‘Flat Tax Would Benefit All UK Taxpayers,’ ASI Argues

by Robert Lee, Tax-News.com, London

29 March 2005

A switch to a flat tax in the United Kingdom would benefit taxpayers both rich and poor whilst dramatically improving the international competitiveness of the British economy by sweeping away increasingly complex tax law and regulation, according to the Adam Smith Institute.

In a new report by Richard Teather, Associate Senior Lecturer in Tax Law at Bournemouth University, it is argued that a new flat rate of income tax levied at 22%, in tandem with a personal tax-free allowance of £12,000, would take most low income earners out of the tax system altogether whilst boosting the after-tax earnings of those on below-average incomes by 12% and top earners by 0.5%.

What’s more, the study concludes that the change can be achieved without major long-term disruption to the government’s revenue flows through improved compliance, reduced incentives to shelter income from tax and higher rates of economic growth achieved by “taking the brake off the economy.”

“The effect on the economy would be enormous,” stated the ASI.

“Studies show that the aspects of the tax system that the flat tax would remove, namely high rates and exemptions, are precisely those that cause most economic damage,” it added.

Teather also points out that several governments, particularly in the former eastern bloc states and new members of the European Union, have seen the merits of a flat tax system. Examples include Russia (13%), Slovakia (19%) and Ukraine (13%). The presidential tax reform panel in the United States is also exploring the possibility of a switch to some form of flat tax system.

“The flat tax is therefore no longer a theoretical concept or one confined to specific ‘tax havens,’” Teather observed in his report.

“It is on the UK’s doorstep, and our competitors are enjoying a more benign tax climate than we are,” he noted.

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