Fundamental reform of the tax system to make sure taxes continue to support growth, manageable and straightforward by the taxman is needed to help boost the UK’s recovery from the coronavirus pandemic, Says Monty Jivraj.
There is an “ever-growing recognition” that economic life will never be the same following coronavirus and the tax system will have a “crucial part to play” in the transition and recovery to the “new normal”.
Public borrowing is now estimated to total £273bn for the year 20/21 or 14% of GDP. According to the OBR, this is the biggest single-year deficit since World War II.
The list of potential areas is extremely long. With the need for specific, simple and fair taxes that support growth, administratively straightforward and easy to manage, 6 areas should be near the top of the list.”
The 6 identified areas include reform of National Insurance contributions and the taxation of workplace income alongside a general rethink of the taxation of capital and wealth.
Has inheritance tax grown out of its useful purpose? Should the UK consider introducing a wealth tax? Should council tax as a whole be reformed?”
Other issues high up on the agenda were lowering inequality, determining a ‘tax base’: who should pay how much tax and what should they pay it on, a plan for carbon-based taxes, and what social “goods” should be supported through tax relief.
Current tax reforms don’t fit the criteria of being simple and encouraging growth
Recently, a damning report delivered from a Lords select committee stated the government should “completely rethink” its divisive changes to IR35 — the off-payroll working rules — after it discovered the rules to be a huge worry for businesses and not fair on contractors
Reform of the UK’s devolved tax system doesn’t have a celebrated history. Quite often, it is driven by policy objectives and short-term interests, with impulsively drafted legislation that is rushed through parliament without a great deal of thought or debate.
Among requests for certainty, fairness and ease when imposing new tax rules, shines the spotlight on other critical tax changes which have also been hurried through without adequate attention to how they will practically work.
UK tax law isn’t short on examples: pensions liberalisation, IR35, inheritance tax gifts with reservation, the diverted profits tax, the digital services tax and the loan charge will all merit a discreditable mention in the archives of British tax history.
The Institute for Government Think tank got behind calls for tax reform and suggested that the government established a ‘tax commission’ to help create a public discussion on the issues with the current system.
The Office of Tax Simplification (OTS) — which operates, must supply independent advice to the government on making the tax system much simpler — must be used to implement these changes.
The OTS has called for greater simplification of inheritance tax in the past and assessed tax reliefs and employee benefits.
Since the UK was put under lockdown in March, the commonly positive reaction of the British people to government restrictions demonstrates what the country is capable of carrying out, should the need arise.
Through the goodwill of the businesses and individuals, evidence suggests that now is the time to clear up not only NHS funding but also the future roadmap of the tax system.
What are your thoughts about the issues raised by this article?
