Options for raising revenue

1. Options for raising revenue Stuart Adam Howard Reed

2. Outline • Income tax and National Insurance • Fiscal drag • Changing thresholds • Increasing rates • VAT • Increasing rates • Widening base • Excise duties

3. Changing distribution of taxpayers

4. Fiscal drag in the futureNumber of higher-rate income taxpayers

5. Fiscal drag in the futureRevenue effects in 2009-10 of different uprating options for income tax and National Insurance Relative to price-indexation: • Earnings-indexation would cost £7.2 bn • Freezing would raise £8.8 bn

6. Fiscal drag in the futureDistributional effect in 2009-10 of freezing income tax and NI thresholds from 2005-06 to 2009-10

7. Changing thresholds • Freeze personal allowance and NI earnings threshold • Raises £1.3 bn • Hits those on middle incomes hardest • Align UEL and basic rate limit • Raises between £1 bn and £3 bn • Very progressive • Abolish UEL • Raises £7.5 bn • Extremely progressive

8. Changing rates • Income tax or National Insurance? • Increase all employee and self-employed NI rates • 1% raises £4.4 bn • Fairly progressive

9. Changing ratesIncreases in employee and self-employed NICs

10. Changing rates • Income tax or National Insurance? • Increase all employee and self-employed NI rates • 1% raises £4.4 bn • Fairly progressive • Increase rate above UEL • 5% raises £4.2 bn • Extremely progressive

11. Changing ratesIncreases in employee and self-employed NICs

12. VAT1% rise in the main rate

13. VAT • Increase main rate • 1% raises £4 bn • Seems to hit the poor hardest • But may be misleading • Widen base • Putting VAT on food raises £10 bn • Seems to hit the poor hardest • But may be misleading

14. Distributional goals?Zero-rating compared with other uses of the money

15. Excise duties • Political sensitivity • How much can they raise? • Additional revenue from fuel and tobacco rises tied up

16. Conclusions • Fiscal drag can do much, but operates slowly and is already built into revenue forecasts • Excise duties limited revenue-raising capacity and politically difficult • VAT historically rare and thought unfair to poor • Income tax and NI most likely source: • Income tax rates restricted by pledges • Freeze tax-free allowances? • Increase NI rate above UEL? • Align UEL and basic rate limit?