George Bull

Written by: George Bull

George Bull

Senior Tax Partner

How many consultations does it take to reform the UK tax system?

Among politicians, there seems to be a growing consensus that tax increases will be required to support economic recovery after the coronavirus. Although there is as yet no agreement on the form those increases might take, there is no shortage of government and Parliamentary bodies working on solutions.

Last week we reported that Chancellor of the Exchequer Rishi Sunak has asked the Office of Tax Simplification (OTS) to conduct a far-reaching review of capital gains tax. Since then, other calls for change have been landing thick and fast.

First off the blocks on Friday 17 July, the Treasury Committee launched its ‘Tax after coronavirus’ inquiry. With a call for evidence by 28 August 2020 this aims to be practical, concentrating on reforms which are politically feasible, and which will be sufficiently robust to accommodate future trends and pressures in the tax system. This inquiry has three major themes. First, changes in the terrain across which tax is applied. Areas which have been particularly singled out for attention as representing aspects of the tax regime which are not fit for the 21st century are the taxation of international business and, for individuals, the taxation of earnings. This will affect employees, the self-employed and people who work through their own companies. Second, the intergenerational balance between young people and old, focused especially on the accumulation of wealth. Third, the structure and appropriateness of tax reliefs, tax thresholds and tax rates. The Treasury Committee is prepared to look widely at aspects as diverse as climate change, demographic change, a COVID-19 solidarity tax, wealth taxes, closing the tax gap and, finally, the world of work.

On Monday 20 July, the Public Accounts Committee (PAC) weighed in with a scathing report on the management of tax reliefs. The committee is highly critical of government, the Treasury and HMRC for knowing too little about the tax reliefs which are provided, whether they work, whether they offer value for money or even how much they cost. The report notes that the 10 most expensive UK tax reliefs cost £117bn a year. However, only one in four reliefs costing more than £1bn has the intended effect on economic behaviour. While withdrawing some of these tax reliefs would offend the Treasury Committee’s intention to address only the politically possible – for example withdrawing the zero rate of VAT on foodstuffs would be massively unpopular and counter-productive – the PAC calls for an urgent review of pension reliefs costing £38bn per year. There are concerns that the relief excessively benefits high-income groups, while delays in reforming known injustices mean that the lowest earners in net pay pension schemes are regularly denied the relief to which they are entitled.

Also on 20 July, the All-Party Parliamentary Committee on Anti-corruption and Responsible Tax (APPG) called for changes in the law to facilitate the criminal prosecution and fining of advisers who promote tax avoidance schemes which they know to be ineffective. To give weight to this, HMRC has today (21 July) published a call for evidence on tackling disguised remuneration tax avoidance as well as a consultation on tackling promoters of tax avoidance.

With the House of Commons summer recess beginning on 22 July 2020 and members not expected to return until 1 September 2020, the APPG report may be the last in this flurry of announcements. However, the sheer depth, breadth and weight of these contributions sends mixed messages.

At one level, the consistency of messaging suggests that we can expect:

  • higher capital gains tax;
  • tax reliefs restricted if they do not provide value for money;
  • higher NIC for the self-employed;
  • despite election manifesto promises, the triple lock of income tax, NIC and VAT rates may have to be broken;
  • tax increases to achieve climate-change objectives;
  • wealth tax and tax-driven intergenerational adjustments are under consideration; and
  • an even tougher regime for tax avoiders.

Nothing has been ruled in and nothing has been ruled out.

At another level entirely the overlaps between these projects, especially visible in the work being undertaken by the OTS, the Treasury Committee and the PAC, may yield conflicting recommendations and incoherent or muddled decision-making when tax changes are amalgamated into a future Budget. 

Observers of the UK tax scene will know how easy it is to get to the wrong place for all the right reasons. With five separate government- or Parliament-initiated projects currently underway, clear vision, tough negotiating skills and strong leadership will be required if the UK is to have a post-coronavirus tax system fit for purpose in the 21st century.

 
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