McDermott Comment I Major UK Tax Reform Required as Government Plans Pivotal Budget

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Tax Senior Associate, Sarah Gabbai outlines the serious challenge ahead and the need to ensure that the gain is worth the pain.

“Given the current economic climate, it makes little sense for the Autumn Budget to introduce tax rises or spending cuts to take effect this year or early next year. However, the longer the recession continues, the greater the need for tax rises in the medium to long term.

“Tax rises for the medium to long term should not simply be a case of raising marginal rates or targeting particular sectors or demographics, since that would achieve little in terms of raising revenue and the gain is rarely worth the pain.

“What is needed instead is a broadening of the tax base through structural reforms to the UK tax system. Much could be achieved, for example, by aligning or merging income tax with National Insurance Contributions, and removing reduced and zero rates for VAT, as this would raise significant sums for the Exchequer.

“However, if such policies are to be implemented in the medium to long term, it makes sense for the Government to start planning for them now, since structural tax reforms of this nature could take months, if not years, to consult on and design properly; with many political obstacles to overcome in the meantime”.

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