The CIOT and Institute for Fiscal Studies hosted an online debate on Tax in the 2010s: Successes and Failures, last week (24). This is the first time one of the popular joint debates has been held online, and the event secured a record 880 registrations.
Glyn Fullelove, President of the CIOT, chaired the event. He reminded those watching that the year 2010 was a time when the gig economy was in its infancy, when the main concern regarding the UK’s tax system for multinational companies (MNCs) was that it was too tight and uncompetitive, and when social media was still seen just as a way for friends to communicate rather than a way to win elections.
Stuart Adam, Senior Research Economist at the IFS, was the first speaker, providing an overview of the main tax developments and trends during the decade. Adam said tax revenue was surprisingly stable over the decade, with tax take about a third of national income. The biggest tax rises in the 2010s were in VAT and national insurance, plus a big reduction in the amount you can save into pensions and streams of anti-avoidance measures. The three big headline tax cuts throughout the decade were the raising of the income tax personal allowance, a reduction in corporation tax rates and a freeze in fuel duties. The result was higher taxes for the richest and poorest, he concluded.
Adam observed that rising challenges in the 2010s are simply more urgent now. These include council tax valuations now approaching 30 years old; motoring taxation and how low-emission driving should be taxed; a lack of systematic action on climate change with ‘wildly’ inconsistent carbon prices; inconsistent taxation of different legal forms of employment increasingly problematic; and reliance on a small number of taxpayers for much of the revenue.
Adam pointed out that rising complexity in tax is one result of the 2010s, with lots of new taxes, more differentiated rates/allowances in existing taxes and more variation across the UK. There were changes to the tax-policy making process, such as setting up the Office of Budget Responsibility and Office of Tax Simplification, somewhat better consultation, better documentation and transparency, the corporate roadmap in 2010, a move to single fiscal event per year (in principle, at least) and tax devolution.
Adam was followed by David Gauke, former Treasury minister, Work and Pensions Secretary and Lord Chancellor (now at Macfarlanes LLP), who provided some political context to the discussion. There was a need for taxpayers to contribute to bringing the deficit down in the 2010s, said Gauke, and while spending took most of the strain there were also some tax increases. Public support was crucial. As a minister he wanted to use the tax system to ensure there was strong growth in the economy and, when the coalition came in in 2010, there was a view in government that the UK was losing MNCs from the country because the tax system was no longer competitive.
On personal taxation, Gauke said he looks back at the 2010s as a progressive period in personal tax. The growth in the personal allowance, partly as a result of Lib Dem pressure in the coalition, was broadly progressive. In 2012 there was controversy about the cut in the 50 pence additional rate of income tax; the cut did not cost very much money and at the top end higher earners were making bigger contributions in other ways, he argued. He added that a lesson he had learnt at the Treasury was how difficult it is to get simplicity in the tax system when every change has winners and losers and the losers are always more vocal.
The Government transformed how the UK was perceived by business, Gauke argued. The corporate roadmap brought stability, he said, adding that by 2014 we could see the benefits of a consistent policy on corporation tax, at least until Brexit. He talked about some companies ‘taking a free ride’ with their tax responsibilities during the first half of the decade. He also mentioned the introduction of the General Anti-Abuse Rule (GAAR) and the BEPS (Base Erosion and Profit Shifting) project where the UK ‘led the way’. Attitudes did change over the decade towards the tax behaviour of MNCs, he insisted. He also pointed to his pressing of Making Tax Digital (MTD) and Pay-As-You-Earn (PAYE) Real Time Information (RTI) while in office, saying the current furlough scheme would not be possible without RTI.
Chris Leslie, a former minister in the Blair governments, and a Shadow Treasury Minister 2011-15, said you cannot detach the politics from tax policy. The post-financial crisis setting had set the tone for government policy in the 2010s and parliamentary debate was often about symbolism rather than detail. He reminisced about the political energy expended debating the complicated miniature of the bank levy and reflected that perhaps the rate was too high.
Most of the burden in the decade was on spending and hence the tax take was relatively stable, Leslie observed. The Government occasionally tried to tweak the scope of VAT (such as with the ‘pasty tax’) which burned political capital. On corporation tax, his verdict was we have hit the baseline of that and now see a reversal. The fuel duty deferral was the result of pressure from the Conservative backbenches, he mused.
Property tax and capital taxes rose considerably, partly because of having a coalition government, said Leslie. He suggested lobbying pressure from interest groups was partly to blame for the constant changes to business rates. The Apprenticeship Levy was difficult for an Opposition to oppose given it was hypothecated directly to a social good. An intensely political Chancellor, George Osborne was good at pushing policies that the Opposition found hard to oppose. There were ‘cock ups’ made by Government, such as with the rollout of universal credit. The fiscal rules never managed to sustain themselves over the ten-year period, he noted.
Jane McCormick, Global Head of Tax, KPMG, provided a business perspective. She said there was good engagement between the tax profession and the Government in the 2010s, when contentious issues were talked about in real-time. KPMG could see the positive result of the corporate tax roadmap on businesses in the UK. Separately, ten years ago, nobody would believe we would have seen the end of bank secrecy, she remarked.
DOTAS (Disclosure of Tax Avoidance Schemes legislation) and the GAAR have been effective in cutting the demand for aggressive tax avoidance, judged McCormick. Asking businesses to publish their tax strategy has taken tax into the boardroom, she added. The OTS acts as conscience of the legislators, but they have a job she likened to trying to empty a sink of water using a fork.
Despite some of the progressive tax policy, cliff edges and anomalies make British people think the tax system is unfair, McCormick said. For example, a perception has grown among Brits that tax policies aimed at increasing investment are ‘sops to the rich’, in contrast to how they are perceived in Ireland. She bemoaned the narrative that HMRC are not competent against tax dodgers. There is a difficult relationship between taxpayers and HMRC, owing in part to the slow pace of administration, she concluded.
Questions and Answers
The chair opened questions by asking what the lessons are that can be learned from policy coming out of an economic crash in the early 2010s as we exit the COVID-19 epidemic? Gauke said tax policy is more challenging. You are faced with the same objectives - fix public finances and provide public services – but tax is going to have to do more of the heavy lifting, he suggested. It will help the Government if they can create a new corporate tax roadmap, he suggested. We must have a view of our tax system in which we agree what are the biggest impediments to growth. Taxing property is better than taxing income, for example.
McCormick said property taxation will come more into the minds of governments across the world. Leslie talked about a possible tax clawback on online companies and companies that continue to pay dividends. There is no appetite for expenditure to carry the burden this time, he said. The apprenticeship levy and plastic bag tax sailed through Parliament because of the hypothecated promise; perhaps this is where NHS and social care costs will go?
On self-employment v employment in tax, Leslie said it is difficult to get cross party consensus in general because there are bigger rewards for risk aversion from opposition parties. He did suggest a merging of NICs with income tax may be done but this risks perceptions of being a stealth tax. Gauke said the taxation of the self-employed is going to be looked at as a priority because the Treasury is worried about the erosion of the tax base. He was interested in integrating NICs and income tax while Tax Minister but warns that you run into winners and losers – and sometime surprising ones.
The panel were asked if a non-governmental body should be involved in taxation to ensure there are long-term objectives for the tax regime. Gauke said taxes are part of politics and at the heart of democracy. Leslie said that until you get a PM who is interested in tax policy, we may not see much change. But he suggested that cross-party consensus may be possible on social care.
What do you hope the achievements will be for the tax system by 2030, was the final question. Adam hoped the COVID-19 recovery went well, and to see a coherent strategy on climate change. Gauke hoped for an enterprising and pro-growth economy. Leslie hoped we would be less ideological and more strategic. There might be nudges towards people taking insurance for example, rather than relying on benefits.