National Institute of Economic & Social Research (NIESR)
Tax in the UK: analysis of a progressive consumption tax
An analysis of the distributional consequences of a progressive consumption tax (PCT) compared with current income tax and VAT arrangements.
There is currently a political appetite for changes to the UK tax system. A PCT is a tax on spending with rates and refunds set at different levels according to income, thus differing from current expenditure taxes, such as VAT, which are flat. PCTs have been widely debated but are not currently in operation in any of the OECD countries. A specific barrier to consideration of a PCT is the lack of concrete, specific evidence on what the distributional effects are. The analysis would provide an evidence base for deciding whether a change to a PCT was beneficial, particularly for low-to middle-income people.
This work will be undertaken in two phases: first, a comprehensive policy review of the “best” form a PCT should take, including how it could interact with other taxes and the welfare system; and secondly, development of an evidence base for understanding the distributional effects of a PCT.