BBC1 Panorama: Are you paying too much tax?

Today's Panorama was about the mess the HMRC have made of people's taxes. The BBC's investigation focussed on 'ordinary' people's stories - most of them receiving demands way above what they should. They also mentioned that the wealthiest taxpayers find it easier to get round the system, and that staff cuts and poor leadership is to blame.



Other reasons for the fiasco were offered: the botched IT system (why do Government IT systems always go wrong?) and the fact that the PAYE system was designed decades ago when people generally stayed in the same job for 30 years. Well if you put the government in charge of anything they tend to make a mess of it. But how about a different solution? Why not try a flat rate tax?

For a start it would simplify the system. Everyone knows what they owe, and what they should pay. Easier for them, easier for HMRC. HMRC would themselves save money as it's easier to administer the system.

I think it's likely the tax take would be higher. Even though higher-rate taxpayers are paying less...how can this be? For a start the incentive for tax avoidance would be reduced. As they said on Panorama, it's easy for the super-rich to avoid UK tax - if they are incentivised to do so. If more higher-rate taxpayers cough up, tax revenues may go up, even if they're paying lower marginal rates. Maybe. It might also encourage investment in personal savings - isn't that what we're all supposed to be doing, saving for our futures?

It's interesting that there is virtual unanimity amongst economists and economic commentators that the increase in the top level of tax to 50% will not increase the overall  tax revenue. So why is the government (floowing the example set by the last Labour governement) doing it? Its all about 'fairness'.

It seems unfair that rich people don't pay more. But of course, the rich DO pay more - because they earn more. A doctor will pay more tax than a dustman, even under a flat-rate tax. A more fundamental argument is that government should not penalise success. Not everyone who has a high salary has inherited it from their daddy or got a bonus from one of the bailed-out banks in the city. They've just been successful, probably through hard work more than privilege.

Don't get me wrong, I'm not a dogmatist, nor am I approcahing this from an ideologically-driven point of view. More a practical one, and a possibility of sorting out the UK's creaking tax system. Tax cuts in isolation won't deliver growth or prosperity. Public spending, borrowing, investment - all these things have to be right. But maybe the UK should look at a flat - or at any rate a flatter - tax regime.