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Options for raising revenue

This outline explores various options for raising revenue, including income tax, National Insurance, VAT, and excise duties. It discusses fiscal drag, changing thresholds, increasing rates, and widening bases, along with the distributional effects on taxpayers and revenue forecasts. With a focus on income tax and National Insurance, the document offers insights into the impact of different uprating options and freezing thresholds. Considering changing rates, aligning UEL and basic rate limits, and potential increases in employee and self-employed NICs are also deliberated. Additionally, the analysis evaluates the effects of VAT rate adjustments and the sensitivity of excise duties, providing recommendations for optimizing revenue generation strategies in a fair and efficient manner.

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Options for raising revenue

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  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?

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