I am attempting what could well be an impossible task here which is to write about tax policy and the party conferences in a non-party political manner. I own up to being on the right of the political spectrum but hope that those in the centre or on the left will accept that that I have done my best to remove any overt political bias in my remarks below.
I attended both the Labour and Conservative conferences but made very few visits to the main conference hall. Instead, I attended (or spoke at) perhaps a dozen fringe meetings at each conference organised by think tanks, business groups, professional bodies and other lobbying organisations. No one will be surprised that the tax discussions focussed upon the electoral popularity of the measures proposed rather than their tax technical soundness or their impact upon the complexity of UK tax legislation. Very little was said at either conference about corporation tax other than, at both conferences, some vague promises to tackle avoidance by multinational, especially US-owned, corporations (presumably tax avoidance is less unacceptable if implemented by UK-owned SMEs?). Even less was said about VAT, national insurance, capital gains tax, business rates or the ‘sin taxes’ but a little more about inheritance tax and council tax or their perceived wealth tax alternatives.
It is fair to state that Labour might have more wriggle room on tax policy (albeit with a consequential and matching increase in government debt) as they are targeting to eliminate the current annual fiscal deficit (i.e. excluding investment spending) by the end of the next Parliament rather than the Conservative target of eliminating the overall annual fiscal deficit (i.e. including investment spending), The challenge faced by the Conservative focus on income tax cuts (principally the proposal for a £12,500 personal and a £37,500 basic rate tax band) will be convincing the electorate that these can be delivered whilst reducing the fiscal deficit. The Labour challenge on taxation policy will be more focussed upon finessing their tax policies with public spending commitments.
I have spent some time since the conferences thinking about the poor level of traction which tax reforms secure on the political agenda unless there is the perception that they translate into electoral appeal. Whilst it would be extremely naïve to believe that this will not continue be the case, I have suggested below a couple of ideas that might merit further consideration, focussing upon tax simplification.
Firstly, independent forecasters should be asked to maintain an ongoing (‘live’) bible of costings for policy options in the public arena on a fuller basis than HMRC’s existing annual tax ready reckoner (now called ‘The Direct Effects of Illustrative Tax Changes). Areas which come to mind, include the projected collections from the proposed mansion tax as opposed to additional council tax brackets and the tax which would be collected if capital gains tax were to applied to gains at death as opposed to inheritance tax becoming payable.
Secondly, a list of alternative tax cuts and tax increases should be maintained for each level of tax adjustment e.g. if HMG needed to raise (or were able to cut) total taxes by £1m/£2m/£5m/£10m/£25m, it could look at the alternative tax packages to deliver this (including additional reliefs, reliefs repealed and adjustments to tax rates and tax bands).
I consider something along the above lines could facilitate debate about proposed tax reforms, rates and reliefs, noting that the public, the news media (and even tax practitioners!) sometimes fail to appreciate the overall fiscal impact of proposed tax changes as opposed to the impact upon them personally.
Ed’s Note: You can – indeed you should – follow Stephen Herring on twitter at @Stephen_Herring
“No one will be surprised that the tax discussions focussed upon the electoral popularity of the measures proposed rather than their tax technical soundness or their impact upon the complexity of UK tax legislation”
This, sadly, is the worry, along with the at times astonishly low level of understanding of technical tax matters exhibited by politicians and the media who for the most part still seem unsure of the difference between turnover and profit and don’t seem to think such ignorance should stop them commenting on tax policy.
To add to your suggestions, couldn’t we send all MPs and relevant journalists on a “Dummy’s Guide to Tax” course?
Meantime, the answer to all problems on tax is invariably to raise someone elses’.
Yep – I just started writing a post (with some practical suggestions) last night on this very thing… probably be up early next week.
Might I be permitted a plug here for a paper published last Autumn – http://bit.ly/TaxSimplicity – which tries to at least start people thinking rationally about designing the tax system. Of course it doesn’t have the answers in it, but it may get us towards the right questions? (personally I think it should be compulsory reading for all MPs, but I am probably biased)
To stick up for journalists here – I am one, though from a professional tax publication rather than a mainstream one – yes, the difference between turnover and profit may be skated over, though I doubt the journalists concerned actually misunderstand it. You have to remember who they are writing for.
The general point they are driving at in the mainstream media is not entirely rooted in fairyland: if X company is turning over x hundreds of million pounds but is reporting only a small amount of tax paid, or even a loss, the public, not unreasonably, asks why.
Yep. Am not entirely unsympathetic. There is – certainly there’s perceived to be – much greater transparency as to what ‘turnover’ means than as to what ‘profits’ means. Without transparency of profits, what are (even sophisticated) journalists – let alone the public – to do?
Where are the journalists getting the turnover figures from? Probably the top line of the P&L. Just a little lower down will be cost of sales and other expenses and then net profit. Obviously accounting profit is not likely to be identical to taxable profit, but it is likely to be significantly closer than gross sales. So why report tax next to turnover? Because it makes a better story, because it looks worse.
The answer why taxes may be a small percentage of turnover, which is seldom mentioned let alone answered, is that the business has significant deductible expenses.
The lack of public understanding on tax has often been mentioned in the profession and other groups. People have tried to address it.
Heather Self/Taxation sugggested accountants should adopt an MP (http://www.taxation.co.uk/taxation/Articles/2013/05/01/306531/adopt-mp);
the CBI has a list of misunderstood tax concepts (http://www.cbi.org.uk/media/2049172/tax_misunderstood_concepts.pdf);
Mazars and ARC (a trade union in HMRC) recently held an event – at which Jolyon spoke from the floor – which discussed issues of transparency, how HMRC dealt with business, avoidance and the tax gap (http://blogs.mazars.com/letstalktax/2014/07/04/the-tax-transparency-debate/).
It is slow work but I think these are clear signs that the profession and other interested parties can and do try to engage with the media. But it is also clear that we have to recognise the concerns and imperfect knowledge of non-tax professionals. I think this is as true of political parties as it is of NGOs or the wider public. As a member of Oxfam told the ARC annual conference this May,
“But the point is, from the point of view of an organisation trying to change the terms of public opinion and political debate, in a sense creating a level of awareness has been more important to start that debate than getting the technicalities right. Because if we’d gone straight in with the technicalities we’d have bored people stupid, lost everyone, and taken the debate nowhere.
Now I understand that can be very frustrating for people on the front line dealing with people’s tax returns and seeing quite technically ill-informed statements from the likes of Margaret Hodge or campaigners. Because they are technically ill-informed, but that’s not what we are trying to do to start with. We’re trying to get the issue on the agenda. But we can’t leave it like that. Because actually, if we’re going to make meaningful changes, your expertise [and that of] other people in the tax profession becomes absolutely invaluable; and we can’t make changes which increase tax receipts without getting the details right.”
As a tax professional (and member of ARC) I could happily sign up to working together to increase the understanding – on both sides.
Some interesting points raised in the comments above which have given me a “glass half full day”. Note, topically, how that it often seems that the politicians and media seem to view a reform of a £166 billion tax (i.e. income tax) as similar, in fiscal terms, to reforming a £4 billion tax i.e. inheritance tax.
Ignoring the practical issues and the varying profitability of different sectors (and also ignoring the European Union; one can dream!), I think that a (very) small percentage turnover tax may be the only way to secure sufficient public transparency and acceptance, assuming it is accepted that corporations ought to be taxed (as opposed to their shareholders, employees and customers). In my opinion, BEPS or no BEPS, it will become increasingly difficult to allocate global profits between the countries concerned and especially so for global, digital businesses and this would be the case if there was no such thing as transfer pricing or, indeed, corporation tax.