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IFS wants VAT extended to financial services

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The Institute for Fiscal Studies has called for VAT to be extended into financial services.

The five-year Mirrlees Review of the tax system, published today, suggests the current VAT-exemption creates immense complexities for financial services.

It says: “An equivalent to the VAT could, and should, be imposed on financial services. VAT should also be extended to nearly all spending. This would reduce complexity and costly distortions to consumption choices.

It claims extending VAT to services such as borrowing money and opening bank accounts would mean banks would not need to charge high interest rates on overdrafts and loans to recover funds, giving customers cheaper services.

The report says: “The money raised could be spent on cutting income taxes and raising benefits in a way which is broadly distributionally neutral and which protects work incentives.”

The report also proposes that income tax and National Insurance be merged as NI no longer “serves any purpose as a separate social insurance contribution linked to benefit receipt”.

IFS director Paul Johnson says: “There is little about the UK tax system which looks like it was deliberately designed. Successive governments have failed to set out a coherent strategy for tax. As a result the current set of taxes is complex and often incoherent and they impose a much greater cost on the economy than need be.”

Sir James Mirrlees says: “The Review shows that the UK system imposes unnecessary costs on the economy. It reduces employment and earnings more than it needs to. It discourages saving and investment, and distorts the form that they take.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Can VAT be extended to the IFS instead perhaps? I am sure an extra 20% cost on everything we do will help enormously. Five year Mirrlees Review – hmm, wonder what that cost? How much does the IFS cost every year? Surely a worthy target for spending cuts…..and build schools and hospitals with the money.

  2. Here we go again. The academics and alumini sit earning nice fat wages without any idea how the real world works. It is going to take a lot of persuasion to get the average person out there to accept payment of fees(please notice I say the average person) not those who earn plenty of dosh, without landing another 20% on top. Are these people not aware that whilst it appears inflation is not a lot at 4.5% the cost of fuel, gas, electric etc are a lot higher than this. Then you get other academics saying that people are not saving enough for a rainy day or their pension. There is more to life than going to work just to pay increased costs/taxation, what ever form and utilities. It will get doubly worse when interest rates go up, which they inevitably will. So Jo public will get hit at all angles(especially those with mortgages) through no fault of their own, (eg. increased cost pointed out earlier)inflation goes up and they end up with increased mortgages rents etc.

  3. Lord give me strength……….

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