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CIOT concerns on retrospection and complexity taken up by Treasury Committee

The Treasury Committee’s report on Budget 2012 has been published today, as MPs prepare for the first of two days of ‘whole House’ debate on the 2012 Finance Bill.

The CIOT is delighted that members of the Committee have listened to and endorsed so many of the points made by the Institute in our evidence. The Institute’s Tax Policy Director, John Whiting, who was the only tax or accountancy professional invited to give oral evidence to the Committee, is widely quoted in the report.

Pages 38-39 of the report focus on retrospective tax measures. John Whiting’s comments to the Committee about the potential this has to do damage to the image and reputation of the UK tax system, and how it could lead to lazy drafting of legislation, are quoted at length in the report. The CIOT’s own paper on retrospection, published 18 months ago, is also mentioned. The Committee recommends that the Government restrict its use of retrospective legislation to wholly exceptional circumstances, which should be narrow and clearly-defined. It calls on the Treasury to set these out as soon as possible for consultation, along with an explanation of how gradual further extension of retrospection can be prevented. It also calls for any further retrospective measures to be justified against the agreed criteria, including clear explanatory statements to Parliament by the responsible Minister and an invitation for views from relevant professional bodies. The CIOT is delighted that the main points of our 2010 paper have been so comprehensively taken up by the Committee.

More specifically, the Committee ask the Government to clarify what retrospection is proposed with regard to stamp duty, following remarks made by the Chancellor in his Budget statement that he “will not hesitate to move swiftly, without notice and retrospectively if inappropriate new ways around these new rules are found”. This should also be something to watch out for.

The proposed changes to child benefit entitlement get close attention in the report. The CIOT’s remarks about the substantial administrative load the changes will place on HMRC and our observation that the changes further erode the system of independent taxation are both highlighted by the Committee. The report notes the further complexity the changes will bring and promises the Committee will review the effect of the changes on HMRC in their regular hearings with the department.

The phasing out of age-related allowances (the so-called ‘Granny Tax’) has been one of the most controversial aspects of the Budget. John Whiting’s remarks to the Committee are quoted at length, and the report notes that John also performs the role of Tax Director of the Office of Tax Simplification. The Committee praises the Government for setting up the OTS but notes that ministers nevertheless took the decision to phase out ARAs whilst aware the OTS were giving this area detailed examination. The Committee expresses a hope that in future the Government will take proper recognition of the work of the OTS.

On the cap on income tax reliefs, the CIOT’s evidence warning of the potential impact on business investment and charities is extensively quoted. The Committee recommend that the Treasury ask HMRC to make an assessment and publish the impact of the cap on these two areas.

The Committee also explored the Government’s cuts in corporation tax. Paragraph 123 quotes the CIOT’s oral evidence that while the headline CT rate is “part of the shop-window for businesses” a majority of businesses will gain no benefit because they pay the small profits rate or are unincorporated. Many will also be losing out from capital allowance cuts. In its recommendations the Committee notes this warning and calls on the Government to monitor, and report on, the impact of the reduction in CT on businesses of all sizes.

On tax simplification the report quotes John Whiting’s comments that the tax system has got simpler “where there has been good consultation and things have evolved carefully” and his supportive remarks about the proposal for a new Personal Tax Statement for 20 million taxpayers, while noting his proviso that “[t]here is a lot of design work to be done on these statements”. In their recommendation the Committee agrees that personal tax statements could add some additional transparency for taxpayers and says the Treasury should consult the OBR on their design.

The report also reproduces the assessment of the CIOT, alongside those of the ICAEW and ACCA, on how well the Budget complies with the principles of fairness, supporting growth, certainty and simplicity, stability, practicality and coherence.

The full report (88 pages) is available here and the press summary can be read here. For those in a hurry, the summarised summary on tax is:
• The Government should restrict its use of retrospective legislation to wholly exceptional circumstances, which should be narrow and clearly-defined
• HMRC should publish in due course a comprehensive assessment of the effect on the Exchequer of the new 45p rate
• The Government's latest proposals for reform of Child Benefit add further complexity
• Personal tax statements could add some additional transparency for taxpayers. The Treasury should consult the OBR on their design
• We will review the effect of the changes on HMRC, where further staff reductions are being implemented, in our regular hearings with it

And on non-tax issues:
• There will be a new Treasury Committee inquiry into the macroprudential tools (such as sectoral capital requirements) that the Bank of England’s Financial Policy Committee is to be given
• Quantitative easing is penalising savers. Bank of England and Treasury should provide an estimate of the overall benefit and loss to pensioners and savers from QE
• OBR should consider a wider range of risks and associated scenarios in future forecasts
• Coalition government is no justification for pre-Budget leaks!
• There needs to be longer between the Budget and Finance Bill second readings which probably means earlier Budgets

As always, the CIOT’s comments and recommendations on tax issues are made with the aim of achieving a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities. We are strictly politically neutral in our work, working with parliamentarians from all parties, and drawing wherever possible on our members’ experience in private practice, government, commerce and industry and academia to argue and explain how public policy objectives can most effectively be achieved.

George Crozier
CIOT External Relations Manager
Wednesday 18 April 2012


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