The Commons Public Accounts Committee chaired by Margaret Hodge MP has published a report drawing attention to the use of reliefs in the tax system as a tool of government policy. The report slammed the tax authorities as:
unable to cope with the demands of an increasingly complex tax system, including tax reliefs. Tax revenues as a proportion of GDP remain stable over time but the tax code becomes more complex year on year. In March 2011, the Office of Tax Simplification reviewed 155 reliefs, and recommended that 47 should be abolished. While this led to the removal of 43 of these reliefs, a further 134 new reliefs have been introduced since 2011. Each new relief complicates the tax system, and increases the length and complexity of British tax law.
It is unclear whether the impact of particular tax reliefs on tax revenue streams is properly considered, for instance the impact of agricultural property and business property reliefs on overall inheritance tax revenue. To accommodate new legislation, and anticipate the actions of avoiders, Finance Bills are four- to five-times longer than 50 years ago.
The committee is right to criticise the maddening complexity that comes from having a tax system with so many reliefs, exemptions and loopholes. The needlessly complicated labyrinth of rules and regulations leads to avoidance that in turn corrodes public trust in the system. But this problem can only be solved by comprehensive tax reform that delivers substantially simpler, clearer and fairer taxes. The case for reform has become overwhelming.