MPs and tax commentators’ plea for tax reform in new parliamentary group pamphlet

The collection of articles, published under the heading, ‘What is Fair and Responsible Tax?’, has been produced in a partnership with campaigners Patriotic Millionaires UK and Tax Justice UK, and follows up a roundtable the three organisations held earlier this year.

The APPG aims to develop and advocate for policies which promote fair taxation and put a stop to corruption or financial crime. It was established in June 2020 with the merger of two existing backbench Parliamentary groups on responsible taxation and anti-corruption. Its chair is Dame Margaret Hodge MP (Lab).

In this review we summarise the proposals in the paper

What is fair and responsible tax? - Dame Margaret Hodge MP, Chair of the APPG

In her article, Margaret Hodge introduces the paper and sets the tone. She says the way in which tax is collected can deepen inequalities and so fair taxation must strike the right balance between the revenue it raises from different groups within our society. Hodge says we must also consider the effective rate of tax paid by taxpayers, not just their absolute contribution, and that the UK tax system is overly complex and acts in favour of taxpayers who can afford to pay for advisers.

The Labour MP (photographed below) argues that tax lies at the heart of the ‘social contract’. She says that any person or company that attempts to dodge paying their fair share – the tax avoiders and evaders – should be met with the full force of the law.

Tackle the tax advisers to crack tax avoidance - Kevin Hollinrake MP

Conservative MP Kevin Hollinrake was made a junior minister at the Department for Business, Enterprise and Industrial Strategy in the recent reshuffle. This article was published shortly before his appointment.

In his article Hollinrake (photographed above) sets out his concern that businesspeople are losing faith in the tax system through a belief that the game is rigged in favour of the ‘big guys’. He argues for more resources for HMRC because they collect £26 for every £1 spent on enforcement.

Hollinrake writes in favour of the APPG’s recommendation of a ‘double reasonableness’ test for criminal prosecutions of enablers of tax avoidance; in other words, would it be reasonable to view the avoidance scheme as reasonable? If not, there should be a prosecution, he says. He wants to see a licensing regime for tax advisers or a requirement for them to join a professional body.

In his article, Hollinrake also calls for: making VAT a place of consumption tax to prevent ‘Google and co.’ billing a zero rate from Dublin; tracking of parcels sent by overseas independent retailers to make sure VAT has been paid; and banning the use of royalties that allow Starbucks and others to transfer revenue derived from UK consumers to lower tax jurisdictions.

Reform property tax to bridge inequality and boost business - Sarah Olney MP

Lib Dem Treasury spokesperson Sarah Olney MP focuses on reform of property taxes. She argues that the current business rates system unfairly taxes traditional ‘bricks and mortar’ businesses that use property intensively, while providing a tax advantage to online-only enterprises. Her party would scrap business rates altogether and replace them with a ‘Commercial Landowner Levy’ (CLL). This levy would be paid by landlords, not tenants, and would be based purely on the land value of commercial sites.

Olney argues that this approach would better supports SMEs because only 39 per cent of SMEs in England own their main premise. She suggests it would also boost town centres, tackle the climate emergency (the current system has penalised businesses for going green by directly taxing capital investments in climate-friendly technologies, she claims) and boost manufacturing after Brexit. She claims that with CLL, average tax bills for manufacturing premises would go down by 22 per cent.

A Green perspective on ‘fair taxation’ - Baroness Bennett of Manor Castle

You cannot have infinite growth on a finite planet, argues Baroness Bennett of Manor Castle. The Green Party peer says we should use carbon taxes across the board to ensure the externalised costs now borne by all of us through the climate emergency are carried by those creating them.

Bennett suggests adjusting VAT so that it reflects the environmental impact of the sale item, looking at the other planetary boundaries we are now nearing exceeding, such as chemical pollution, plastic contamination and soil destruction. She argues for a wealth tax because individuals get rich by relying on infrastructure and services that our forebears created and that all of us continue to contribute to.

Bennett advocates ‘freeing HMRC from government control’ and giving parliament oversight of its activities. She notes that the last Green manifesto advocated lifting corporation tax back to 24 per cent (presumably at the time this was written the Government was proposing to retain it at 19 per cent). And she argues for combining employees’ national insurance, capital gains tax, inheritance tax, dividend tax and income tax into a single Consolidated Income Tax to ‘increase fairness and block loopholes’.

Finally, Bennett proposes a land value tax, which she sees as incorporating council tax, business rates, SDLT, CGT on land sales, inheritance tax on land and income tax on land for owner-occupiers.

Principles for a fairer and more equitable tax system - Lord Sikka

The UK tax system unfairly penalises workers and families, rewards rentiers and overloads the less well-off with taxes, writes Labour peer Lord Sikka. While the system may appear progressive, it is loaded against workers and favours the rich and ‘speculators’, he argues.

Sikka, who is a professor of accounting, states that any government interested in reducing inequalities and regional disparities needs to tax capital gains at the same rates as earned income because there is no economic difference between earned and unearned income. Both generate identical purchasing power and provide access to goods and services, he points out.

Sikka argues that the lower capital gains tax rate is a boon for the ‘tax avoidance industry’. He cites a report that estimates that by taxing capital gains at the rates applicable to earned income, around £17 billion a year of additional tax revenues could be raised. National insurance on the same could raise another £8 billion or more.

Responsible tax reform means combatting the climate crisis - Robert Palmer

In his article, Robert Palmer, Executive Director of Tax Justice UK, focuses on green tax reform. He complains that a windfall tax on oil and gas profits was announced, but at a rate that has so far failed to put sufficient cash into the pockets of those struggling and provide investment for green transition measures. It was brought in alongside a huge, new oil and gas tax relief that perpetuates our reliance on the fossil fuel industry, he adds.

Palmer argues that the tax system can raise revenues for transformative green policies such as retrofitting our housing stock, or taxes can increase the cost of carbon intensive activities such as frequent flying. We can incentivise a rapid and just transition by cutting the costs of green alternatives and build public support for climate action by ensuring that all members of our society are seen to contribute.

Palmer suggests for debate an idea proposed by New York academics which is a Carbon Wealth Tax, which looks to increase the price of high carbon investments that underpin personal wealth. This would not only shift capital flows away from destructive industries towards green alternatives in the green economy, but any revenues generated could be re-invested back into the green transition, ‘generating a virtuous circle of productive green investment’, he says.

A first, big step towards a fairer tax system - Arun Advani

Arun Advani joins Lord Sikka in arguing for a level playing-field between capital gains and income. Advani, who is Assistant Professor of Economics at the University of Warwick, sets four tests for raising tax well: it must be efficient, fair, easy to pay and raise money. Taxation of capital gains is, he says, a costly example of a tax which fails these tests.

Making his case, Advani says that when you think of capital gains you might picture second homes or valuable paintings, but three-quarters of taxable gains are actually from sales of businesses . These business gains are growing. But rather than reflecting a boom in British entrepreneurship, they are driven by tax planning. The ‘enormous’ difference between the tax on income and the tax on capital gains creates unfairness because there is a huge gap in the tax paid by people with the same remuneration and average tax rates actually decline with total remuneration. The direct financial cost of this is a major revenue loss for government, revenue that has to be made up through other taxes.

Advani believes treating capital gains and income in the same way would be fairer, more efficient, reduce avoidance, and raise substantial cash.

Responsible tax policy should tackle economic challenges - Sam Robinson

Sam Robinson, Senior Research Fellow at the centre-right think-tank Bright Blue, covers both environmental taxation and property taxes in his article. He suggests that the UK’s system for carbon pricing under the UK Emissions Trading Scheme is insufficient to sufficiently change behaviour and reduce emissions. He suggests setting a target price range for carbon taxes across the whole economy by 2030, with a 2030 ‘floor price’ that each economic sector would have to achieve at a minimum. He also suggests reforms to carbon taxes should be accompanied by a ‘Green Dividend Framework’ made up of the revenues from carbon pricing measures.

On property tax, Robinson suggests council tax needs to be revalued to bring it back into line with today’s housing market. But a bolder step, he says, would be to move towards a Proportional Property Tax, which he believes would reduce the seemingly arbitrary connection between the level of tax someone pays and where in the country they live. It would also be more progressive on an individual level, he claims.

Beyond the OTS – delivering meaningful tax simplification - George Crozier

George Crozier, Head of External Relations at the Chartered Institute of Taxation, argues for a more determined approach from the Government to simplifying the tax system, noting that while there is a political consensus on the need to simplify, delivering meaningful simplification has proved somewhat harder.

Reflecting on the achievements of the Office of Tax Simplification (OTS), Crozier observes that the pattern has generally been that where the OTS has proposed technical or administrative tweaks the Government has at least considered it. But where it has proposed to simplify the actual rules, ‘its calls have usually fallen on deaf ears’. Rather than abolish the OTS, the Government should have chosen to strengthen it, giving it a louder voice, a wider remit and greater resources, he suggests.

In the absence of the OTS, there is an even greater onus on the Government to ‘put flesh on the bones’ of their simplification plans, Crozier suggests. He adds that scrapping the OTS will also require Parliament to take a closer interest in tax simplification. A select committee might usefully question ministers and officials, and produce an annual report on progress towards simplification, he suggests, and an annual debate on simplification on the floor of the House would raise the profile of the issue. Ultimately, he concludes, if ministers are serious about simplification they must be prepared to amend or drop otherwise attractive proposals if the complexity cost is too high.

Read the pamphlet here.

By Hamant Verma, CIOT Senior External Relations Officer