Thursday, February 18, 2010

An Office for Tax Simplification - what are politicians for then?

My colleague, Mark Pack, has indicated an enthusiasm for the proposal for an independent Office for Tax Simplification. And yes, he and I would almost certainly agree that the tax system is now more complex than it has ever been. However, he perhaps misses the point as to why the system is as complex as it is. Luckily, I discussed that yesterday evening. So, why am I so unconvinced by the idea of an independent Office of Tax Simplification?

Firstly, Mark misses the point altogether when he discusses rewriting the tax code so that it is easier to understand. That isn't what the Conservatives are calling for, although any ideas for tax simplification might achieve that (I emphasise might).

Indeed, the Inland Revenue set up a Tax Law Rewrite Project in the dying days of the Major administration, which aimed to create a more accessible version of tax legislation. It was intended that the project would run for two years. Seven years later, they were still recruiting staff. Strangely, it turned out to be rather more difficult than expected, as the simpler you made the language, the less watertight it became - bad news if you want to discourage avoidance and the creation of loopholes.

I digress though and, returning to the Conservative proposals, if such a quango (they're bad, if Conservatives are to be believed, unaccountable, from a liberal perspective, and necessary for delivery, if you're a Labour supporter) was to be created, what power would it have? Enough power to overturn Government legislation? On what basis - administrative, cost, philosophical?

The whole point of being the Government is to change things to reflect your beliefs as to how an economy and a society is best run. Are Dave and George seriously saying that if a quango came along and said, "Interesting proposal, gentlemen. However, we think that it makes the tax system more complex and you shouldn't do it.", does anyone seriously believe that they would pay heed? And if they did, why is a non-elected, unaccountable quango being given an effective veto over the policy of a Government with a mandate?

This is yet another example of politicians holding their hands in the air and saying, "we're not good enough to do this ourselves" or, alternatively, "you can't trust us to do this", very much like the Fiscal Responsibility Bill that Labour have proposed. Ultimately, if politicians want to be respected, they have to have the guts to take decisions, defend them and execute them. That's why the rest of us vote for them, not to watch them hand over key decisions to faceless bureaucrats like myself, most of whom are rather better paid than politicians but with none of the risk of being turfed out.

I return to the noble Baroness Thatcher. Can you imagine her, or Nigel Lawson, placing such authority in an unelected body? No, me neither. On the other hand, perhaps it might be better with David Cameron and George Osborne...


Nonconformistradical said...

I've commented to Mark's posting that I think a select committee is preferable to an unelected quango.

Simplifying the tax system will have to be tackled some time.

It is like businesses being stuck with using and modifying ancient computer programs because the basic functions are too important to the core business to be discarded. This has happened with financial organisations continuing to use for many years (maybe still for all I know) mainframe computer programs which began life in the 1960s and which eventually contain far more amendments than original code.

Amendments to such code can be very difficult - and costly - to test properly. The older and the more patched the code - the easier it is to introduce bugs when making further changes.

In terms of the tax system - for computer bugs read tax loopholes. We have an ancient, grossly over-complicated tax system and every time it is amended there is the possibility of introducing a new loophole through inadequate understanding of the existing system and the impact of the change.

But you can't just rewrite the tax code and allow all the current special cases etc. to remain. The whole system of what is tax and how needs to be changed - with a bonfire of special cases.

Mark Valladares said...


I think that it would be fair to say that any action which reduces the administrative burden and promotes a fairer, less complex tax system is a good thing. However, the big question is whether simplification compromises the desire of politicians to remould the tax system in their own philosophical image. In some cases, it clearly does, and the challenge for the Liberal Democrats is not to forget that.

Your use of computer systems as a metaphor for the tax system is an extremely good one, so good that I plan to use it myself!

Mark Pack said...

Interesting points Mark.

On the question of "can the tax system be simpler without becoming less clear?" I think the answer is yes.

I'd give as an example the complicated tax situation for capital investment bonds which means that all the firms selling them say "we can't tell you what the tax situation would be if you buy these".

What I think this example does highlight though is that it's not just a matter of making wording clearer; there are some policy decisions which follow (are the benefits of such bonds worthwhile for the complexity which they add to the system?).

Like you, I also like the computer code analogy and - as with computer code - the risk is that you only have pressure from people who want new features, but it's never fashionable to say "Halt! We need to make the basics work right rather than always be wanting to do new things".

As to what a body could achieve up against government, I think it saying firmly and loudly "We think the government's actions on X are bad because they make the tax system unnecessarily complicated" could - if the body has achieved public credibility - have a real impact. We see that at the moment with many outside bodies which judge government proposals. Some have significant weight.