About the TRC
The Tax Reform Commission’s findings
The findings of the Tax Reform Commission were published on 19th October 2006.
Speaking at the launch of the Tax Reform Commission at KPMG’s London headquarters, the Chairman and former Cabinet Minister, Lord Forsyth said:
“The clear message from the evidence that we received is that Britain needs a fairer, lower, less complex and more competitive tax system. That is what our proposals seek to achieve. The current system is beginning to harm the UK economy, by undermining competitiveness and deterring investment. Without reform this will only get worse.
‘’Tax matters. It is not just a matter of high tax burdens making us poorer. The structure and design of a tax system matters too. Tax systems which are simple, stable and transparent encourage investment, employment, tax compliance and a higher quality of life. They are better for everyone”
“Our menu of proposals are realistic and set a direction of travel. While the speed of the journey is a matter for political judgment, and will be influenced by economic and fiscal conditions, the destination is clear – a simpler, lower, flatter, fairer, and more stable tax system. Reform will not be easy, it requires dedication and hard work, but the long term competitiveness of our economy and our public services depend on it.”
Key recommendations include proposals to;
- Improving understanding of how tax affects economic growth. The Treasury should establish an official ‘dynamic’ model for the UK economy to encourage greater understanding of the dynamic effect of tax changes on economic growth and tax revenues.
- Reducing personal taxation. The personal allowance should be increased to £7,185 and the 10 per cent rate should be abolished. 2.5 million poor people would thereby stop paying income tax altogether. The basic rate of income tax should be reduced to 20 per cent. A transferable personal allowance for couples with one or more children under the age of five should be introduced.
- Simplifying personal taxation. The basic rate of income tax and the savings rate should both be set at 20 per cent. The complex web of tax free employee benefits and allowances should be reviewed and wherever possible, abolished. National insurance and income tax rules should be aligned with a view to merging the two systems in the medium term.
- Reducing business taxation. The main rate of corporation tax should be reduced to 25 per cent. The main marginal corporation tax rate should apply to all profits above £300,000. Over time, there should be one rate of corporation tax of 20 per cent.
- Simplifying business taxation. The corporate tax base should be broadened and tax rates reduced by replacing the complex schedular system with one based on accounting profit. The upper marginal rate of 32.75 per cent should be abolished. The indexation allowance should be abolished, permitting full pooling of losses. R&D tax credits and film tax credits should be abolished. Safe harbour rules and a General Anti-Avoidance Rule should be introduced.
- Reducing and simplifying capital taxation. A short-term capital gains tax which tapers to zero over ten years should replace the current complex system of taper relief and indexation. Inheritance tax should be abolished and replaced with a short-term capital gains tax on death (the family home would remain exempt from capital gains tax). Stamp duty on UK shares should be abolished.
- Reforming how tax law is made. Tax law should be subject to closer scrutiny through a Joint Parliamentary Select Committee on Taxation and an Office of Tax Simplification.