Tax Avoidance

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fair tax:
towards a modern
tax system

The Smith Institute
The Smith Institute is an independent think tank that has been set up to look at issues which flow from the changing relationship between social values and economic imperatives.
If you would like to know more about the Smith Institute please write to:

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fair tax: towards a modern tax system

The Director
The Smith Institute
3rd Floor
52 Grosvenor Gardens
London
SW1W 0AW

Registered Charity No. 1062967

2008

Designed and produced by Owen & Owen

Edited by Chris Wales

THE

SMITH

INSTITUTE

fair tax:
towards a modern
tax system

Edited by Chris Wales

Published by the Smith Institute
ISBN 1 905370 34 2
This report, like all Smith Institute monographs, represents the views of the authors and not those of the Smith Institute.

© The Smith Institute 2008

THE

SMITH

INSTITUTE

Contents
Preface
Wilf Stevenson, Director of the Smith Institute

3

Introduction
Chris Wales, Managing Director of Lucida plc

5

Chapter 1: Issues in personal tax design
Robert Chote, Director of the Institute for Fiscal Studies
Chapter 2: Business taxes
Philip Broadley, Executive Director, Prudential plc, and John Whiting, Tax Partner, PricewaterhouseCoopers LLP
Chapter 3: Fairness in the taxation of small businesses
Professor Francis Chittenden, ACCA Professor of Small Business Finance at Manchester Business School, and Hilary Foster, Visiting Researcher at Manchester Business School
Chapter 4: Taxation and local government
Chris Wales

10

18

28

42

Chapter 5: Capital, wealth and inheritance taxes
Dr Irwin Stelzer, Senior Fellow and Director of Economic Policy Studies at the Hudson Institute

54

Chapter 6: Environmental and behavioural taxes
Professor Paul Ekins, Professor of Energy and Environment Policy at King’s College London and Director of the Green Fiscal Commission

64

Chapter 7: User charges – a reassessment
Dr Jonathan Leape, Senior Lecturer in Economics at the London School of Economics & Political Science

74

Chapter 8: Is tax avoidance “fair”?
Professor Judith Freedman, KPMG Professor of Taxation Law at the University of Oxford

86

2

THE

SMITH

INSTITUTE

Preface
Wilf Stevenson, Director of the Smith Institute
The Smith Institute is an independent think tank set up to undertake research and education in issues that flow from the changing relationship between social values and economic imperatives. In recent years the institute has centred its work on the policy implications arising from the interactions of equality, enterprise and equity. The issue of fairness in the tax system is complex, with many competing voices and interests. For Adam Smith, the central tenant of a fair tax system was that the “subjects … contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state”. This rings true today; those who enjoy wealth do so to some extent only because of what the state offers, be it through providing security and infrastructure, or so that there is a healthy and skilled workforce. Yet the level at which taxation is levied, and the selection of those who are levied, is always going to be a political decision, and hotly contested. In a global age where capital is highly mobile, Britain has to ensure that it attracts inward investment and that its tax system does not act as a disincentive to risk taking and hard work. Balanced against this is the attractiveness of Britain because of the amount of revenue raised and invested in human capital and infrastructure. Alongside this, the complexity of taxation can often mean the system is judged as unfair – hindering efficiency and creating...
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