Fuel taxes and stamp duty must go, says think tank

14 September 2011

Stamp duty and fuel tax should be abolished in a bid to radically overhaul the tax system, according to an influential think tank.

The Institute of Fiscal Studies (IFS) is calling for several major changes to the UK tax system, including getting rid of stamp duty in favour of a vast increase in council tax, and a new congestion charging system to replace fuel duties.

Publishing the results of its five-year investigation into the UK tax system, the IFS brands the current regime "inefficient, overly complex and frequently unfair".

At present, the government takes about £4 in taxes of every £10 earned. But the system "could raise as much revenue and achieve as much redistribution as it currently does in far less costly ways," says Nobel Prize-winning economist Sir James Mirrlees, who led the review.

How to pay less tax

So if these recommendations were introduced how would they affect you?

• Council tax would go through the roof. At present, council tax is calculated based on the value of your house in 1991. The IFS wants the valuations brought up-to-date, which would lead to a massive rise in council tax.
• The cost of buying a house would drop. The review calls for stamp duty to be abolished in order to increase transactions in the housing markets.
Petrol would get cheaper. The IFS wants the government to develop a comprehensive system of congestion charging to replace fuel duty. This is because increasing fuel efficiency combined with the growing popularity of electric cars will reduce tax revenues from petrol and diesel taxes.
• Your savings would grow faster as taxes on cash savings would be abolished.
• Taxes on earnings would be simplified with national insurance and income tax combined into one tax. The government has stated that this is already being considered.
• The price of your shopping would increase as the IFS believes VAT should be expanded to cover all products – at present items such as food, children's clothing and books are exempt.

The IFS has pointed out that it doesn't expect its proposals to be introduced immediately.

"We are not proposing that this is the content of George Osborne's next Budget," says Paul Johnson, director of the IFS.

Instead, the IFS hopes the report will form the framework for tax policy over the next 10 to 20 years.

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