The fact that my colleague, Mark Pack, has indicated an enthusiasm for the proposal for an independent Office for Tax Simplification has, unsurprisingly, encouraged me to take a look. What I find doesn't, unfortunately, encourage me.
Courtesy of the Conservative Party's website...
We will restore the tax system’s reputation for simplicity, stability and predictability. In our first Budget we will set out a five year road map for the direction of corporate tax reform, providing greater certainty and stability to businesses. We will publish all technical changes to the tax system by the Pre-Budget Report in advance of each Budget for consultation and proper Parliamentary scrutiny, and we will create an independent Office of Tax Simplification to suggest simplifications to the existing tax system.
In truth, the tax system responds to changes in the market. As financial instruments grow more complex, as the behaviour of those with money changes, tax systems have to respond. As accountants explore new and intricate forms of tax avoidance, HM Revenue & Customs is obliged to respond with more legislation, more carefully drawn. That means complexity, inevitably.
Admittedly, that complexity doesn't impact much on ordinary taxpayers like most of you. Your salary is taxed on a fairly simple basis, in that we grant you the first £6,500 or so free of tax, the next £35,000 or so at the basic rate and anything above that at 40%. If you earn quite a lot by most people's standards, you'll be taxed at 50%. Complex? A bit. However, when I first started dealing with personal tax, back in the late 1980's, we were still dealing with a basic rate plus upper bands at 40%, 45%, 50%, 55% and 60%, plus an 83% rate if you had to go back a few years, an investment income surcharge at 15% on top of that... need I go on?
Predictability is probably a good thing, unless you have to change your mind suddenly. For those of us in the industry, the changes in corporation tax rates (an increase in the small companies rate, and a shadowing cut in the basic rate) implied a move towards a single rate of 25%. And if the economic crisis hadn't hit, we'd probably have got there by 2015 or so. There are, if you study changes closely enough, trends.
Oh yes, there can be no doubt that companies benefit from stability and certainty - we all do - but that would equally apply to interest rates, inflation, exchange rates, and tax policy impacts on those things too, not always directly, not always tangibly. A 1% change in corporation tax rates is unlikely to cause vast behavioural changes (it will influence behaviour, just not as dramatically as some might believe). A new relief probably will, but that's the point of introducing or abolishing reliefs.
And as for better consultation, you'd be amazed at how much there already is. The Treasury is very keen on consultation, because there is a sense that it is nice to see what the other side think. It isn't very high profile, because it's predominantly for tax professionals, but it does go on.
Finally, with regard to Parliamentary scrutiny, the sad fact is that scrutiny is dependent on the available time, the ability of opposition parties to resource appropriate levels of research and, in truth, a bit of specialist knowledge. There used to be the odd accountant in the Commons, and whilst the likes of Jeremy Hanley and Anthony Stern might not have been on the cutting edge of technical knowledge, they did at least have a grasp of the impact of day to day legislation on a broad range of taxpayers, corporate or personal.
In short, most of this is policy flowing from people who know what they'd like, but are rather shaky on what's already out there.
However, I did start by referring to the proposed Office of Tax Simplification, so I'd better return to it, hadn't I? Tomorrow, I think...
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