On Monday 1 March, the CIOT hosted the launch of the House of Commons Treasury Select Committee report, Tax after Coronavirus.
Panellists at the event, chaired by CIOT President Peter Rayney, included:
- Rt Hon Mel Stride MP – Chair of the Treasury Select Committee
- Dame Angela Eagle MP – Member of the Treasury Select Committee
- Janine Juggins – Executive VP, Global Tax and Treasury, Unilever
- Gemma Tetlow – Chief Economist, Institute for Government
- Victoria Todd – Head of the Low Incomes Tax Reform Group (LITRG)
You can watch a recording of the event by clicking on this link.
Peter Rayney described the report as being one of the most substantial reports on tax reform in a generation. Mel Stride agreed, adding that its timing was important given that the tax system is expected to feature front and centre in discussions about the UK’s post-pandemic economic recovery.
He welcomed that MPs on the committee had agreed unanimously to the report’s recommendations, and attributed this to the ‘positive approach and spirit’ of the committee towards the topic.
Stride explained that one of the main reasons for the committee’s inquiry had been a desire to consider the need for reform of the UK tax system in the round, and not just the role contributed by specific, individual taxes.
He provided an overview of the main areas that the committee had considered in its report. These include:
No taxes rises, for now – Tax rises ‘of any significance’ would be detrimental to economic recovery, but that further down the line, it was likely that tax would have a role to play in fiscal consolidation. The committee had also concluded that it was likely that the Conservative Party’s manifesto commitment not to raise rates of income tax and national insurance would come under ‘considerable pressure’.
Corporation tax – Stride said that it ‘wouldn’t be unreasonable’ to look at increasing corporation tax, noting that there was ‘quite a bit of headroom’ to increase taxes and remain competitive. He added that each percentage point increase could be expected to raise an additional £3 billion. However, he warned that any increase would need to be accompanied by more support for business investment.
Stamp Duty Land Tax – was described by Stride as a ‘particularly damaging tax’ that had been slowing down the property market.
Windfall taxes – although these are ‘perfectly technically possible’, Stride said that there were concerns over the breadth and scope of such levies. He said there was a ‘stronger case’ for a one-off levy on wealth, but that if they were to be repeated over time, this could give rise to avoidance behaviours. He noted too that many countries had flirted with wealth taxes, only to row back on them as the challenges of levying them became apparent.
Pension tax reform – is needed. The present system is too regressive and comes at significant cost (£20 billion in 2018/19) to the Treasury.
The ‘three person problem’ – was described by Stride as an area in ‘urgent need’ of reform. Stride expressed some hope that this was an area under consideration by the Treasury, pointing towards the Chancellor’s comments in last March’s Budget that ‘it is harder to justify inconsistent tax treatments between people of different employment status’.
Towards a long-term tax strategy – Stride said the time was right for the Government to consider a tax strategy with broad guiding principles for the tax system. Speaking from his own experiences as a Treasury Minister, he said there was a tendency in government to ‘hunt for revenue raisers’ rather than looking at the tax system as a whole. A strategy would provide the metrics by which to judge governments on their approach to the tax system.
Dame Angela Eagle also spoke of the need for a roadmap for the tax system. She too spoke from the perspective of a former Treasury minister, citing the tendency of the Budget process to veer towards the need for revenue raising over a structured and strategic approach to tax administration.
She said it was ‘really important’ for there to be an upfront tax strategy to maintain the sustainability and integrity of the tax system. A confluence of events, from the Coronavirus pandemic to demographic change, the rise of the gig economy and climate change all highlighted the need for change.
Janine Juggins praised the ‘swift and welcome’ response of government to support businesses at the onset of the pandemic and that the time had now come to focus on tax reform. She said that ‘painful moments’ such as the pandemic, ‘may provide headroom’ for structural reforms to the tax system. She added that steps to repair the public finances are needed, but that it was also important not to risk economic recovery with more punitive tax measures. She particularly welcomed the ideas on loss carrybacks contained in the report, and recommended that consideration also be given to providing for a temporary ability to carry forward losses, which she said would help support newer businesses looking to accelerate growth post-pandemic. Other areas of tax reform that Juggins cited in her remarks included the need for multilateral action on digital taxes, reform of the business rates regime and a greater focus on the role of green taxes.
Victoria Todd spoke of the need for a fundamental review of the tax system, with an urgent priority being the need to look at employment taxes to ensure the tax regime reflects the modern labour market. The pandemic strengthens the case of reform, she said, because people in similar work are being treated differently by the Government’s support schemes. Often the savings from working in non-PAYE do not go to the worker, she added. She was glad to see a call for tax simplicity in the committee’s report and urged government to reduce complexity in the system by ensuring the tax and benefit systems are able to better communicate with one another. An overarching tax strategy from the Government would help with this.
Gemma Tetlow commented that while some parts of the tax system can be politically sensitive, there are bad and good ways of designing a tax system all the same. The ‘three person problem’ is an example of badly designed tax regime, Tetlow said. She argued that cross-party consensus would probably be needed in order to reform the tax system. A tax strategy has many benefits, including helping the public to understand and even support tax changes. She hopes the committee will continue to push the report’s recommendations to the Government.
Peter Rayney wanted to know if the committee had considered the merits of taxing online companies perceived to have benefited from the pandemic. Stride said that this was not area the committee had considered in any great detail, but that his personal viewpoint was that this was an area worthy of close examination. Eagle said it would have been difficult to find consensus on specific actions in a committee of political differences, but there was broad acceptance on the principles for action. Stride added that he was hopeful that the new administration in America would enable progress to be made in finding an international solution to digital taxation.
Peter Rayney then asked if the Government had room for manoeuvre to retain its commitment not to raise income tax and National Insurance while simultaneously raising more revenue from them. Mel Stride said the government’s commitment was to not increase rates, but that it could freeze thresholds.
Angela Eagle said that freezing thresholds may break the spirit of the Government’s commitment, but that politicians had a duty to treat the electorate as adults and explain the need for tax changes. She said that all parties were guilty of making manifesto promises that are at the mercy of external events. Mel Stride likened the current situation to a party pledging not to increase defence spending, only to then find itself in the middle of a war requiring extra spending.
Later, Eagle reminded the audience of the eternal political equation of winner and losers from policy decisions. On this theme, she suggested the reason there is no modernisation of the council tax system is because of the risk of a ballot box backlash from the many ‘losers’. She warned of the impact of persisting with tax structures that are skewed, especially when it starts to motivate people’s behaviour. Tax will always be a major divisive topic between parties, she said, and a cross-party consensus is not essential to have better tax policy. Angela Eagle was supportive of the work of the OTS but said tax decisions are a matter for ministers.
Stride praised the UK’s success with the tax regime for R&D, such as the patent box.
Stride was lukewarm about a wealth tax but accepted that the increase in wealth compared to income over the years is a concern. He said the committee will look at capital gains tax in more detail in the future. He hopes the pandemic crisis will be used by politicians to look at some ‘real reform’ of tax but that requires the committee to ‘keep its foot on the pedal’.
Todd pushed for better public education about pensions, especially people’s need to save for retirement.