Think tank proposes VAT shakeup

A recent report from the Institute for Economic Affairs (IEA) proposes the abolition of a number of taxes, such as National Insurance (NI), excise duties on alcohol and tobacco and a shake-up of the VAT system.

According to the IEA’s report, entitled Taxation, Government Spending and Economic Growth, VAT should be reduced to a flat rate of 12.5 per cent, with most of the current exemptions removed.

In fact, the report argues, 20 current taxes should be axed and replaced by a simpler system that would include new taxes on land-value and an effective VAT charge on elements of housing costs, including rents, while income and distributed corporate profits would be taxed at a flat rate of 15 per cent.

As a package of measures, the IEA claims that the reforms would lead to increases in employment, productivity and wages through a lessening of the tax burden. Additionally, it suggests this would disproportionately benefit low-income workers who are more likely to be in insecure jobs, low-paid employment or unemployed.

In total, the think tank says that the poorest 40 per cent of the country would all see tax cuts in excess of 10 per cent.

Meanwhile, other bodies are also calling on the Government to cut VAT, with a spokesman for Thomas Cook suggesting a reduction in the rate of tourism VAT from the current 20 per cent to the 5 per cent average enjoyed in other European countries.

As he points out, with Brexit looming, even though the falling pound means the UK is currently around 15 per cent cheaper for overseas visitors, there are fears over the longer-term effects, particularly if the Government opts for a ‘hard Brexit’, which could see two million fewer visitors to the UK by 2020.

Posted in Blog, VAT.