The UK Independence Party is considering proposing a radical shake-up of personal taxation by scrapping all National Insurance contributions while introducing a transferable personal allowance and a flat-rate income tax of 25 per cent.
However, experts warn the plans could cost £100bn and are based on “back-of-the-envelope” figures.
University of Georgia economics professor David Kamerschen and MEP Godfrey Bloom have drawn up proposals that will be voted on at Ukip’s national executive committee meeting on 27 June.If accepted, they will become official party policy.
The plan includes a more generous personal allowance of £13,000 per person that could also be transferred to a spouse. The personal allowance is currently £9,440 and will rise to £10,000 next April. It is non-transferrable.
The Ukip plan means someone whose husband or wife does not work will earn the first £26,000 tax-free. For pensioners, the personal allowance would be £15,000 and also transferable to a spouse.
Bloom says the reforms would be “revenue neutral” and partly paid for by saving £50bn a year with a “bonfire of the quangos”, £12bn a year by stopping overseas aid and another £12bn by leaving the EU.
He says: “With 30 per cent youth employment, I cannot think of a more lunatic asylum way of fixing it than with a National Insurance employment tax. Most highly paid people would pay 25 per cent income tax because it is not worth the trouble of trying to avoid it so it would raise revenue. If you have a 40 per cent tax rate, people won’t accept it and will set up an avoidance scheme.”
Association of Chartered Certified Accountants head of taxation Chas Roy-Chowdhury estimates the tax reforms would cost more than £100bn.
He says: “It looks like back-of-the-envelope figures. We are always looking for simplicity in the tax system but there needs to be much more detail to underline it rather than broadbrush figures.”