We asked 'Is the tax system fair?' at Labour Conference

17 Aug 2018

A packed audience enjoyed one of the first speeches by the new Shadow Chief Secretary to the Treasury, Seema Malhotra, at a CIOT/Institute of Fiscal Studies fringe event at the Labour Conference, in Brighton, on the topic ‚ Is the tax system fair?‚

MP Malhotra (pictured here on the left) told the gathering that a public consensus about a fair tax system is ‚ the holy grail‚ . She was keen to state that Shadow Chancellor John McDonnell‚ s speech to the conference the day before was ‚ absolutely not‚ anti-business but was about ‚ long term goals of sustainable growth‚ , creating ‚ some accountability about what is done through the tax system‚ and having ‚ some fairness around corporate taxation and individual taxation‚

The London-based MP said it is unfair that ‚ corporates‚ who dodge taxes have an advantage over business people and businesses that do so. She wondered whether politicians are tackling tax avoidance and evasion in the way the public want it tackled.

Malhotra promoted what the Labour party is calling a ‚ national conversation‚ about the fairness of tax. In essence, she said, Labour wants to talk about how the UK is going to have a tax system that incentivises businesses to invest in new technology, resources and its labour force, and whether cuts to inheritance tax are fair when many people will lose income because of changes to working tax credits. On a macro economic level, she asserted that ‚ if you want to see the books balanced and in the long term, what you need is an investment and growth strategy which is leaps ahead of what the Government is delivering‚ .

During a question and answer session with attendees, she said the tax burden must shift from low and middle income families to people who can afford to pay more and there is ‚ no win‚ from a complicated tax system.

Attendees at the event included politicians, Labour party members, CIOT and ATT members, lobbyists, people from non-governmental organisations and journalists.

The Director of the IFS, Paul Johnson, suggested that one aspect of fairness could be around the right to ‚ legitimate expectation‚ ‚ the argument that people make their plans on the basis of what they understand the tax system to do and it is arguably unfair to change the tax system in a way that undoes this. An example of this would be reducing tax relief for savings for people who have already saved the money. He added that taxation was poor at treating similar people similarly, using examples such as tax being different even if people have the same amount in savings, whether they are incorporated or not and that two sets of parents are taxed differently depending on whether they buy clothes or educational toys for their children.

Johnson said that corporation tax and a financial transaction tax seem to promote fairness but in reality the public may end up paying because businesses either reduce profits to shareholders, reduce wages or raise prices ‚ these are the only three possible outcomes.

The economist used charts to show how direct taxes ‚ massively‚ equalise the distribution of income of people in the UK and asked whether it is fair that ten per cent of taxpayers (six per cent of people) in the UK pay 60 per cent of income tax and one per cent of taxpayers pay 30 per cent of income tax. He also explained how the pay and benefits system markedly changes income from what the market economy achieves alone.

In closing his speech Johnson said that inequality has not shifted in 30 years in terms of income since late 1980s, despite many changes to taxation since then.

The final speaker at the Grand Hotel event was Bill Dodwell, the deputy president of CIOT. He led the audience into a different line of debate from Malhotra and Johnson, looking at the different amounts in tax people pay for the same activity, and stating that more effort should be made to lessen porous boundaries between the self-employed and employed. The tax partner at Deloitte highlighted that many people have in recent times deliberately turned themselves into their own limited company on tax advice, to cut their total tax and national insurance bill. He said the Government‚ s extra ‚ dividend tax‚ will have an impact. Exploring a different perspective, he wondered if the tax system reflects the extra risks that self-employed people take compared to the greater security of the employed.

Dodwell highlighted that abuse, such as the 30,000 UK people who are involved in tax schemes that have no overriding commercial merit, have been mostly cut out by changes in the law. Following on from his optimistic assessment of fairness in taxation, he said that from 2017-2018, 80 countries have agreed to pass automatically details of money in accounts and any income earned within them, directly to UK tax authority and tax authorities globally, including Switzerland. Dodwell added that the CIOT is more positive about international change because of the Base Erosion and Profit Sharing project, the first time so many countries have co-operated to change the international system to make it fairer.

Words: Hamant Verma, External Relations Officer