There's one way the tax system could be fairer and
provide at least the same revenue as all current direct and indirect taxes do now. It's called a 'flat rate' system and (to match current estimated revenue from current taxes both direct and indirect) it works like this.
For every individual in the UK the first £12,500 of income are non-taxable and not subject to class 1 NI contributions. (Class 2 and 6 are paid by the employer and frankly I'd do away with them entirely since the revenue from them only barely covers the cost of collecting them).
For everything above 12.5K the set rate of income tax would be 22% with NI(1) at 8%. However NI would be used only
to fund the welfare state and NHS, nothing else
. This is important, until recently the NI 'pot' actually had a surplus but successive governments raided it either for 'special programmes' or to fund cuts to Income Tax especially the higher rates. It's part of the reason the NHS is now in such a terrible mess.
There would be no
higher rates of income tax for higher incomes. However there would also be no loopholes. At all. No special exemptions, no making yourself a personal service company or creating a 'holding company' and making yourself an employee. All income paid to you would be personal income and subject to the 12.5K limit.
Done this way anyone with a basic education and a calculator will be able to find out for themselves precisely how much tax they owe and there's no guesswork or worries about who qualifies for what rebate or deduction or worse being told they've underpaid and now have to find more money to make the taxman go away.
Some friends and I modelled this out on a computer (we were helping a mate who was doing his doctorate in economics) and we were startled to find that with the above numbers we could abolish fuel, alcohol and tobacco duty, all VAT and even the various versions of Corporation and Company taxes and
give the exchequer a working profit. A large part of the reason for that was it would be far simpler and cheaper to collect the money in the first place (most would continue to be subject to PAYE and automatic NI deductions from salary) and much, much
easier to enforce since the tax code itself would be vastly simplified. Of course it would hurt accountants and tax lawyers and a large number of civil service bureaucrats would be now obsolete but the overall net effect would be to provide a government with far more useable
revenue while actually decreasing
the amount more than 90% of the population currently pays to the government per year. In fact the main losers would be the super rich for a change since they are able to afford lawyers who can reduce their tax bills to pennies under existing law assuming they pay tax at all).
We modelled this using the governments own statistics for how many people in the UK are currently of tax paying (ie working) age and compared it against the published current revenues the government claims to receive. John's thesis (which outlines everything we did and shows both his and the governments figures) will be available on line from September.
I don't know how many times we re-ran the numbers before accepting they were right but it was at least four and every time we ran them we got the same answer. Since this is a long post even by my standards I'll end it here except to say that once the thesis is published I'll provide the URL for anyone who's interested.