dyqik wrote: Mon Nov 10, 2025 1:27 pm
Why not just collect income and corporation taxes?
For an exceedingly detailed study of the British taxation system, general good tax design principles, and how to improve the British tax system, based on a starting position of about 2008, check out the
Mirrlees Review (2010). Unfortunately our tax system has only got worse, as exchequers prefer to grab tax in the least news-worthy way, rather than the most sensible way.
If we look back to the classic Diamond and Mirrlees (1971) work on optimal taxation, and Atkinson and Sliglitz (1976), and subsequent commentary, then we might come to the "theoretical" notion of the best kind of taxation system, ie, before considering practicalities.
This would say that the best way of achieving redistribution is through non-linear income taxes, and that indirect taxes - ie taxes on consumption - should focus on policy issues, such as reducing externalities, and also consumption decisions such as necessity vs leisure & luxury. Corporation taxes in this framework are a form of income tax. Business inputs should not be taxed, as such taxes are very distortionary, and likely to result in double, treble, taxation, etc.
In a sense, we kind of have that system in very approximate form. On the indirect taxation side, basic food has a zero rate of tax, household energy has a low rate of tax, but almost all other consumption is taxed - which is a bit more than just leisure. The occupation of houses is taxed on a non-linear scale (community charge), which means that lower income people typically in less valuable houses pay not much, but it used to be a lot more progressive under the rates system. VAT ensures that business inputs are generally not taxed. Externalities like road fuel is taxed. There are high taxes on alcohol and tobacco, because they are bad for you.
Then we have non-linear income tax, at least in terms of salaries. But the rich get a lot of their income from other sources, and the taxation of non-salary income, including business income taxes such as corporation tax, is probably best described as a bit of a mess.
From a practicality point of view, consumption taxes are easier to collect, harder to avoid. Though high taxes on small items, like tobacco, present a criminal opportunity for avoidance through smuggling, etc. Also the rich consume more, so indirect taxes, at least catch their consumption, if they are able to some large part of their income in places where it will experience low tax.
If we did concentrate more or less entirely on income taxes, as in effect you suggest, then the highest rates of taxation on income would probably have to be up around 65-70%. And, unfortunately, that's at a level where it is hard to sustain, because of the potential for tax avoidance activities, ie legal tax planning. Taking your income in forms other than salary. That goes on anyway for the rich even at our current tax rates, but it would spread downwards. We have seen neighbouring countries that used to have tax rates like that eventually recognising that they need to be lower, just from a practical point of view. And those countries had consumption taxes on top.
Corporation taxes are a form of income tax, and are particularly tricky. The profit of a company, at some point, becomes a matter of opinion, such are the range of reasonable treatments an accountant can make. It is also easy to attribute profits to other countries with lower tax rates, especially if you are a multinational with an international supply chain. During those years, like the 1960s-70s, when off-air television was very profitable, the ITV companies paid franchise fees on their profits. But in practice they paid almost nothing, such was what accountants could do. So that was changed to a charge on their income, which is harder to redefine. And then they paid a lot, until broadcast competition reduced the value of those business opportunities. So high rates of corporation tax are particularly easy to avoid, and so likely to be self-defeating. In a sense you can catch that income "later" when it is paid out to shareholders, etc, and tax it then. But this is tricky too because the rich are inclined to receive their corporate dividends in Bermuda or the Cayman Islands, and route it via Vanuatu, the Isle of Man, Jersey, and through various trusts and companies, until the taxman has no idea.
Chancellors tend to like to have a "broad tax base", ie, tax a lot of different things, as it reduces the risk of hits to one source of taxation. By international standards, Britain has low rates of local taxes, which tends mainly to be property taxes, though there are plenty of countries with other kinds of local taxes. In the US, for example, consumption taxes tend to be local taxes. There are countries with local income taxes. Etc.
Road use would in general be something that we ought to tax, as travelling along a road in your own vehicle is a bit of a luxury in comparison to using public transport, and because there are externalities from road use - pollution (even with EVs) and congestion. We all benefit from the road system to a degree - even if you are housebound your food arrives by road in the end, for example. And so to some extent there is a degree of public funding of the road system for all that there is road taxation. Indeed for a long time road taxation was not hypothecated to road maintenance and development. Only recently has the annual vehicle tax been hypothecated, and the fuel tax remains chancellor's general income. Despite that hypothecation, that does not cover the full cost of the roads, anywhere near.