Tax Simplification

July 21, 2010 2:41 PM


Whytaxcomplexity The news yesterday that the Government is going to look at simplifying the tax system is very welcome.  But hasn't the work of the new Office for Tax Simplification already been done?  In October 2006 Lord Forsyth's Tax Reform Commission set out a series of proposals for reform of the tax system to make it simpler and improve competitiveness.  The graphic to the right (click to get a bigger version) shows how the system is complicated over time.  That report is available here at Conservative Home.

Presumably the problem is that the recommendations from Lord Forsyth's Commission added up to a tax cut of £21 billion over a Parliament.  The Government are hiking taxes so that option isn't open to them.  But a rising tax burden will make any attempt to simplify taxes, even with a new inquiry working out how, a lot more difficult.  Many of the rules and reliefs that complicate the system are sticking plasters designed to limit the harms of high taxes, to combat particular problems for certain industries and communities.  Trying to simplify while the burden is static or growing could well become a political nightmare and lead to all sorts of unpleasant economic side effects.

Fundamentally, spending is much too high.  The politicians haven't been able to finance it so we have huge deficits and to the extent they've tried they have had to make the system more complex in an effort to grind out every last penny.  If we want simpler taxes, then we almost certainly need lower taxes.  That can be done but we need to cut spending.


Whytaxcomplexity The news yesterday that the Government is going to look at simplifying the tax system is very welcome.  But hasn't the work of the new Office for Tax Simplification already been done?  In October 2006 Lord Forsyth's Tax Reform Commission set out a series of proposals for reform of the tax system to make it simpler and improve competitiveness.  The graphic to the right (click to get a bigger version) shows how the system is complicated over time.  That report is available here at Conservative Home.

Presumably the problem is that the recommendations from Lord Forsyth's Commission added up to a tax cut of £21 billion over a Parliament.  The Government are hiking taxes so that option isn't open to them.  But a rising tax burden will make any attempt to simplify taxes, even with a new inquiry working out how, a lot more difficult.  Many of the rules and reliefs that complicate the system are sticking plasters designed to limit the harms of high taxes, to combat particular problems for certain industries and communities.  Trying to simplify while the burden is static or growing could well become a political nightmare and lead to all sorts of unpleasant economic side effects.

Fundamentally, spending is much too high.  The politicians haven't been able to finance it so we have huge deficits and to the extent they've tried they have had to make the system more complex in an effort to grind out every last penny.  If we want simpler taxes, then we almost certainly need lower taxes.  That can be done but we need to cut spending.

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