Mixed messages from the Government on tax transparency and simplification

November 14, 2011 5:00 PM

Campaigning for the tax system to be more transparent and simpler has always been one of the core missions of the TaxPayers’ Alliance.

And so in broad terms we very much welcome the consultation which was launched this morning by Treasury Minister David Gauke entitled Modernising the administration of the personal tax system: Tax Transparency for Individuals.

The opening line of the document states:
“The Government wants to hear views on how increased transparency and accessibility to tax information can build greater awareness and understanding of how the system works.”

Frankly, it ought to read: “Increased transparency and accessibility to tax information DOES build greater awareness and understanding of how the system works – so we are going to get on and do it.”

Frustrations about the pace at which the wheels of government turn aside (the document is now subject to a 12-week consultation, which should at least allow the Chancellor to deliver some action in the Budget next March), most of the substance and direction of it is to be welcomed.

The Government is already looking at how in some other countries there are systems in operation whereby individuals can go online to see how much they are paying in tax month-by-month and year-on-year.

At the event launching the consultation this morning, David Gauke showed prepared mock-ups of what a personal HMRC web page could look like for Britons. This would enable people easily to see how much of their income goes on income tax and national insurance contributions - including the oft-forgotten employer’s element of the NICs. This would show people year-on-year whether they were paying more or less in tax and would indeed be a welcome leap forward in transparency. As the above video produced by the Treasury itself demonstrates, there is widespread public ignorance about how much tax they are actually paying.

Also today, the Government published its latest position on the integration of the operation of income tax and National Insurance Contributions, in response to a consultation it held on the issue earlier this year.

The TaxPayers’ Alliance has called for a complete merger of National Insurance and Income Tax, as explained in our recent report, Abolish National Insurance, and that is what we recommended in our response to the consultation: National Insurance is almost indistinguishable from Income Tax in its function of raising revenue and the current system obscures public understanding of tax on earnings.

It is disappointing, therefore, that the Government has not been persuaded of the merits of this case, concluding as it does that it wishes NICs to “retain an identity distinguishable from income tax” as part of maintaining the so-called contributory principle.

It does, however, accept that “closer integration of the operation of income tax and NICS has the potential to reduce burdens on business, remove economic distortions and improve fairness” – although does not foresee being able to implement any changes until “around 2017”.

At a time when businesses are crying out for red tape to be reduced, five years does seem an extraordinarily long time to wait for any action on this.Campaigning for the tax system to be more transparent and simpler has always been one of the core missions of the TaxPayers’ Alliance.

And so in broad terms we very much welcome the consultation which was launched this morning by Treasury Minister David Gauke entitled Modernising the administration of the personal tax system: Tax Transparency for Individuals.

The opening line of the document states:
“The Government wants to hear views on how increased transparency and accessibility to tax information can build greater awareness and understanding of how the system works.”

Frankly, it ought to read: “Increased transparency and accessibility to tax information DOES build greater awareness and understanding of how the system works – so we are going to get on and do it.”

Frustrations about the pace at which the wheels of government turn aside (the document is now subject to a 12-week consultation, which should at least allow the Chancellor to deliver some action in the Budget next March), most of the substance and direction of it is to be welcomed.

The Government is already looking at how in some other countries there are systems in operation whereby individuals can go online to see how much they are paying in tax month-by-month and year-on-year.

At the event launching the consultation this morning, David Gauke showed prepared mock-ups of what a personal HMRC web page could look like for Britons. This would enable people easily to see how much of their income goes on income tax and national insurance contributions - including the oft-forgotten employer’s element of the NICs. This would show people year-on-year whether they were paying more or less in tax and would indeed be a welcome leap forward in transparency. As the above video produced by the Treasury itself demonstrates, there is widespread public ignorance about how much tax they are actually paying.

Also today, the Government published its latest position on the integration of the operation of income tax and National Insurance Contributions, in response to a consultation it held on the issue earlier this year.

The TaxPayers’ Alliance has called for a complete merger of National Insurance and Income Tax, as explained in our recent report, Abolish National Insurance, and that is what we recommended in our response to the consultation: National Insurance is almost indistinguishable from Income Tax in its function of raising revenue and the current system obscures public understanding of tax on earnings.

It is disappointing, therefore, that the Government has not been persuaded of the merits of this case, concluding as it does that it wishes NICs to “retain an identity distinguishable from income tax” as part of maintaining the so-called contributory principle.

It does, however, accept that “closer integration of the operation of income tax and NICS has the potential to reduce burdens on business, remove economic distortions and improve fairness” – although does not foresee being able to implement any changes until “around 2017”.

At a time when businesses are crying out for red tape to be reduced, five years does seem an extraordinarily long time to wait for any action on this.

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