Today the Office of Tax Simplification (OTS) released its final report after a review of tax reliefs. George Osborne set up this unit to tackle the “spaghetti-bowl” our tax system has become, and their report follows a release in November which listed a staggering 1,042 reliefs. In fact, that list was so large that the today’s report only attempted to tackle 155 of them. The system is so complex that the authors found that they couldn’t look at many reliefs in isolation as they had to be considered in the context of the policy rationale framing them. The long and short of this is we can’t simply take a hatchet to the long list of reliefs. Complexity begets complexity, unfortunately.
Five key themes emerged from the OTS’s latest work: merging income tax and NIC; employee benefits and expenses; inheritance tax and trusts; capital gains tax; environmental taxes. The report admits that they need further review, but in their work they found that ideas like merging PAYE and NIC were very popular. It’ll be interesting to see what their subsequent studies find. Today’s report does outline some reliefs in those areas that should be abolished. One is daily relief for the first 15p of Luncheon Vouchers – introduced in 1946 at the time of rationing. Another is tax relief for trade union subscriptions that are used to pay for superannuation, death benefits or funeral expenses – which the OTS see as obsolete because pension arrangements now do that job.
These two reliefs are seen as outdated – but I did notice one that has simply expired; and some time ago too. Relief for Millennium gift aid, intended to encourage charitable giving in the run up to the year 2000, still exists. There have been annual Finance Bills since then but this has remained on the statute books the whole time; presumably Treasury ministers and civil servants have been too busy adding to the tax code rather than looking for ways to cut it back.
It’s certainly a monumental task to simplify the UK’s tax system. The work of the OTS is detailed and expansive in its scope, and very welcome too. Annual Finance Bills rack up new and more complex ways to increase the tax burden, adding thousands of pages to our tax code. Policy agendas and pet projects mean that endless loopholes and reliefs are put in place to make the tax system “fairer”, but of course the irony is that the better-off can pay expensive accountants to utilise them, so complicated reliefs are part of the problem. The favourable effective tax rates large companies enjoy over small ones reported yesterday (£) is an example of this, and lead to calls for big business to pay more tax, despite the same report finding that 81 per cent of all corporation tax is paid by the biggest 1 per cent of companies. What is actually needed is reform to ensure all businesses pay fair, low taxes.
The system’s a complete mess and the 2020 Tax Commission will work throughout the year looking at ways to simplify it. It’s encouraging that the Treasury seems willing to do this too but the OTS are focussed on minor changes at the edges of the tax system, the 2020 Tax Commission is getting to the core of the issue and thinking about much more fundamental changes.