THE case for a “flat tax” is to be studied by the Tories as part of a review of the tax system.

George Osborne, the Shadow Chancellor, said that he would set up a commission to investigate a much more straightforward set of tax levels, including a single rate.

It is likely to be headed by a senior businessman and report next year on the way that the system works in other countries and the viability of introducing it to Britain.

The Times has also learnt that the Liberal Democrats are considering a radical new tax policy dubbed the “double decker”. This hybrid of a flat tax would cut demands on the low-paid and middle-earners but progressively squeeze the better-off.

A flat-tax system has been introduced in 11 countries, mostly in Eastern Europe.

Mr Osborne, who will detail his ideas in a speech on Wednesday, told the Sunday programme on BBC News 24: “The Conservative Party needs to make a long-term case for a lower-tax economy and a flatter and simpler tax economy.

“It is a very exciting idea that started in Central and Eastern Europe but now is being looked at by other countries like Greece, and there is some speculation that Germany is looking at it.”

He admitted that there were “problems of introducing a pure flat tax into a mature economy” but his commission would “examine the case for a pure flat tax” as well as simplified taxes.

Mr Osborne rejected suggestions that such a system would be regressive. “Most flat-tax ideas also involve a very high personal tax allowance. In other words, for example, people wouldn’t pay tax at all on their first £10,000, or £12,000, or £15,000 of income.”

The Lib Dem plan, to be put to activists at next month’s party conference, is a hybrid of the flat-tax principle increasingly in vogue with right-wing thinkers.

It would have a basic element of a flat-tax system with a much larger personal income tax allowance of, say, £10,000. The “double-decker” element means there would be two tax rates. The standard rate tax would stay at, or close to, the current threshold of 22 per cent, with a top band at a substantially lower level, perhaps at around 30 per cent.

Many middle-income earners could enjoy tax cuts because of the doubling of their personal allowance. But the plan would also scrap the upper earnings limit for national insurance contributions.

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