Structure-Before-Rates Tax Reform
Fix the base and design first — arguing about rates is a distraction
Miller's most technical framework — and the one she has spent two decades developing — holds that the UK tax debate is almost always fought on rates when the real problem is structural. The base (what is taxed), the design (what exemptions, reliefs and thresholds apply), and the consistency across asset classes and income sources are all broken before you even get to the rate question. Fixing rates on a broken base produces either over-taxation of some returns and under-taxation of others, with no relationship to any principled outcome.
The canonical examples are property taxes and capital gains. UK council tax values homes at 1991 prices — meaning a mansion in an expensive area is taxed on an implausible Victorian-era valuation while a terrace in the north is taxed proportionally higher. Stamp duty penalises transactions, discouraging people from moving to take better jobs. Both taxes have obvious structural fixes that do not require a philosophical debate about progressivity: update valuations and shift to a proportional annual charge. These are design questions, not rate questions.
Capital gains is more complex but the same logic applies. The tax base is too narrow (inflationary gains are taxed; losses are treated asymmetrically) and the rates are wrong (some gains taxed at zero on death; others at lower rates than equivalent labour income). The correct sequence is: fix the base to tax only real, above-normal returns; align the treatment of losses with gains; then set a rate that is consistent with equivalent labour income. Miller explicitly argues that only once the base is correct does the rate debate become meaningful — and that debating the rate on the current broken base is policy theatre.
- Fix the tax base before setting the rate — the rate is only meaningful once the base correctly captures what should be taxed.
- Consistency across asset classes and income sources eliminates artificial incentives to restructure rather than produce.
- A tax on an out-of-date base is not a reform — updating council tax valuations from 1991 is a prerequisite, not a policy choice.
- Asymmetric treatment of gains and losses discourages risk-taking by allowing the government to take a larger share of profits than losses.
- Structural tax reform creates winners and losers by design — framing it as principled redesign, not targeted punishment, is essential for political durability.
- Identify the structural flaws in the current baseFor each major tax, ask: what is actually being taxed, what should be taxed given the policy goal, and where do these diverge? For council tax: current values diverge from market values by decades. For CGT: inflationary gains are taxed while real losses are discounted asymmetrically.Pro tipMiller's test: 'would it be absurd if we applied this logic to income tax?' If the equivalent income tax treatment would be obviously wrong, the current capital tax treatment is also wrong.
- Separate normal returns from above-normal returnsFor capital taxes, distinguish the normal rate of return (time preference — saving today to spend tomorrow) from above-normal returns (rents, luck, returns to embedded labour). Only above-normal returns should be taxed at rates equivalent to labour income; normal returns should be lightly taxed or untaxed.Pro tipISAs and pensions represent two valid structural approaches to not distorting normal savings — the base principle is correct in both, even though the mechanics differ.WarningThis distinction is technical and cannot be communicated as a rate change. It requires explaining the difference between saving and rent-seeking to non-technical audiences.
- Align rates across equivalent income typesOnce the base is correctly defined, the rate should be the same whether income arrives as wages, dividends, capital gains or business profits — otherwise there is a structural incentive to restructure around the lower-taxed form. The current system's kinks (e.g. business asset disposal relief at lower rates) exist precisely because the base was never fixed.Pro tipAlignment does not require knowing what the rate should be — it requires knowing that it should be the same. Miller explicitly separates the alignment argument from the level argument.WarningBlanket rate alignment on a broken base makes things worse, not better. The sequence matters: fix base, then align rates.
- Evaluate inheritance and wealth taxes on the same structural logicIHT as currently structured applies to some assets and not others — creating an incentive to hold exempt assets. A coherent inheritance tax applies to all assets. The specific reliefs (agricultural property, business property) may have been intended to serve a purpose but have become avoidance mechanisms inconsistent with the original policy goal.Pro tipMiller's framing: condition on deciding to have an IHT at all (a political choice), the design should apply uniformly. Bringing pensions into IHT scope is a correct structural move in this direction.
- Package reforms to create principled narrativesBecause structural reforms create both winners and losers, they must be packaged so the losers are explicable as part of a principled redesign rather than arbitrary targeting. Farmers hit by IHT reform looks like persecution when isolated; it looks like fixing a broken system when framed alongside reform of all asset exemptions.Pro tipMiller's rule: abolish stamp duty at the same time you introduce proportional council tax. The net effect is defensible; each in isolation creates only visible losers.WarningPackaging reforms creates more legislative complexity and more total losers, but the political coalition of winners is also larger — which is why bold packages can sometimes pass when individual changes cannot.
Stamp duty penalises transactions — if you and Miller want to swap houses because you've changed jobs, stamp duty makes that financially painful. Meanwhile council tax is based on 1991 valuations, meaning a £5m Mayfair flat is taxed on an implausible decades-old assessment. The fix: abolish stamp duty, update property valuations, and apply a proportional annual charge.
BADR applies a lower CGT rate to business disposals, nominally to support entrepreneurship. Miller's IFS research found most of the benefit goes not to entrepreneurs taking genuine business risk but to IT consultants and tradespeople incorporated for tax reasons.
ISAs and pensions represent two different structural approaches to not distorting savings decisions. In an ISA you pay tax on income and get tax-free returns. In a pension you get up-front relief and pay tax on withdrawal. Both correctly avoid double-taxing normal returns.
Miller headed IFS's tax team for many years and led work informed by the Mirrlees Review (2011), a comprehensive UK tax design exercise that set out what a coherent system would look like. She describes this vision as 'sitting on a bookshelf' — available, detailed, and largely agreed upon by tax economists — but consistently ignored by governments that prefer piecemeal rate changes because they are easier to announce than structural redesigns.