Economy

Report warns UK should move away from ‘simple and harmful tax cycle’

Britain must end the “simplistic and harmful cycle” of promising tax cuts when in reality they are trying to get them to go up, according to the report.

UK tax receipts are set to rise to £1 trillion in the coming years, potentially adding £4,200 per family to payments by 2027, according to an estimate by the Resolution Foundation.

It argues that the “complicated” system must be fairer to low- and middle-income households and redesigned to help rather than hinder financial progress.

The survey comes as the UK faces an increase in its overall tax burden to its highest level – as a proportion of GDP – since the Second World War.

The secret tax rises mean hundreds of thousands of middle-income earners are being forced to pay extra, while company tax has risen from 19 per cent to 25 per cent.

Chancellor Jeremy Hunt has admitted that the tax burden is simply too much

It all adds up to financial pain for households and businesses, already strained by rising prices and soaring borrowing costs, ahead of a seemingly normal election next year.

Higher taxes have recently been blamed on drug giant AstraZeneca choosing to build a plant in the Republic of Ireland over England, while oil and petrol producers have sought to collect windfall taxes on their businesses.

Chancellor Jeremy Hunt has admitted the tax burden is too much, but is eschewing austerity at a time when the federal government’s priority is to tackle soaring inflation.

The resolution’s fund paper urges the federal government to “refrain from taking offense” when it cuts high corporate tax, for example, and “wish for trouble”, for example because the billions of kilos of petrol tax revenue it would give up if it withholds tax on petrol and diesel fuel.

It states that tax revenues will increase from 33 percent of GDP in 2009/2010. to 38 percent in 2027/28.

Many Tory MPs argue that tax cuts ultimately end up generating additional income by encouraging additional business activity.

Sir John Redwood, a former trade secretary, said: “We are asking too much and we are putting people off investment.

Too many companies are going to Ireland, we have lost investment in the North Sea because of taxes. We need rates where people stay and pay.

Adam Corlett, Chief Economist at the Resolution Fund, said: “UK tax has generally risen and is likely to rise rather than fall in the future, despite the political rhetoric around austerity measures.

However, this increasing amount of tax revenue is not related to an increase in the quality of tax policy.

Resolution Fund think tank report says ‘complex’ system must be fairer to low- and middle-income households

“There is no method behind a complex system where some entrepreneurs pay no tax on their income, while some households have to deal with marginal tax rates of over 80 percent.

Britain’s tax system needs a complete overhaul so that it is geared towards serving rather than hindering financial progress.

The report does not name a discount on the total tax revenue collected by the federal government, but argues that the burden should be shared particularly equitably.

Controversially, it calls for an improvement in the capital gains tax, although it says it could only apply to gains linked to sales above inflation.

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