The Single Income Tax - The 2020 Tax Commission

The overall economic results would be impressive. Dynamic modelling by the
Centre for Economics and Business Research (CEBR) has found that, if the measures
were introduced with no spending cuts:
■ After five years, GDP would be 1.8 per cent higher; business investment
would be 14.6 per cent higher; and public sector net borrowing would
be £23.1 billion a year higher.
■ After 10 years, GDP would be 5.9 per cent higher; business investment
would be 26.0 per cent higher; and public sector net borrowing would
be £6.9 billion a year higher.
■ After 15 years, GDP would be 8.4 per cent higher; business investment
would be 61.2 per cent higher; and public sector net borrowing would
be £35 billion a year lower.
The proposals would need to be phased in and/or accompanied by further
restraint in public spending, but the economic results are impressive. The increase
in GDP of 8.4 per cent after 15 years is equivalent to an additional nearly £5,000 per
family in 2012–13.2
Chapter 2 looks at the background: how the government finances its spending;
how spending and taxes have increased across the developed world; how spending
and taxes have increased particularly dramatically in Britain recently; how the
complexity of taxes exacerbates that burden; and the philosophical approaches to
understanding ethical concerns raised by tax policy that will be used throughout
the report.
After that, the remaining chapters look at each of the proposed changes, setting
out the results that can be expected, the reasons they are needed and a detailed
explanation of how the new taxes could be implemented.
1.1. Implementing the 2020 Tax Commission’s
overall proposals can be practical, productive
and fiscally responsible
While the rest of this report looks at the evidence for the likely economic effects
of the individual 2020 Tax Commission proposals, the CEBR has also looked at
the overall effect using the dynamic model of the UK economy it developed for
an earlier TaxPayers’ Alliance report.3 The nature of that dynamic modelling,
and the impressive results, are set out in Section 1.1.1.
After that, Section 1.1.2 looks briefly at the transitional arrangements that might
be needed to implement the 2020 Tax Commission proposals.
1.1.1. The overall economic results of the 2020 Tax Commission
recommendations
The CEBR points out that modelling of this kind is a more approximate process than
normal economic modelling because the academic research tends to show that most
of the behavioural changes only take place after a long period of time. Because they
take so long to appear fully, their impacts tend to be difficult to test statistically and
2. Based on 8.4 per cent of 2012–13 nominal GDP, which was estimated to be £1,576 billion
in Budget 2012.
3. The dynamic impact of the 2007 Budget and a comparison with the impact of gradually introducing
an Irish level of corporation tax, TaxPayers’ Alliance, April 2007
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