UK tax system 'discourages employment and investment', IFS suggests

27 Jan 2021

The Institute for Fiscal Studies (IFS) has suggested that the current UK tax system discourages employment, investment and corporate risk-taking and needs reform.

Research carried out by the IFS suggested that employees' salaries attract thousands of pounds more in tax each year than the incomes of individuals who are self-employed or working through their own company. This is mostly because employees' salaries are subject to employers' national insurance contributions (NICs) whereas other incomes are not.

The Institute also suggested that the tax system discourages investing in a company and taking risks. It stated that preferential tax rates on capital gains, dividends and self-employment income are not well targeted at encouraging entrepreneurial risk-taking and investment.

Commenting on the research, Helen Miller, Deputy Director at the IFS, said: 'Better-designed taxes allow us to raise more revenue with less economic harm. This should be even more important in the wake of the COVID-19 crisis. Policymakers could choose reforms that would reduce disincentives for businesses to invest, employ people and take risks, all of which would aid the recovery and help us to 'build back better'.'

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