The Institute for Public Policy Research (IPPR) has suggested that income tax bands should be abolished in order for taxpayers to save more.
A report published by the think tank on the matter suggested that the UK’s current income tax system is ‘not progressive’, with the government’s recent reforms only ‘making things worse’.
Under the IPPR’s proposed new system of income tax, over 80% of UK taxpayers could benefit from an increase in their post-tax income, with some potentially seeing an increase of £1,200 per year.
The IPPR recommends replacing the current income tax bands with a ‘formula-based’ system, whereby the marginal rate would rise at a slow pace between a new tax-free allowance and a new threshold for the top marginal rate.
It also suggested combining the rates and allowances for employee national insurance contributions (NICs) and income tax into a ‘single tax schedule’, in order for all income to be treated under the same rates.
Commenting on the issue, Alfie Stirling, Senior Economic Analyst at the IPPR, said: ‘The UK’s system of taxing incomes is not progressive enough, too inefficient and poorly equipped to raise the revenue that will almost certainly be needed to meet the public spending challenges of the 21st century.
‘By combining income tax with national insurance, and replacing most tax bands with a constant, gradual increase in the marginal rate of tax, our proposal would allow policy makers to give significant sums back to low and middle earners while still raising funds to plug deficits in our public services.’