05 October 2011
Mirrlees Review: Inefficient, overly complex and frequently unfair
Damning words from the Institute for Fiscal Studies in its report on the UK tax system released this month. The review, led by Sir James Mirrlees, has taken five years to complete and includes recommendations for significant reform, some of which are explored in this article.
The Mirrlees review has finally culminated in a report released earlier this month, which makes some radical recommendations for reform to a tax system which “imposes unnecessary costs on the economy”.
Some of the key proposals made by the Institute for Fiscal Studies include the following:
1. Abolish stamp duty, which is "among the most inefficient and damaging of all taxes".
2. Extend VAT, which the review concludes is "needlessly complex and inefficient" to cover nearly all spending. The proposal is for the extra tax revenue to be used to reduce income tax and raise benefits.
3. Combine income tax and National Insurance. The report deems National Insurance as "no longer serving any purpose".
4. Reform council tax to bring payments in line with up-to-date values and fully proportional to house value.
5. Simplify the benefits system. The review welcomes the government proposals for a Universal Credit.
6. Replace most of the current fuel duty with a national congestion charge system.
7. Reform savings tax. The review criticises "hugely different effective tax rates".
8. Address the imbalance of taxation in the corporate tax system, which currently favours debt finance over equity finance.
So what do these recommendations mean in the real world? Only time will tell. However, if anything is certain it is that the UK taxation system will continue to change, and it becomes increasingly important to maintain regular contact with your Wilkins Kennedy tax advisor so that you can stay abreast of current issues affecting you.