Single 30% Tax Rate 'Essential' For Growth

A single 30% rate of income tax and further public spending cuts are needed to boost growth, according to a report backed by a campaign group and business leaders.

The major study demands simplification of the UK's tax system, including the abolition of national insurance and stamp duty.

The report, by the 2020 Tax Commission, claims the changes would result in a £3,400 tax cut for a two-earner household with an income of around £28,000 and could lead to an 8.4% increase in the UK's gross domestic product after 15 years.

The commission, a joint project between the TaxPayers' Alliance and Institute of Directors, calls for 30% tax rates on income and capital.

Under the plans, national insurance contributions would be scrapped with a single 30% rate of tax on income and a £10,000 personal allowance.

Corporation tax and capital gains tax would be replaced with a 30% tax on dividends, interest and rent.

Inheritance tax and stamp taxes on shares would be scrapped along with air passenger duty, while fuel duty would be cut by 5p under the proposals.

Taxation would be limited to a third of national income, as would public spending - meaning an extension until 2020 of cuts in government expenditure.

Councils would see their grants from central government cut but would be given new powers to impose local income and sales taxes.

The proposal to shift to the single income tax would increase the budget deficit by £49.1bn in the first year if the changes were not phased in or if there were no further cuts to public spending.

But the commission predicts that the boost to the economy would result in a £35bn fall in annual borrowing after 15 years.

Allister Heath, chairman of the 2020 Tax Commission and editor of City AM, said: "It is time for Britain to make a vital choice between tweaking the status quo and letting our economy continue to be crippled by complex and punitive taxes, and drastically changing course with a radical but realistic plan for a tax system fit for the 21st century."

Matthew Elliott, chief executive of the TaxPayers' Alliance, said: "Right now the Government's first priority has to be strong economic growth to create jobs and ease the pressure on families struggling to make ends meet. Tax reform is essential to make that possible."

Graeme Leach, director of policy at the Institute of Directors, said: "This is a radical and practical plan for reforming our tax system to make it fairer and better for the economy."

A Treasury spokesperson said: "The Government welcomes this report's contribution to the long-term debate on tax policy, it contains some radical suggestions and will stimulate useful debate.

"The Government is committed to a simpler, fairer and fiscally sustainable tax system and supports the case for reducing headline rates of tax to support economic growth."