Treasury Committee: Hunt takes personal responsibility for tax simplification

Fuel duty

Harriett Baldwin, the chair of the committee, raised concerns about the possibility of an increase in fuel duty by 12p next year, calling it a “fuel duty fiction”. Chancellor Jeremy Hunt disagreeing with this notion, noted that the increase would depend on the inflation rate at that point, and said that the decision would be “based on the room we have in our fiscal forecasts”.

Office of Tax Simplification

Questioned about the abolition of the OTS, Hunt vowed to continue with the simplification agenda. “Taxes are far too complex,” he said. He believes that more needs to be done to make the system more simple, and he intends to be “a Chancellor who makes progress in simplifying the tax system”.

Hunt said that he has asked the Treasury’s officials to work on tax simplification prior to every Budget and every Autumn Statement. (Was this a hint that Spring Budgets are now the default again?) He will take ‘personal responsibility’ for making progress on tax simplification, rather than “have a separate group of people who are funded to do that”.

Invited by the chair “to put something in statute that reflects that change that you have decided to make” Hunt said that “at the appropriate time” he would. Given that OTS abolition is already in legislation in the current Finance Bill the implication of this is it refers to a further legislative change to enshrine the government’s responsibility in relation to tax simplification, though we cannot be certain this is what the Chancellor intended to say.

Tax burden / threshold freeze

Dame Angela Eagle (Lab) challenged Hunt about his claims on the tax burden during the Budget, arguing that the OBR’s forecast indicates that tax as a proportion of GDP is higher after the Budget than it was in the Autumn Statement. Hunt explained that the overall tax burden is increasing due to pressure on the public finances, but over a three-year period, “there is quite a significant reduction in the tax burden” due to the full expensing for capital allowances.

Supporting the Chancellor’s argument, Sean Jones, Deputy Director for the Budget and Finance Bill at the Treasury, said that the tax burden has reduced as a result of the government’s measures by 0.3 per cent between 2023-24 and 2025-26.

Discussing the impact of freezing thresholds on ordinary people, Hunt said “he has been completely up front” and acknowledged that the decision was not an easy one. He acknowledged that the government raised taxes by £25 million during the Autumn Statement. Additionally, because of changes made since 2010, anyone with the average salary of £28,000 a year now pays £1,000 less tax and national insurance, he argued. Hunt said that “the Conservative approach is that we bring down taxes when we can, but always in the context of being responsible about public finances”.

Eagle questioned Hunt’s comment, saying that the tax rates are at their highest for 70 years. The Chancellor blamed the pandemic and energy crisis for the increase. Eagle then asked about the number of couples who will lose access to child benefit due to what she called “stealth taxes on the threshold”. Hunt did not have the exact number, but he did say that many working couples will benefit from his childcare announcements in the Budget.

Taxation of pensions

Anthony Browne (Con) supported Hunt’s decision to abolish the lifetime allowance, but asked whether there was a more cost effective way to encourage doctors to continue working. Hunt argued that a scheme targeting only at doctors would have been a more regressive approach, saying that the measures he announced “do not help the 20 per cent wealthiest of doctors… the scheme that we announced applies to everyone”. He added that the policy also removes barriers for pensioners in other professions to return to work.

Browne also raised concerns over the fact that the proposed tax cut will disproportionately benefit individuals in the banking and finance sector, accounting for approximately 20 per cent of those set to gain from the tax cut. Hunt acknowledged the concern, but emphasised the importance of supporting a thriving financial services industry, which contributes significantly to the UK's tax base. Hunt further explained that removing barriers to work is beneficial for individuals of all income levels.

Hunt said scrapping the lifetime allowance would bring 110,000 more people into work.

Browne also expressed concern that the changes to pensions taxation could be used as a loophole for inheritance tax, to which the Chancellor responded that the annual allowance limit still exists, meaning that there is a cap on how much can be placed into a pension pot each year. Hunt emphasised that the aim is not that “you’re escaping tax; you’re just paying it in a different way”.

Asked why the annual allowance was increased by 50 per cent to £60,000 a year, Cat Little, Head of the Government Finance Function at the Treasury, explained that the increase was necessary for solving the issue for doctors, as around 22,000 clinicians were expected to exceed the annual allowance, which was acting as a barrier for them to have long-term careers in health. Browne expressed surprise at the figure and asked whether the reduction in the allowance for higher incomes had been taken into account. Hunt promised to write to Browne with more information.

Tax gap

Emma Hardy (Lab) shared her disappointment that the Chancellor did not provide more funding for HMRC for compliance work, to which Hunt responded that the government has increased the funding over recent years and he will write to the committee providing details of that. Sean Jones added that the government provided significant funding in the autumn statement to address compliance which has helped HMRC to tackle the tax gap.

Hardy argued that tax evasion is becoming “much more complex, more sophisticated, more international and more digitally enabled”. She asked why the government is not prioritising tax fraud compliance. Hunt responded that “we are against all fraud and all tax evasion, and we will continue to work very hard to reduce the tax gap”.

Citing a report from HMRC that found investing in tax fraud results in a return of £16-£18 for every pound invested, Hardy questioned why the government was not doing more to recover owed taxes, especially at a time when small businesses are in need of financial support. In response, Hunt stated that the government is working to recover owed taxes.

When Hardy asked whether the recently announced increases in research and development (R&D) benefits for small and medium-sized enterprises would impact the previously anticipated reduction in fraud and error in R&D tax relief, Hunt said that they have established a transparent gateway based on R&D intensity that enables individuals to progress through the system. He argued that this would allow for effective checks and balances to be implemented, providing genuine support to companies. “We now have a much more robust system” he claimed.

You read the full transcript of the session here.