An assessment of recent results on the tax treatment of labour inputs and intermediate goods

<p><p>The present UK tax system does not tax intermediate goods, nor does it discriminate between labour in different uses. This situation follows as a consequence of the particular structures of value added tax (VAT), income tax and National Insurance. Considerable theoretical support, with its foundations in the work of Diamond and Mirrlee (1971), has been provided for this position. Until recently this support has appeared unassailable, to the extent that Kay and King (1990) call the non-taxation of intermediate goods a 'first principle' of taxation.</p></p>