There are two certainties in taxation, if you levy a tax at 0% you will get no income and if you levy it at 100% you will probably get nearly the same result.
Finding the sweet spot for tax levels is key to Government maximising its revenues whilst minimising the damage to either its popularity or its revenues.
There was a very good report produced by HMRC on the behavioural impact and expected change in tax take when the top rate of income tax moved from 50% to 45%. But this was an exception rather than the rule. Tax is not just about the amounts raised but the effect that different marginal rates and incentives have on taxpayer behaviour.
There is a bunching of businesses whose turnover is just below the VAT threshold of £85,000. This threshold is now reinforced by the requirement for making tax digital which happens at the same level.
The fear of being enmeshed in the VAT system is clearly one of those important taxpayer factors. It is similarly true that the 60% tax band from £100,000 to £125,000 for 2019/20 caused by the phase-down of the personal allowance undoubtedly affects taxpayer behaviour.
The 12% Stamp Duty Land Tax charge plus potentially 3% surcharge for second properties has had a chilling effect on the top end of the UK property market.
The most disliked tax still appears to be Inheritance Tax which is curious given that it affects a relatively small number of estates. Presumably, there is an aspirational factor involved. Perhaps the fact that if you have three children the taxman’s share is probably bigger than the bequest to each child if the estate is big enough.
A tax reforming Government could consider reductions in the rates of tax partially funded by reductions in allowances and exemptions. The evidence where this has been done such as in Corporation Tax points to this strategy working as Government tax receipts have jumped. Could it be applied to other taxes? I would suggest that it would take a tax-reforming Chancellor with a stable majority in Parliament to achieve this.