Flat Tax

A flat income tax is exactly what it says it is: a flat rate of tax levied on all personal income. And I mean ALL personal income, including pensions, savings interest, dividends, capital gains, inheritance, winnings from gambling and wages.

A Flat Tax levied at 25% would raise £299.7 billion in tax revenue across the entire economy (see table below)

Income from Amount (£bn) Tax (25%)
Workers 903 225.75
Pensioners 91 22.75
Inheritance 60 15
Capital gains 32 8
Dividends* 100 25
Savings unknown  unknown
Gambling unknown 2.2
Wages/Employment increase* 15 3.75
Charitable giving tax rebates -11 -2.75
 Total 1191 299.7

*These increases are a result of some of the reductions in business taxes being passed on to workers and shareholders (assumes two-thirds of business savings will be passed on these 2 groups, the rest to customers and increased investment)

This compares with around the same (£283 billion) raised by the same sources in the current tax system.

Amount raised  £bn
Income tax 164
Employee NI 50
Employers NI 60
Inheritance tax 3.8
Capital gains tax 5.6
Total 283.4

This increase in revenue at a lower level of tax for the vast majority of people is mainly as a result of closing numerous tax-avoidance loopholes, particular the high tax-free allowances for things like dividends and inheritance, thus shifting the burden from work to unearned income.

Some (i.e. those who make use of these loopholes to avoid tax) will argue that this is unfair, but if you can tax a person’s income from work at 25%, then it is only fair to apply the same rate to any other earnings. Equality of treatment is easy to defend in any debate about fairness.