The UK taxes business income at much lower rates than employment income. In this chapter we describe the problems caused by that differentiation and assess the main arguments used to defend it. We summarise the Mirrlees Review’s proposals for radical reform that would align tax rates across legal forms while protecting incentives to save and invest. Finally, we consider the obstacles to implementing such a radical reform and suggest an approach to making progress in practice.
Aligning tax rates between employees and the self-employed would reduce inequity while encouraging entrepreneurial risk-taking, says Stuart Adam, senior research economist at the Institute for Fiscal Studies.
