Families "could save £1,000" with flat rate of income tax By DAVID MADDOX Published on Monday 21 May 2012 01:36 A RADICAL shake-up of the tax system, which would see huge savings for all earners, has been backed by a leading right-wing campaign group and business leaders. The 2020 Tax Commission report, a joint project between the TaxPayers" Alliance and Institute of Directors, calls for a 30 per cent flat rate of income tax and the abolition of National Insurance contributions along with a range of other taxes. It has also said there should be a £10,000 threshold before any tax is paid. While the ideas within the report will not be adopted in the short term, it is understood some of the Conservative Party hope to have some of its suggestions included in the next general election manifesto. The proposals would end the higher 40p rate for those earning more than £43,000 and the 45p rate for those on £150,000 or more. While it would save £988 a year for the average earner on £26,000, the benefits would be seen more at the higher end with somebody earning £1 million a year paying £204,000 less in tax. The report claims the new tax regime could lead to an 8.4 per cent increase in the UK's gross domestic product after 15 years. Under the plans, corporation tax and capital gains tax would be replaced with a 30 per cent tax on dividends, interest and rent. Inheritance tax and stamp taxes on shares would be scrapped along with air passenger duty, while fuel duty would be cut by 5p. Taxation would be limited to a third of national income, as would public spending - meaning an extension until 2020 of cuts in government expenditure. Councils and devolved administrations would see their grants from central government cut but would be given new powers to impose local income and sales taxes. The proposal to shift to the single income tax would increase the budget deficit by £49.1 billion in the first year, provided the changes were not phased in and there were no further cuts to public spending. But the commission predicts that the boost to the economy would result in a £35bn fall in annual borrowing after 15 years. Allister Heath, chairman of the 2020 Tax Commission and editor of City AM, said: "It is time for Britain to make a vital choice between tweaking the status quo and letting our economy continue to be crippled by complex and punitive taxes, and drastically changing course with a radical but realistic plan for a tax system fit for the 21st century." Matthew Elliott, chief executive of the TaxPayers" Alliance, said: "Right now the government's first priority has to be strong economic growth to create jobs and ease the pressure on families struggling to make ends meet. Tax reform is essential to make that possible. Graeme Leach, director of policy at the Institute of Directors, said: "This is a radical and practical plan for reforming our tax system to make it fairer and better for the economy. Fiddling with the system causes more complexity and has little benefit to growth. This proposal would put a rocket under economic confidence. This is a real opportunity to make life easier for people, get more money on the high street and give Britain a tax system which is right in principle and works in practice. We need radical action to kickstart the economy, and this is a comprehensive way to do that in one go.