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Economic recovery was held back by changes to tax system, say thinktank Economic recovery was held back by changes to tax system, says thinktank
(about 2 hours later)
The government has held back the recovery with a string of policy changes that have made the tax system "more complicated, less efficient and less transparent", according to Paul Johnson, head of the respected thinktank the Institute for Fiscal Studies.The government has held back the recovery with a string of policy changes that have made the tax system "more complicated, less efficient and less transparent", according to Paul Johnson, head of the respected thinktank the Institute for Fiscal Studies.
Johnson, who has criticised several Whitehall reform programmes as wasteful or ineffective, said the coalition had followed in the steps of the previous Labour administration, which had also made the tax system more opaque and difficult for taxpayers to understand.Johnson, who has criticised several Whitehall reform programmes as wasteful or ineffective, said the coalition had followed in the steps of the previous Labour administration, which had also made the tax system more opaque and difficult for taxpayers to understand.
"Complexity, uncertainty and inefficiency in a tax system which takes £4 in every £10 generated in the economy costs a huge amount in lower welfare, less economic output and straightforward inequity," he said."Complexity, uncertainty and inefficiency in a tax system which takes £4 in every £10 generated in the economy costs a huge amount in lower welfare, less economic output and straightforward inequity," he said.
"Even if we can't have perfection, something close to coherence and consistency would be nice.""Even if we can't have perfection, something close to coherence and consistency would be nice."
Johnson attacked the coalition's decision to leave in place a 60% income tax rate that applies to incomes between £100,000 and £121,000, when incomes above and below this band are taxed at 40%.Johnson attacked the coalition's decision to leave in place a 60% income tax rate that applies to incomes between £100,000 and £121,000, when incomes above and below this band are taxed at 40%.
The government's reliance on stamp duty on property sales to fund its spending programme was at the expense of a well-run market that encouraged labour mobility, he said.The government's reliance on stamp duty on property sales to fund its spending programme was at the expense of a well-run market that encouraged labour mobility, he said.
"The last government and this one raised rates of stamp duty land tax time and time again. At the extreme, a £1 increase in sale price can now trigger an additional £40,000 tax bill. The tax helps to gum up the entire property market.""The last government and this one raised rates of stamp duty land tax time and time again. At the extreme, a £1 increase in sale price can now trigger an additional £40,000 tax bill. The tax helps to gum up the entire property market."
In the year after the recession stamp duty on property sales raised less than £4bn, but revenues from it are due to hit £15bn within just a few years.In the year after the recession stamp duty on property sales raised less than £4bn, but revenues from it are due to hit £15bn within just a few years.
Johnson accused the government of ducking a revaluation of properties to make council tax a fairer revenue-raising vehicle. He also warned about the potential harm to business investment of the uncertainty created by "continual changes to elements of business rates, corporation tax allowances and carbon taxes".Johnson accused the government of ducking a revaluation of properties to make council tax a fairer revenue-raising vehicle. He also warned about the potential harm to business investment of the uncertainty created by "continual changes to elements of business rates, corporation tax allowances and carbon taxes".
He said: "In the words of former US treasury secretary William Simon, we should have a tax system which looks 'like someone designed it on purpose'. That feels like a low benchmark, but it is one we are a long way from meeting."He said: "In the words of former US treasury secretary William Simon, we should have a tax system which looks 'like someone designed it on purpose'. That feels like a low benchmark, but it is one we are a long way from meeting."