In a surprising twist, a proposal for a “flat tax” was considered for inclusion in Liz Truss’s mini-budget, according to a new revelation. The proposal, which aimed to introduce a single 20 per cent income tax band and eliminate the higher tax rates, was submitted by Jacob Rees-Mogg, who would have become the business secretary under Ms. Truss’s leadership. This bold plan would have also applied the 20 per cent tax rate to corporation tax and capital gains tax, and it would have been financed by abolishing tax reliefs on pension schemes and National Insurance contributions.
The concept of a flat tax, often referred to as going “full Estonia,” was a topic of intense discussions among senior Tories during the summer of 2022. Estonia currently employs a single 20 per cent income tax rate, which has been credited with driving rapid economic growth. Mr. Rees-Mogg’s proposal aimed to replicate this success in the UK by introducing a 20 per cent flat tax across different types of taxes.
However, in the end, Kwasi Kwarteng, Ms. Truss’s chancellor, firmly rejected the idea of a flat tax. Although this proposal was not implemented, it offers valuable insight into the visionary thinking of Ms. Truss and her allies. The estimated cost of this tax reform was a staggering £41 billion, making it the most expensive measure in the mini-budget. Despite the proposal’s rejection, its consideration demonstrates the government’s willingness to think outside the box and explore radical reforms to the tax system.
Q: What is a flat tax?
A: A flat tax is a system where all individuals are taxed at the same rate, regardless of their income level.
Q: Why was the proposal rejected?
A: The proposal for a flat tax was rejected by Kwasi Kwarteng, Ms. Truss’s chancellor, for reasons that have not been explicitly stated.
Q: What were the potential benefits of a flat tax?
A: Proponents of a flat tax argue that it simplifies the tax system, reduces the burden on high earners, incentivizes investment, and promotes economic growth.
Q: What were the potential drawbacks of a flat tax?
A: Critics of a flat tax argue that it is regressive, meaning it disproportionately affects low-income earners, and reduces government revenue, leading to potential funding issues for public services.