Fair and Sustainable Taxation System for the United Kingdom

1. Introduction

We have updated our policy following the disasterous budget given by Rachel Reeves on November 25th 2025. You can read our opinion on that if you follow the below link:

The current UK taxation system is complex, opaque, and riddled with distortions. Ordinary people and smaller businesses bear a heavy and often arbitrary burden, while large corporations, financial institutions, and property owners are able to exploit loopholes and complexity to reduce their effective contribution.

This policy sets out a new, realistic framework for taxation and public finances for the British Isles. It is designed to be:

• Honest – no fantasy revenues, no magic money; everything must fit within hard, transparent rules.
• Ethical – people come before systems; basic needs and dignity are prioritised.
• Credible – aligned with economic reality, mobility of capital, and the need to keep Britain investable and productive.

At the core of this framework is a simple principle:

The total tax take of the state must not exceed 35% of GDP.

If the Government cannot run its affairs, fund essential services and invest within that envelope, the answer is not “more tax” but “better government”.

This paper replaces earlier high-level concepts and unrealistic revenue projections with a cleaner, workable approach that can be implemented in phases and costed properly by an independent fiscal authority.

2. Objectives of the New Tax and Finance System

The British Democratic Alliance will:

• Cap the size of the state – total tax receipts limited by law to a rolling average of 35% of GDP.
• Reduce the effective tax burden on ordinary workers, particularly on low and middle incomes.
• Eliminate regressive domestic tax structures, including the current council tax system.
• Restructure VAT to protect essentials, support productive sectors and discourage conspicuous luxury and genuine environmental harm.
• Ensure corporations and financial institutions contribute fairly without driving business out of the UK.
• Replace council tax with a fair, income-linked Local Services Contribution, collected nationally and distributed by a transparent formula.
• Scrap nuclear weapons and other major, non-essential defence drains, re-focusing defence spending on a non-nuclear, defensive posture.
• Create a Sovereign Wealth Fund and an Emergency Reserve Fund, funded from genuine surpluses – not fantasy numbers.
• Scrap immoral “health taxes” on illness – including prescription charges and basic emergency dentistry charges.

3. Fiscal Rules and Constitutional Safeguards

To stop Westminster repeating the same mistakes, we will embed the following rules into primary constitutional legislation:

• Tax-to-GDP cap: Total tax receipts (including national, local and hypothecated levies) will be capped at a rolling three-year average of 35% of GDP. Any Budget breaching this limit is unlawful.
• Debt discipline: Structural deficits will only be permitted in legally defined emergencies (war, catastrophic disaster, national pandemic), with sunset clauses and mandatory repayment plans.
• Independent Fiscal Council: A statutory, independent body will certify all Budgets and major tax changes against the 35% cap, debt rules and long-term sustainability. If it refuses certification, the Budget cannot pass.
• Mandatory transparency: All tax changes must be accompanied by clear impact assessments on:
  • Household incomes by decile;
  • Business competitiveness and investment;
  • National productivity.

Only once this framework is in place do individual tax measures make sense. The envelope comes first; everything else must fit inside it.

4. Personal Taxation – The Personal Income Charge

The present split between Income Tax and National Insurance is confusing, regressive in places, and used to hide the true tax burden on work.

We will replace employee Income Tax and employee National Insurance with a single, transparent Personal Income Charge (PIC).

4.1 Personal Income Charge Bands

Indicative structure (exact thresholds to be finalised after detailed costing):

Band	Annual Income	Personal Income Charge
A	£0 – £15,000	0% (basic tax-free allowance)
B	£15,001 – £35,000	15%
C	£35,001 – £75,000	25%
D	£75,001 – £150,000	30%
E	Over £150,000	35%

Key features:

• No separate employee NI – the rate you see is the rate you pay.
• Only a small number of bands – no dozens of micro-bands and bizarre cliffs.
• Marginal rates are capped – nobody pays more than 35% on any slice of earned income.
• Low incomes are protected with a meaningful tax-free allowance.

4.2 Self-Employed and Small Business Owners

The self-employed and owner-managed businesses have been treated as easy targets for years. Under BDA policy:

• The same PIC bands will apply to self-employed profits, with proper recognition of legitimate business expenses.
• NI is fully integrated into the PIC – no separate Class 2 / Class 4 NI nonsense.
• Accounting and reporting will be simplified so small traders can comply without needing forensic accountants.

There will be no separate wealth or “envy” taxes on income already taxed at source; the emphasis will be on fairness, simplicity and predictability.

5. Local Taxation – Abolishing Council Tax and Creating the Local Services Contribution

Council tax is a regressive, outdated mess based on 1991 property valuations and postcode luck. It punishes poorer households, particularly in areas with lower incomes but relatively higher banding.

We will:

• Abolish council tax and domestic business rates entirely.
• Replace them with a national, income-linked Local Services Contribution (LSC).

5.1 Local Services Contribution (LSC) – Structure

The LSC will be:

• Charged as a small percentage on all taxable personal income (earned and unearned) above the basic allowance.
• Collected centrally via PAYE and self-assessment, alongside the Personal Income Charge.
• Shown clearly on payslips and tax statements as a separate line: “Local Services Contribution”.

Indicative structure (subject to costing):

Band	Annual Income	LSC Rate
A	£0 – £15,000	0%
B	£15,001 – £35,000	1%
C	£35,001 – £75,000	2%
D	Over £75,000	3%

5.2 Distribution to Councils

Every pound collected under LSC is hypothecated to local government – it cannot be raided by central government.

Funds are distributed to councils according to a transparent Local Allocation Formula based on:

• Population;
• Age profile;
• Deprivation indices;
• Rurality / sparsity factors;
• Tourism / daytime population where significant.

No council can “starve” its residents by under-taxing, and no council can quietly mug them by over-taxing; the LSC is national, predictable and rules-based.

Councils may be granted tightly controlled powers to raise small local supplements, but only subject to:

• Clear ring-fencing of funds for specific, voted-on projects; and
• Local referenda for any increase above a low threshold.

6. VAT Reform – Protecting Essentials, Targeting Luxury and Waste

The current VAT system is a patchwork of exemptions, special rates and historic deals. It will be replaced with a simpler structure that protects essentials, supports key domestic sectors, and makes those who choose conspicuous luxury pay more.

6.1 VAT Bands

• 0% – Essentials
  • Basic food and non-alcoholic drink;
  • Domestic energy for households (electricity, gas, domestic heating fuels);
  • Children’s clothing and footwear;
  • Books and educational materials;
  • Public transport within the UK;
  • Prescribed medicines and core healthcare supplies.
• 5% – Strategic Reduced Rate
  • UK hotels, guest houses and domestic package holidays;
  • Restaurants, cafés and takeaways operating in the UK;
  • Cultural and sporting events open to the general public;
  • Energy-efficient domestic appliances (meeting defined best-in-class standards).
• Standard Rate – 15%
  • Most general goods and services not covered above.
• Luxury Rate – 25%
  • High-value luxury goods and services above defined thresholds, including:
    • Luxury cars, yachts and pleasure craft over a set value;
    • Private jets and helicopters;
    • High-end jewellery and luxury watches;
    • Exclusive private leisure memberships above defined price levels.

All rates and thresholds will be designed to maintain overall VAT receipts within the 35%-of-GDP tax cap, while shifting the burden off essentials and towards discretionary, high-end spending.

6.2 Taxes to be Scrapped or Replaced

• Sugar Tax – scrapped and replaced with clear, evidence-based food standards and labelling, not stealth taxes that hit the poor.
• Air Passenger Duty (APD) – scrapped on standard economy fares; environmental impact will instead be addressed through higher VAT on private aviation and high-end travel, and through genuine international agreements rather than double taxation.
• VAT on private school fees – not introduced; our focus is on fixing the state education system, not performative envy taxes.

7. Business and Corporate Taxation

Business must pay its fair share – but the UK must remain competitive and attractive for genuine investment, innovation and job creation.

7.1 Corporation Tax

We will retain a banded Corporation Tax system, but with clear, stable rates:

Taxable Profits (UK)	Corporation Tax Rate
Up to £1 million	18%
£1 million – £10 million	21%
£10 million – £50 million	24%
Over £50 million	26%

Key reforms:

• All companies trading in the British Isles must:
  • Maintain a registered UK entity or authorised trading agent;
  • Record all UK sales and income through that entity;
  • Pay UK tax on UK-source profits before any onward payments to offshore groups.
• Dividends cannot be paid until Corporation Tax liabilities are settled.
• Employer contributions to staff welfare (e.g. pensions, training) will be encouraged through clear reliefs; artificial “financial engineering” costs will not.

7.2 Turnover-Based Health Contribution

In addition to profit-based Corporation Tax, large organisations trading in the UK will pay a small, unavoidable Health Contribution on their UK turnover.

• Applies to large entities above a significant turnover threshold (to be defined to exclude SMEs).
• Indicative rate: 0.5–1% of UK turnover, with careful design to avoid double-taxing low-margin sectors.
• Hypothecated to support the NHS and National Mental Health Service.

This replaces the earlier, unrealistically high 2% blanket turnover levy.

8. Financial Sector – Fair Contribution Without Flight

A blanket 0.75% tax on all financial trades would simply drive activity offshore and wreck London’s role as a global financial centre. That idea is therefore abandoned.

Instead, the BDA will introduce a Financial Sector Responsibility Package built on three pillars:

• Modernised Stamp Duty
  • Maintain and modestly enhance stamp duty on UK equity transactions.
  • Close known avoidance routes and ensure synthetic instruments that replicate UK share exposure are brought into scope where practical.
  • Protect long-term pension and retail investment from excessive charges.
• Systemic Risk Levy
  • An annual levy on large banks and financial groups based on UK risk-weighted assets and leverage.
  • Designed to discourage dangerous balance-sheet expansion and generate steady revenue without penalising low-risk, utility-style banking.
• City Licence Fee
  • A tiered annual operating licence fee for the largest financial institutions operating out of the UK.
  • Payable in exchange for access to UK markets, legal protections and Bank of England facilities.

If a firm wants the benefits of operating in the UK – access to our markets, our legal system, our stability – it will pay for that privilege. But the rates will be set at levels that cause grumbling, not an exodus.

9. Fuel Duty, Transport and Environmental Taxes

Transport powers the real economy. The current approach treats drivers and hauliers as a cash cow while offering no credible alternative.

BDA policy will:

• Cut Road Fuel Duty by 50%, with the reduction locked in for at least 20 years (indexed only by inflation).
• Future-proof revenue by:
  • Maintaining a simple, modest road levy on public EV charging (not on home electricity);
  • Avoiding intrusive, surveillance-based road pricing.
• Align environmental policy with reality by investing in:
  • Electrified freight and passenger rail;
  • Modern, integrated public transport;
  • Cleaner vehicles, not punitive taxes on people who have no genuine alternative.

Environmental harms will be addressed primarily through targeted pollution controls and smart regulation, not random revenue-grabs sold as “green”.

10. Scrapping Nuclear Weapons and Ending Major Non-Essential Drains

Maintaining and renewing a nuclear deterrent consumes vast sums over decades for a capability we will not use and that undercuts our proposed neutral, ethical foreign policy.

We will:

• End the continuous at-sea nuclear deterrent and cancel replacement programmes.
• Re-orient defence around a strong, conventional, non-nuclear defensive capability in line with BDA foreign policy.
• Audit all major capital projects and quangos, scrapping those that do not clearly serve the national interest.
• Ban cost-plus contracts across government and enforce fixed-price, accountable procurement.

Savings from these measures create space within the 35% tax envelope to fund health, education, infrastructure and genuine resilience.

11. Sovereign Wealth Fund and Emergency Reserve

Once the 35% cap, core services and debt rules are in place, any genuine Budget surplus will be allocated as follows:

• Debt Reduction – a defined share of surplus will be used to reduce national debt until a safe band is reached.
• Sovereign Wealth Fund (UK-SWF) – a proportion of surplus will be invested in productive, diversified assets, with:
  • Legal restrictions on political interference;
  • Independent management and clear reporting;
  • Explicit rules on when, and for what, funds may be drawn.
• Emergency Reserve Fund – a separate, highly liquid fund for crises (pandemics, major disasters, infrastructure emergencies), strictly ring-fenced for genuine national emergencies.

There will be no imaginary promise of trillions appearing overnight. The funds will grow as the country grows and as good government delivers real surpluses.

12. Direct Relief for Households – Charges to be Scrapped

Within the new fiscal framework, we will prioritise scrapping charges that effectively punish people for being ill or poor.

The following will be abolished for UK citizens:

1. Hospital car parking fees.
2. Prescription charges.
3. Charges for emergency and medically necessary dental treatment (elective cosmetic work remains chargeable).
4. University tuition fees for UK citizens on approved STEM and high-priority vocational courses, subject to service/engagement conditions to be defined.

13. Public Ownership of Core Utilities

We will bring energy and water back under public, not-for-profit ownership and integrate them into the national fiscal and regulatory framework.

• Energy
  • Buy back national-scale energy companies at fair market value.
  • Run them as not-for-profit public utilities focused on security of supply, decarbonisation and fair pricing.
  • Provide each household with a basic daily allowance of electricity free at the point of use, with higher consumption charged at cost-reflective rates.
• Water
  • Return water companies to public, not-for-profit ownership.
  • Guarantee each individual a basic, metered daily allowance of clean water free at the point of use.
  • Enforce strict environmental standards and investment obligations.

These reforms will be implemented gradually and financed within the 35% cap and debt rules, not through reckless borrowing.

14. Implementation Strategy

This reform programme is ambitious but achievable. It will be phased over one to two Parliaments as follows:

• Phase 1 – Constitutional and fiscal rule changes; creation of Independent Fiscal Council; freeze on new stealth taxes; initial fuel duty cut.
• Phase 2 – Introduction of the Personal Income Charge and Local Services Contribution; abolition of council tax; initial VAT restructuring; start of nuclear and major-waste wind-down.
• Phase 3 – Corporate tax reform, Health Contribution, Financial Sector Responsibility Package; beginning of utilities buy-back programme.
• Phase 4 – Establishment and initial funding of the Sovereign Wealth Fund and Emergency Reserve; further rationalisation and simplification of the tax code.

At each stage, impact assessments will be published, and adjustments made if any measure threatens to breach the 35% cap or materially damage productivity.

15. Vision and Conclusion

True national strength is not built on empire, exploitation or the enrichment of a narrow elite. It is built on stability, opportunity and shared prosperity.

The system we propose is neither state-centralised socialism nor unregulated, predatory capitalism. It is a deliberate, rules-based fusion where:

• The state provides a reliable foundation: healthcare, mental health support, education, justice, infrastructure and security.
• The private sector thrives within a fair, predictable system, rewarded for innovation, investment and good employment practices – not for exploiting loopholes.
• Every individual has a genuine opportunity to contribute, build a life and support a family without being crushed by arbitrary taxes and charges.

In this vision:

• No child grows up in grinding poverty.
• Education and training are accessible, high-quality and focused on real-world skills.
• Public transport is clean, reliable and genuinely competitive with private car use.
• Healthcare and mental health support are available based on need, not the thickness of a wallet.
• Britain leads in science, technology and green innovation because our economy is stable enough to allow long-term thinking.

This is not utopia. It is what happens when you stop lying about the numbers, stop using the tax system as a political weapon, and start treating public money as exactly what it is: the people’s money, held in trust.

The British Democratic Alliance offers a credible, disciplined and human-centred alternative: a Britain where the tax system is clear, the state lives within its means, and the economy works for the many – not the few, and not just the markets.