The Horsell's Mouth Politics, pedantry and personal interests

I’m increasingly interested in the concept of a flat tax rate for the UK economy. Under such a tax regime – which would save a great deal of time and money in the collection – the personal allowance threshold would be raised and then a single rate, regardless of income, would be paid on all earnings above that figure.

Critics of the idea call it regressive because as a proportion of income, those on lower incomes pay more – really? With a 25% flat rate and a £10,000 threshold, someone earning £25,000 pays £3,750 tax a year and someone on £100,000 pays £22,500. I have to say that that doesn’t sound hugely unfair to me – the lower earner is paying 15% of their income and the higher earner 22.5%. Is there something I’m not understanding here? I think the real reasons that critics oppose it is because it isn’t progressive and they like the idea of punishing higher earners.

There are concerns that VAT also hits the less well-off – I agree that it does but that’s nothing to do with a flat tax rate as far as I can see. In fact, if the government were to build VAT and council tax into the flat rate and tax at 37.5% while abolishing VAT and local authority charges altogether, surely that would be even fairer to those on low incomes? Whether it would bring in enough money is another matter – but that addresses the other point about flat tax.

I’ve argued before that the 50% tax rate is morally justifiable but practically pointless because of the ease of evasion. One of the primary advantages that I can see of a flat rate is to get the wealthy engaged with the tax system and paying up. Needless to say, any move to a more encouraging tax outlook for entrepreneurs and wealth-creators would need to be accompanied by a total clampdown on loopholes – something that Labour seemed to shy away from.

Anyway, I’m still looking at it.