Geoffrey Howe
Geoffrey Howe once said, “The task of simplifying Britain’s tax system is of the same magnitude as trying to paint Brighton’s pier while someone else is busy extending it to France”.
Howe, a former Chancellor in the 1980s during the Thatcher government, worked in the tax law re-write body, which was disbanded in 2010 and replaced with the Office of Tax Simplification (OTS), which is part of the Treasury.
Chancellor George Osborne promised a simpler tax system and an end to governmental “meddling and intervening” in people’s tax affairs.
So, four years later, what if anything has the OTS achieved?
Well for a start, the UK tax system isn’t simpler. One measure is the length of the various measures relating to UK tax legislation in the 2014 Finance Bill, which was a similar size to the previous one. Also if you add to this the various bits of new legislation to counter tax avoidance, many experts believe that the tax system has become even more complicated.
As a practising accountant I have however, seen some modest progress; many tax reliefs have been made simpler and the introduction of cash based accounting has helped save many small businesses from drowning in an ever deeper pile of paperwork.
An organisation I belong to, The Federation of Small Businesses, has applauded this change but has pointed out that the OTS, which has about six workers compared to 64,000 at HMRC, needs to have more resources if it’s to “genuinely and radically simplify” tax for small business.
Overall though, the OTS hasn’t managed to persuade ministers to make major changes to the tax system and most of its boldest suggestions, such as merging income tax and national insurance, have been ignored by the government. It appears to be another example of lots of talk and very little action.
Alastair Kendrick, a former senior tax inspector at HMRC and now Tax Director at MacIntyre Hudson, said that although the OTS has some smart and experienced staff it doesn’t have enough resources or power to make a real difference.
The Treasury has in effect outsourced the task of streamlining some of the most complicated parts of the tax system to an organisation with little influence, he added and said, “If you want the cynical view, the tax system is probably more complex than it was four years ago but it would have been even more complex without the OTS. The increasing complexity that the government is introducing is going at a faster pace than the simplification that the OTS is proposing.”
Kendrick believes that that the government does take the OTS seriously, but often ignores the OTS’s suggestions because of political or economic reasons. He added, “Simplifications can lead to higher tax on occasions but all too often they lead to reductions on tax. The OTS has been handcuffed by the fact that its general thrust has had to be tax neutrality.”
Even Accountants want to be Simplified!
Most Accountants, including me, have complained for years that tax should be made simpler and that the tax reforms so far introduced simply don’t go far enough. However, neutral observers, such as the Institute for Fiscal Studies (IFS), are also disappointed about progress towards simpler tax.
In May, Paul Johnson, director at the IFS, told an audience at their annual forum that progress on tax simplification had stalled since 2010 and that it was hard to be optimistic about the chances of reform. “In some ways the economic crisis was wasted as an opportunity to think about tax policy,” he said.
Brighton Pier on it’s way to France as we speak
At the OTS, John Whiting, who is also a non-executive director at HMRC, is aware of these and other constraints. “Does the man or woman on the Clapham Omnibus say ‘gosh the system is much simpler’? No; and I expect that accountants don’t think the system is much simpler either.”
He added, “If you look at what is coming out every year in the Finance Bill we get more and more legislation.”
But Whiting said the OTS was making progress and cited the simplifying of tax reliefs and the introduction of measures to make employee benefits in kind, such as company cars and medical insurance, easier to administer.
“I’d like to think we’ve had some impact given the size we’ve got,” he said. “Let’s be clear the OTS is by nature something of an experiment into if it’s possible to simplify the tax system and how best to do it… we’re learning what can and can’t be done.”
Measuring whether the tax system has got more or less complex would be a start. The OTS has recently published a “Complexity Index”, to measure the complexity of some tax measures and potentially the entire tax system.
This is something that is already yielding results in France where any tax legislation going to the French parliament has to have a one to five complexity rating on it. On tax proposals with a four or five-star rating, the minister has to publically explain why it has been done in such a complex way.
It’s a good idea to put treasury ministers on the spot, but has any government in recent memory, actually been listening? Short-term political and economic considerations inevitably take priority over simplifying the tax system; but if the government really is serious about de-cluttering tax, it needs to give the OTS more money and power. If not, then what’s the point of the end of the pier show?
If any of you would like more detailed information on any aspect of the Tax Simplification, send me an e:mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.