Chancellor urged to take ‘strategic approach’ to tax

Three finance industry bodies have written to the Chancellor, urging him to take a more strategic approach to setting tax policy

The Chartered Institute of Taxation, the Institute for Fiscal Studies and the Institute for Government have written to the Chancellor, calling on the government to take a considered, strategic approach to tax policy that reduces compliance burdens on business. It would, they said, become a source of international competitive advantage for the UK.

They asked Chancellor Sajid Javid to confirm there would be ‘no going back to the bad old days of multiple fiscal events each year’, to take a strategic approach to tax policy, to consult with taxpayers earlier in the policy process and to carry out a more systematic evaluation of tax measures.

With business and government seeking closer working around Brexit, they said this was an opportunity to address concerns over the compliance costs of the customs regime after Brexit as well as issues with Making Tax Digital.

As Javid takes up his new post, the three bodies are concerned he might undo some of the good work they feel ex-Chancellor Philip Hammond did to simplify tax, including abolishing the Autumn Statement in 2016 and the Spring Budget in 2017.

‘Under the previous Chancellor’s leadership, the government – by choosing to hold just a single fiscal event each year – took one step towards tackling the confusion and burden on businesses and individuals created by the proliferation of tax measures over the previous two decades,’ they said.

This has been matched by a reduction in new tax policy and the length of Finance Acts, they added. The 2018 Finance Act was 196 pages long and the 2019 act 337 pages compared to the Acts between 2012 and 2017 which averaged more than 600 pages. This was matched by a decrease in the number of tax-related measures, from more than 60 per year between 2012 and 2016 to 51 in 2017 and 34 in 2018.

They said that Hammond’s move to announcing new tax measures just once a year had made tax policy more effective. ‘Reducing the frequency of changes of direction can release resources for consultation, production of higher quality legislation and more effective implementation. It makes life simpler for taxpayers and can make measures more effective,’ they said.

They pointed to the 2010 corporate tax roadmap as an example of a strategic approach to tax policy. ‘This approach could usefully be applied to the tax treatment of savings and pensions and the need to address the risks to revenue from the increase in self-employment and tax-motivated incorporation,’ they said.

They urged the Treasury to improve taxpayer engagement. ‘Too many consultations have begun when key decisions have already been made, shutting off potentially better options. There has been a welcome increase in the number of “calls for evidence” on tax matters in the last couple of years but there is room to go further,’ they said.

Tax reliefs need to be evaluated as rigorously as public spending programmes to ensure that they represent value for money. ‘As the Office for Budget Responsibility pointed out in its Fiscal Risks Report earlier this month, the UK spends a large amount on tax expenditures compared to other advanced economies and compares poorly in its failure to scrutinise the costs of most of these,’ they said.

The group has set out its recommendations in a report, Better Budgets: making tax policy better.

Letter to Chancellor Sajid Javid

Better Budgets: making tax policy better

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