ABSTRACT
In the period 1973-80 income tax revenue varied between 12 per cent and 18 per cent of net national income at factor cost; in the same period it constituted 32-42 per cent of total tax revenue (including national insurance contributions). Even the substantial shift from direct to indirect taxation in the 1979 budget did not undermine the dominance of income tax as the single largest element of government revenue. Consequently income taxation holds a widely acknowledged position of power as an instrument of economic policy. However, there are at present limitations on the flexibility with which this policy instrument is applied. Within the existing system a single tax schedule, announced in the annual budget, applies throughout the tax year, and for Schedule E taxpayers this tax schedule is applied to earnings in a cumulative manner, in accordance with the P AYE system. In this chapter we raise the question of the difficulties involved in changing the tax schedule, in terms of the burdens thereby imposed on taxpayers, employers and the Inland Revenue, with a view to assessing the possibility of making more frequent changes in the schedule than occur at present.
