The Tax Reform Commission chaired by Lord Forsyth was commissioned in 2005 by then Shadow Chancellor of the Exchequer George Osborne, and given three terms of reference:
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- To examine the impact of recent developments in international tax policy, including in Britain’s tax system and on Britain’s international competitiveness.
- To prepare a set of policy options for direct taxes that are (a) flatter and (b) simpler and examine the case for a flat tax. In doing so the Commission should consider the interaction of direct corporate and personal taxes on capital taxes and tax credits.
- To recommend a set of policy options, with the aim of improving the economic efficiency, transparency, simplicity and fairness of the system.
- To examine the impact of recent developments in international tax policy, including in Britain’s tax system and on Britain’s international competitiveness.
In October 2006, the Commission released their report. It recommended £21 billion of tax cuts over a parliament which would result in greater economic efficiency and a fairer, simpler, more transparent, stable and predictable tax system.
Despite the well received recommendations of the report, it was written before the onset of the fiscal crisis, and was therefore predicated on using part of the fiscal proceeds from growth.
Reports advocating immediate tax reforms now generally have to recommend either tax neutral or tax raising packages. During the original Commission’s work, it was decided that such packages were unlikely to be practicable; flattening taxes while maintaining the same burden or increasing it would mean too many losers who would politically doom such a tax reform.
However, it is vitally important that as the economy emerges into a recovery there is a clear objective in mind for tax reform. Now is a good time to lay the groundwork for real and sustainable reform and the 2020 Tax Commission will be working towards this in 2011.