Thinktank calls for tax system reform

The tax system in Britain should be replaced with a single rate on all forms of income, according to a thinktank.

A report by the Institute for Public Policy Research (IPPR) has outlined its recommendations to improve the British tax system.

In order to make the system more "progressive and efficient", the proposed reforms would involve 2 elements.

Firstly, it would combine all rates and allowances for employee national insurance contributions and income tax in a single tax schedule and would apply to all incomes on an annual basis.

Secondly, it would abolish tax bands in favour of a formula-based system where the marginal rate would rise according to each taxpayer's precise level of income.

If these recommendations were to be implemented, the IPPR believes work incentives could be improved and tax avoidance could be reduced as tax would not vary based on different sources of income.

It could also allow the government to raise taxes without as much political opposition, the institute claims.

The report stated:

"This variable treatment of different sources of incomes, combined with sharp 'cliffs' in the marginal rate between tax bands, creates perverse economic incentives, makes tax avoidance more likely and is far from transparent.

"Overall, the UK's tax system is not progressive. On average, the poorest 20% of households pay 35% of their gross income in tax, far more than the average for all other households."

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