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To where the grass is greener and the sky's a bright sky blue.

I am sure that when I sat in on my first tax lecture as an undergraduate they got it wrong. I was told nothing is certain but death and taxes, yet in the midst of a blue-sky-thinking tax reform frenzy, we find ourselves in a world where taxes are anything but certain.

David Gauke MP recently commented that "we've set ourselves against the patchwork quilt, knitted by constant change in the tax system"; but whilst change may be inevitable it should not create uncertainty, else we contravene at least one of the maxims of Adam Smith.

With the Office of Tax Simplification, efforts for corporate tax reform and revised tax-policy making, we have been bombarded with allusions of a simpler, more certain, fairer and competitive tax system. These above maxims, when combined with green shoots of economic recovery and the whole knitted blanket, blue sky apparition, paint a very pretty picture, one that resounds with pangs of patriotism and hope.

Then reality casts a bleak black cloud: the 2.5% VAT increase and the threat of losing UK competitiveness, evidenced by Cadbury and several entrepreneurs departing our shores for pastures new. That is, despite the promise of a 24% corporation tax rate that would be one of the lowest in the G20.

And what for the income taxpayers? Blessed with a 61% combined effective rate of income tax and NICS with incomes over pounds 100,000 it hardly seems worth getting out of bed. Well I suppose if I was to earn pounds 100,000 I would pull myself out of my patchwork quilt in the morning.

In discussing progressivity and drawing on the Laffer curve (or as an MSc student of mine recently commented 'you're having a Laffer') soaking the rich does not generate anticipated revenue and only increases incentives for avoidance, begging the question: does CGT only really exist to serve as a barrier against income tax avoidance? To curb avoidance, any plans for a general antiavoidance rule seem to contradict a simpler tax system and are stifled by the plethora of existing targeted legislation, not to mention the implementation issues.

Hence we are incased in a patchwork quilt of an ever changing tax system. With change we envisage that there comes progressivity - not in a tax rate progressivity context as we could just follow the route of the ASI and solve it all via a flat tax, but progressivity in terms of developing a simple, sustainable and more competitive UK tax system.

Natalie Forde is a senior lecturer in taxation and corporate finance at Newport Business School


Natalie Forde
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Date:Dec 15, 2010
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