Monday, September 05, 2005

Liberal Democrats and the flat tax

Tucked away at the end of a piece in today's Times about Conservative flat tax plans is a sneak preview of the way the Liberal Democrats are responding to the reforming wave from the east.

The Times has also learnt that the Liberal Democrats are considering a radical new tax policy dubbed the “double decker”. This hybrid of a flat tax would cut demands on the low-paid and middle-earners but progressively squeeze the better-off.


The Lib Dem plan, to be put to activists at next month’s party conference, is a hybrid of the flat-tax principle increasingly in vogue with right-wing thinkers.

It would have a basic element of a flat-tax system with a much larger personal income tax allowance of, say, £10,000. The “double-decker” element means there would be two tax rates. The standard rate tax would stay at, or close to, the current threshold of 22 per cent, with a top band at a substantially lower level, perhaps at around 30 per cent.

Many middle-income earners could enjoy tax cuts because of the doubling of their personal allowance. But the plan would also scrap the upper earnings limit for national insurance contributions.

One can't help but think that it would be simpler to just increase the personal allowance and be done with it. The whole point of flat tax is to simplify the tax system. One rate not two. One tax (national insurance is just another tax, remember) not two. One bureaucracy not two. One set of tax advisers not two.

Instead of reform they are going to discuss an idea which amounts to no more than tinkering with the existing system. There is nothing here which will help the country's economic slide - it's 1960s thinking.

The Times' description of this shambles as "radical" is ridiculous. The "double decker" name for their bright idea is apposite though - you wait an age for a tax system with a single tax rate and suddenly the Liberal Democrats turn up with a system with two.