UK Tories Mulling Flat Tax

by Jason Gorringe, Tax-News.com, London

06 September 2005

It has emerged this week that the UK's Conservative Party is to launch a review of proposals for the introduction of a flat tax.

Speaking to the BBC at the weekend, Shadow Chancellor George Osbourne revealed that the commission being established for the task will report next year on the experiences of the 11 countries which have so far introduced such a system, and on the logistics of implementing a flat tax regime in the United Kingdom.

"The Conservative Party needs to make a long-term case for a lower-tax economy and a flatter and simpler tax economy," he told News 24, continuing:

"It is a very exciting idea that started in Central and Eastern Europe but is now being looked at by other countries like Greece, and there is some speculation that Germany is looking into it."

The Shadow Chancellor did, however, acknowledge that there were certain problems likely to occur when "introducing a pure flat tax into a mature economy."

A more detailed explanation of the Tory review is expected on Wednesday, when Mr Osbourne will speak before members of the Social Market Foundation on the matter.

However, according to a Financial Times report published last month which cited documents released under the Freedom of Information Act, the UK Treasury is opposed to the introduction of a flat tax.

The Treasury documents reportedly argued that there was little to back up the flat tax argument, observing that:

"In all discussions on flat tax structures, the debate is in part so fierce because so little hard evidence exists to support the pro-flat tax claims."

It went on to cite an IMF paper which suggested that increases in Russian tax revenues were not necessarily attributable to the imposition of a 13% flat tax rate, and concluded by arguing that: "Proponents of a flat tax have to face up to the reality that such a system is tough on the low paid unless you spend a lot of money on generous personal allowances or a very low rate of tax - or both."

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