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