ICAEW hosts Treasury Committee Chair Harriett Baldwin MP for a discussion on the Committee’s upcoming work and the future of tax simplification.
ICAEW Director of Public Sector and Taxation Alison Ring OBE FCA, recently welcomed Treasury Committee Chair Harriett Baldwin MP and representatives from across the tax profession to Chartered Accountants’ Hall on Wednesday, 21 June for a discussion on how the UK’s tax system can support economic growth.
Harriett Baldwin MP spoke about the constitutional role of her Committee in scrutinising the Treasury and creating conditions for economic growth. Ms Baldwin MP also gave an update on the priorities of the Treasury Committee and its sub-committee on financial services.
Ms Ring FCA spoke about the importance of an evidence-based growth-focused tax system that embraces simplicity to encourage compliance with the accountancy profession and the work ICAEW undertakes in supporting its members through changes in tax policy.
This event proved timely as it dovetailed the publication of a report on tax simplification by the Treasury Committee. Ms Baldwin MP gave an overview of the report’s recommendations and criticism of the Chancellor’s decision to proceed with the abolition of the Office of Tax Simplification (OTS), established in 2010, to advise on simplifying the UK tax system.
The report claims, “The complex tax system is an obstacle to economic dynamism. The tax system is overcomplicated. This overcomplication creates compliance burdens, confusion and disincentives to work or grow a business. It is an obstacle to economic dynamism. Its morass of tax reliefs and exemptions create compliance burdens and confusion. Its ‘cliff edges’, which at worst leave someone worse off by earning more money, create disincentives to work or grow a business.”
Ms Baldwin MP discussed the government’s recent acceptance of the Committee’s recommendation that HM Treasury (HMT) write each year to the Committee detailing how it is embedding simplification into the tax system, and updating on its progress towards this goal.
HMRC Service Standards and Making Tax Digital
ICAEW practice members believed poor HMRC service standards were the most significant barrier to greater efficiencies and better business growth. The government’s adoption of an HMRC service standards taskforce, an initiative proposed by ICAEW, was discussed as a step in the right direction.
Participants agreed that many of HMRC’s service standards issues arose from long-term inconsistencies in funding. For HMRC to better achieve its goals, there needed to be greater consistency in training and recruitment to avoid the risk of a generational, cultural divide arising within the body.
A common cultural belief from taxpayers is that HMRC attempts to catch them out rather than help them to pay the right amount of tax. This non-collaborative relationship between taxpayers and HMRC is an unnecessary drag on efficiency and growth.
While Making Tax Digital is welcome, guests believed that digitisation alone would not solve HMRC’s biggest problems. The tax system has not kept up with modern working methods, and longer-term investment plans for HMRC and DWP are needed for digitalisation to succeed.
Closure of the OTS
Attendees from across the accountancy profession stressed the importance of doing a cost-benefit analysis on the impact of tax policy on individuals. This is an area in which the OTS excelled, and concerns were raised that its closure may cost the government insight into the impact of its tax policies.
It was further emphasised that tax policy couldn’t just be built around data. Instead, lived experience and empirical evidence are also required, and the government needs to continuously engage with tax practitioners and experts across the economy.
Attendees discussed the need for the Treasury to integrate simplification at the start of tax policy development and to use consultations throughout the process. Participants cited this as one of the things that the OTS did well, working with taxpayers to understand the true impacts of policy change.
Participants voiced concerns that the Financial Secretary will view tax simplification as simply trimming outmoded taxes rather than streamlining and improving the most effective taxes (eg, PAYE). These concerns underlined a general scepticism of the Treasury’s ability to deliver meaningful growth-focused simplification.
Ms Baldwin MP was pleased to hear this range of perspectives and shared the concerns of ICAEW’s tax specialist members on the closure of the OTS and its impact on tax simplification.
Tax reliefs and investment
Members discussed with Ms Baldwin MP that most countries – including the US – had legislative sunset clauses on tax reliefs, which aided understanding and simplification. New tax policy in the US was also much harder to pass, keeping the tax code slimmer. These points had been raised in the Treasury Committee’s recent oral evidence sessions on Tax Reliefs. Ultimately, government ministers need to view simplification as a political choice, not an operational one.
In a discussion on the relationship between tax reliefs and economic growth, several guests agreed that tax reliefs did not encourage growth. In countries where tax reliefs had an impact, there had also been other significant factors at play. Instead of over-complicating the tax system, guests suggested that direct subsidies be given to businesses instead.
The belief that tax reliefs had any meaningful impact on investment decisions was questioned, with several participants arguing that the R&D tax relief system requires significant reform.
There was agreement on the importance of stability, with continuous chopping and changing tax reliefs creating unpredictability. While sunset clauses limit the length of reliefs, they would also help focus minds on actual benefits. The five-year political term of office also meant that Ministers only looked to the short-term rather than long-term benefits.
There was a common view that small businesses were aware of the complexity of the VAT system and took active steps to reduce their income to remain under its threshold.
At the end of the dinner, Ms Ring thanked participants for their engagement in a lively debate around the UK’s tax system and the Government’s growth ambitions. She thanked Ms Baldwin MP for her forward-looking overview of the Treasury Select Committee’s work.
All attendees agreed that accountants and parliamentarians have a responsibility to critically engage with the tax system when addressing the UK’s long-term economic challenges.