It is a measure of the level of interest in tax that our fringe event at the Conservative Conference in Manchester enjoyed our highest attendance yet at a party conference event.
The nearly 100 people who crammed into our room at the busy Radisson Blu Hotel in the heart of Manchester included CIOT and Conservative Party members, representatives of campaign groups, non-governmental organisations and charities all interested in an exploration of whether the tax system is fair – and with a range of views of what constitutes a fair tax system.
We were delighted to have the Exchequer Secretary to the Treasury, Damian Hinds MP, on the panel for our event, alongside CIOT Director of Policy John Cullinane and Paul Johnson, Director of the Institute for Fiscal Studies. The discussion was chaired by our President Chris Jones.
Paul Johnson opened the discussion by stating that fairness in tax ‘is in the eye of the beholder’ but most people agree that the fairness of the tax process matters enormously, such as how HMRC takes money from people and how transparent the system is. He warned it was unfair to change a tax rule when it has led people to adapt their financial behaviour, using a hypothetical example of ISAs being scrapped. He used graphs to show how the tax system is successful at redistributing wealth, stating that the tax system led people at the ‘top’ to do worse than people at the ‘bottom’ in taxation terms during the economic slowdown. Just 10 per cent of people pay 60 per cent of income tax and Paul asked the audience if it was fair that people do not pay VAT when buying their children trendy clothes but can do so when buying their children educational toys.
John Cullinane explored whether it was fair that people in comparable financial positions can be taxed in different ways. Examples include differences in how people are taxed depending on whether they are self-employed or employed. John asked whether it was fair that there are differences in how people are taxed on vehicles they use to build up wealth, using the example of people who come out of owner occupation tax-free but not when they access their pension funds.
Damian Hinds told the attendees that ‘sadly tax will always be with us’ because it pays for public services, influences people’s behaviour and redistributes wealth. The minister argued that fairness in tax is about justice and the system should reward talent and people who take risks. He said that fairness also means people paying the taxes that they should, citing the Government’s determination to crackdown on illegal fuel sales and illegal sales of alcohol and tobacco. He said that HMRC does more other than any other country to research the ‘tax gap’ – the difference between the amount of tax government collects and the amount the authorities think it should collect in a perfect world. He warned that people should beware when other people tell them that there is an even bigger tax gap that can be plugged. Evidence does not back this up.
On the subject of what the Government was doing to promote fairness, the Exchequer Secretary highlighted the end of permanent non-dom status, changes to landlord tax and the work of the Office of Tax Simplification. He stated that £1billion has been invested in HMRC’s counter tax avoidance work. He also argued that the most unfair thing the Government could do is to fail on eliminating the deficit.
The first question from the audience raised the thorny subject of whether single income families where one parent stays at home to look after children are treated fairly compared to two income families. Paul Johnson acknowledged that it was true that he would pay more tax if he earned £60,000 than if he and his wife both earned £30,000. However he felt the Government’s transferable allowance was not the answer: “you can't make it much bigger without creating ridiculous incentives”. John Cullinane observed that the provision of child benefit was intended as some recognition that children cost money.
Asked whether national insurance should be merged with income tax, Paul Johnson suggested that ‘it is kept, perhaps, because it is easier to fool the electorate’, with John Cullinane saying that a merger would increase the headline rate of tax which is politically dangerous. However John agreed that having two different sets of rules on broadly the same tax was crazy.
Paul Johnson also argued that the taxation of housing is a mess that needs to be addressed, stating: “Stamp duty is horrible and council tax repressive”. He said it was not true that rental property was more generously taxed than owner occupied – it was the other way round.
Other questions ranged from whether the dividend tax is a stealth tax to whether the tax system can be used to encourage estranged fathers to contribute more to their children. Stephen Herring of the Institute of Directors asked about substantial business expenses which are not deductible for tax purposes.
Words: Hamant Verma, External Relations Officer, CIOT