Think tanks unite to demand tax reform

Several think tanks from across the political spectrum have united to advocate for comprehensive tax reforms in a report prioritising productivity growth and fairness within the system. Economists and policy officials from the left-leaning Institute for Public Policy Research (IPPR), the right-leaning Centre for Policy Studies, the Adam Smith Institute, and Labour Together have highlighted the need to eliminate “arbitrary and nonsensical rules.”

The report, led by the London School of Economics’ Centre for the Analysis of Taxation (CenTax), provides a “framework” for making tax systems more “rational” and “effective,” rather than offering a “precise blueprint.” This represents a final appeal to the Chancellor to address complex rules in the forthcoming Budget, where tens of billions of pounds in taxes are expected to be raised.

The think tanks assert that the proposals are “revenue neutral,” as researchers have not made judgments on the “appropriate size of the state” or on whether tax intake should increase or decrease. Key proposals include abolishing the stamp duty land tax and basing council taxes on current house values instead of 1991 valuations.

The report also recommends that taxes on landlords’ revenue should allow a full deduction for mortgage interest costs and national insurance on rental income, with income tax rates adjusted to account for revenue differences. Economists suggest that business rates should be based on site values, and empty property reliefs should be abolished.

Another significant issue identified is VAT. Policy researchers and economists agree that the VAT base should be expanded to include more goods and services, thereby reducing administrative costs for businesses. In exchange, the headline VAT rate should be lowered, and lower-income groups should be compensated for increased costs on basic goods.

The coalition also urges the Chancellor to address the £100,000 tax trap by reducing the marginal rate applied to the removal of childcare subsidies and introducing a more gradual taper for the removal of child benefits. The government is further encouraged to stop investment incentives in appreciating assets from being distorted by introducing new allowances and an exit tax, with capital gains tax rates adjusted to maintain revenue.

Corporation tax reform is another critical demand to eliminate the bias towards debt over equity investment. Arun Advani, director of CenTax, stated that HMRC’s code is “riddled with inconsistencies and distortions that discourage investment, penalise work and hold back productivity.” He added, “The upcoming Budget is an opportunity for the Chancellor to review the tax system comprehensively and ensure that any changes also support her growth mission.”