Business seeks single 30pc rate of income tax

The major study demands simplification of the UK’s tax system, including the abolition of national insurance and stamp duty.

The report, by the 2020 Tax Commission, claims the changes would result in a £3,400 tax cut for a two-earner household with an income of around £28,000 and could lead to an 8.4 per cent increase in the UK’s gross domestic product after 15 years.

The commission, a joint project between the TaxPayers’ Alliance and Institute of Directors, calls for 30 per cent tax rates on income and capital. Under the plans national insurance contributions would be scrapped, with a single 30 per cent rate of tax on income and a £10,000 personal allowance.

Corporation tax and capital gains tax would be replaced with a 30 per cent tax on dividends, interest and rent.

Inheritance tax and stamp taxes on shares would be scrapped along with air passenger duty, while fuel duty would be cut by 5p under the proposals.

Taxation would be limited to a third of national income, as would public spending – meaning an extension until 2020 of cuts in government expenditure.

The proposal to shift to the single income tax would increase the budget deficit by £49.1bn in the first year if the changes were not phased in or if there were no further cuts to public spending.

But the commission predicts that the boost to the economy would result in a £35bn fall in annual borrowing after 15 years.

Allister Heath, chairman of the 2020 Tax Commission, said: “It is time for Britain to make a vital choice between tweaking the status quo and letting our economy continue to be crippled by complex and punitive taxes, and drastically changing course with a radical but realistic plan for a tax system fit for the 21st century.”