IFS Director Calls for Tax Reform

Writing in the I, Helen Miller, deputy director and head of the tax sector at the Institute for Fiscal Studies, has asked for wide-ranging tax reform.


We all have to deal with taxes – it’s a part of life. But have you ever stopped to think about how our tax system affects us and our finances? The truth is, our current tax system is in desperate need of reform. From VAT rules that just don’t make sense to different tax rates for different types of income, there are a lot of problems that need to be addressed.

Let’s start with VAT – the value-added tax. Did you know that a gingerbread man is zero-rated for VAT as long as the chocolate decoration is “no more than a couple of dots for eyes”? But add a smile, and you’ll have to pay an additional 20% VAT. It may sound funny, but these inconsistencies in VAT rules cost the government £100 billion in lost revenue each year. Not to mention the burden it places on businesses and individuals who have to navigate these complex rules.

But it’s not just VAT that needs fixing. Our income tax system also has its fair share of problems. Different types of income are taxed at different rates, with employment incomes being taxed at much higher rates than investment incomes. This creates a lot of complexity and unfairness. Imagine two people with similar incomes – one earns their money through employment and pays higher taxes, while the other earns their money through investments and pays lower taxes. It doesn’t seem right, does it?

Then there’s council tax in England, which is based on property values from over 30 years ago. As a result, the tax we pay doesn’t reflect the true value of our property. This is particularly unfair for those living in areas where property values have skyrocketed in recent years.

And let’s not forget about stamp duty. This tax imposes a higher charge on properties that change hands more frequently. It may seem like a good way to generate revenue, but it actually hinders the housing market. People find it harder to move to areas with better job opportunities, young families struggle to upgrade their homes, and older people hold onto larger properties because moving costs too much. It’s time to scrap stamp duty and find a fairer way to tax property transactions.

These are just a few examples of the many problems with our tax system. There’s also inheritance tax, which can be easily avoided by the wealthy, well-advised individuals. Corporation tax discourages profitable investments and subsidizes unprofitable ones. And a mess of environmental levies creates inconsistent incentives to reduce emissions, making it more expensive to achieve net zero.

What’s even more frustrating is that these issues have been around for decades, and yet little has been done to address them. It’s time for change. A reform of our tax system could make things simpler, fairer, and less damaging to our productivity. And if we were all richer, we could tackle important challenges like caring for an ageing population, reaching net zero, improving public services, or even cutting taxes more easily.

So why do we put up with such a problematic tax system? What are we getting in return? It’s time for our government leaders, like Chancellor Rishi Sunak or opposition figures Keir Starmer and Rachel Reeves, to be bold and take action. Let’s not just focus on how much we pay in taxes overall, but also on the structure of our taxes. By reforming our tax system, we could all be more productive and wealthier. And that’s something worth voting for.

In conclusion, our tax system is in dire need of reform. From nonsensical VAT rules to unfair taxation of different types of income, there are numerous flaws that need to be addressed. It’s time for our government to take action and create a tax system that is simpler, fairer, and more conducive to our overall well-being. By doing so, we can all enjoy greater prosperity and less financial stress.