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The Tories are to launch a review of Britain's tax system with a view to simplifying it and possibly bringing in a "flat tax".
George Osborne, the shadow chancellor, will unveil a "special commission" on taxation this week, heralding the biggest shake-up in Tory tax policy for almost two decades. ?
George Osborne: seeking a fresh, dynamic tax policy
In a speech to the Social Market Foundation think-tank, Mr Osborne will announce that he is considering the benefits of a flat tax - under which all exemptions and allowances are abolished and everyone pays the same rate.
The commission will be headed by a senior businessman, and will report next year on the way that such a tax system has worked in other countries and the viability of introducing it to Britain.
If a flat tax is adopted as Tory policy it will be the biggest shift since Nigel Lawson cut the top rate of income tax to 40 per cent in 1988. Conservative strategists are keen to avoid a replay of the stale argument they had with Labour at the general election about tax and spending cuts. They want to be able to present instead their tax policy as fresh and dynamic.
A flat tax system has been adopted in 11 countries, mostly in eastern Europe. But Mr Brown has remained implacably opposed to the idea, which would see the end of his tax credits system.
Senior Tories have been studying the progress of flat taxes in eastern Europe and the suggestion by Angela Merkel, Germany's opposition leader, that the system may be desirable in her country.
Mr Osborne's commission will explore tax simplification and flat taxes specifically, said a source close to the shadow chancellor.
The Tories were dismayed by the failure of their piecemeal taxation proposals at the May election and believe that a radical new approach is required.
One senior Conservative said: "Our hope is to build a narrative which makes sense of tax policy in the context of a much broader economic policy. We have to explain how we will deal with the challenge of India and China. We also have to challenge Gordon Brown on the terrible complexity he has brought to the tax system."
Senior Tories recognise the political problems that would come with an outright flat tax system - such as removing exemptions for pensions savings. But they see less complicated taxes as having electoral appeal and the attraction of being a new idea.
Treasury documents released under the Freedom of Information Act recently appeared to show that officials had dismissed the idea. But two weeks ago, a full version of the Treasury's research was unearthed by Mr Osborne's team.
This revealed that significant sections - showing that officials were impressed - had been blacked out.
[ psilomonkey: Well I guess the Sir Humphreys of the Treasury don't like the idea much. Could cost civil service jobs! ]
Part of a two-page section that was removed said: "The reduction in rates and thus the tax burden faced by individuals should, in theory, stimulate further economic growth". It would establish "a one-off virtuous circle from tax cuts to economic growth to tax revenue".
Mr Osborne, who will travel to China this week on a fact-finding mission, is the latest senior politician to warm to a flat tax.
Mrs Merkel appointed Paul Kirchhof, a prominent flat tax advocate, as a leading adviser to her election campaign last month, while Giorgios Alogoskoufis, Greece's finance minister, said that from 2007 he would like to introduce a single 25 per cent band for both corporate and personal income. In the US, Steve Forbes, a former presidential candidate and the editor-in-chief of Forbes Magazine, has published a new book advocating a flat tax.
Hmm, this sounds promising. At the momement we have a big problem in the UK, in that we don't have a credible opposition, sounds like the Conservative party are stating to come up with some policies that don't involve immigrants, well its a start.
A Shadow Minister is a member of the opposition party leadership that covers policy that a corresponding government minister would, e.g. The shadow health minister would lead opposition party policy on health. The shadow chancellor deals with fiscal policy, and has the task of putting together the opposition party budget, which does not get enacted, just a "this is what we would do" exercise.
I think the idea with the flat tax is to remove all the exemptions and loopholes, charge a flat rate on all earnings over an allowance which would be quite high, say 12,000 pound.
This would eliminate a huge amount of bureaucracy, I can see why the civil service hates the idea.
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