Five fixes for the tax system
The Spring Budget is an ideal opportunity to shake up some worn-out concepts and assumptions embedded in the tax system, so Rebecca has drafted a Budget speech to do just that.
Madame Deputy Speaker – I want to be honest with the House and the country; the UK needs to raise more tax revenue. The country has borrowed over £400bn to fight the coronavirus and to support businesses through the pandemic. That debt will need to be repaid eventually.
The crisis has also placed an enormous strain on the National Health Service, and has exposed the threadbare funding of certain key services. We need to strengthen our wonderful NHS by supporting it in its entirety, including mental health services and social care.
The NHS staff at all levels should be properly rewarded, so I am proposing that annual pay rises for health and social care service workers are tied to the annual percentage increase in state pensions. If our pensioners deserve a pay rise, our hardworking nurses and care workers certainly deserve the same.
To encourage more people to join our rejuvenated NHS, I will instruct the Student Loans Company to pause the collection of student loan repayments from individuals who accept a full-time position within the NHS. If that person remains employed by an NHS public body for at least five years, their entire debt with the Student Loan Company will be cancelled.
This ongoing support for the NHS and social care requires funding for the tax system, this money can’t be provided by endless increasing the national debt. The tax system requires restructuring.
These are my five structural proposals.
1. National Insurance Contributions are taxes
NI contributions are a tax which falls disproportionately on employees compared to the self-employed and those whose derive their income from investments or property.
I will instruct HMRC to draw up plans to merge national insurance contributions and income tax, with the aim that everyone should pay the same rate of income tax at the same level of income, irrespective of the source of that income. There will be no exemption from this combined income tax and NIC for older taxpayers.
However, those with income within the personal allowance will pay no combined income tax, being relieved of the burden of national insurance.
2. Employers national insurance is a tax on jobs
I will abolish employers’ NIC and increase the rate of corporation tax to compensate. I will also abolish the Apprenticeship Levy has it hasn’t achieved its aim of increasing the number of genuine apprenticeships.
3. Definition of self-employed
The combination of these two changes will remove the pressure on employers to replace employees with contracted workers to save employers’ NIC. However, the distinction between employed and self-employed workers is still blurred.
I will ensure the recommendations of the Taylor Review of Modern Working Practices are implemented in full, including legislating for a single test of employment to apply for tax law and employment rights.
4. Gains and income are equal
There is no good reason why income and capital gains should be taxed at different rates. The rate of capital gains tax will be set to the equivalent of the highest income tax rate paid by the taxpayer. Corporations already pay tax at the same rate on income and capital gains.
5. Allowances add complexity
There are too many allowances and reliefs that add complexity to the tax system for little benefit.
I will tie the level of the personal allowance to the amount of adult national minimum wage payable for a 35-hour week. This means that a person earning the national minimum wage for a full year will pay no combined income tax.
The allowances for sundry trading income, property income and dividend income will be abolished. Dividend income will be taxed at the same rates as all other income.
Finally, Madame Speaker, leaving the EU was a terrible idea. It has created trade barriers where none existed before, and increased the amount of red tape for businesses who need to trade in goods or services across borders. It has caused businesses to close operations in the UK and move jobs and investment to mainland Europe.
Brexit has also split up families, and taken away opportunities from our children and grandchildren to study, work and live without restriction in European countries. It also creates a valid reason for Scotland to leave the United Kingdom after over 300 years of fruitful partnership
I recommend that this Parliament explore every means possible to rejoin the European Union at the earliest opportunity.
I commend this Statement to the House.