would on average pay only half as much tax as at present.
- Higher earners would pay a higher proportion of tax than at present, partly due to the removal of incentives for legal avoidance and illegal evasion.
Introduce simple and transparent rules
Over the years our tax laws have become extremely complex as a result of having to deal with numerous loopholes created by new taxes. Therefore, in addition to greatly simplifying our tax regime, the New Party proposes a new test, the 'Rule of Primary Purpose', by which the taxation status of all income and investments would be judged. This would allow natural justice to prevail and greatly reduce the number of protracted legal challenges.
Set corporation tax at a competitive level
Corporate taxation is even more complex than personal taxation and this alone imposes an enormous and unnecessary burden on business. Corporation tax must be set at a level which attracts inward investment and its eventual merging with the Flat Tax would also give a much needed boost to our commercial sector.
Reform council tax and reduce business rates
Our proposals for local government would mean lower and fairer council tax. We would first of all transfer the funding of certain core services to central government and place education spending in the hands of parents through a well tested voucher system. Business rates would first of all be reduced by savings from the abolition of regional development agencies and abolished altogether in the longer term.
Reduce incentives for avoiding excise duties
Setting rates of duty on alcohol and tobacco at a much higher level than our neighbours only increases smuggling. Instead of cutting demand it reduces the price to the end user and cuts the amount of government revenue. We would set the level of duty at the optimum level to discourage smoking and excessive drinking.
Reverse the upward trend in stamp duties
Stamp duties have risen significantly under the present government. We would raise the threshold for stamp duty to £250,000.
Review environmental levies
We would get rid of any environmental levies which failed to produce sufficient environmental benefit to justify the cost of compliance.