Future of Tax. Guest post by Kevin Nicholson, Head of Tax, PWC

Improving the quality of debate around tax is something I feel strongly about. So I was pleased to be asked to write here about PwC’s campaign to extend the debate to a wider group of taxpayers than is often the case.

This blog highlights the range of perspectives and opinions on tax reform, yet it’s still possible to find common threads between them. This is one of the reasons I think it’s important for discussion about tax to move beyond the profession, politicians and academia. It’s easy to make assumptions about what people think about tax: it’s too complicated, too dull, and all that matters is how it affects me. The discussions we’ve held for our Paying for Tomorrow campaign give the lie to all these things.

I’ve long felt that there needs to be a more strategic look at the tax system. The UK currently raises about £600bn in tax revenues each year – how are we going to raise that in a future world where the emerging economies are the bigger producers and employers, and have greater GDP? How will the UK raise the taxes it needs to run the country; will it be from business, income, wealth or sales? We need to think about what our future economy is going to look like, and then get our tax system in tune.

Dating back over two centuries, our tax regime needs a thorough overhaul – and I recognise that PwC, as the largest tax business in the UK, has a responsibility to be part of that change.

Our campaign is about pulling together views on building a tax system fit for the future, and the principles that should underpin policy. Crucially, it involves talking to all groups of tax payers.

So in June we commissioned Britain Thinks to bring together 22 representative members of the British public to have their say. Our Citizens’ Jury spent two days listening to a range of experts before debating and reaching their verdicts. We recently held a similar forum for businesses, again a real cross section of sizes and industries. And we’re currently running a major student competition, offering £20,000 for the best essay on how the tax system should change to improve job prospects. We want to engage with the people who will be most affected by the tax policies put in place now.

We’ll be drawing together the outcomes in the spring, but one of the most striking observations so far is the consistency of views. The main themes include:

  • People want far clearer and more transparent communications on tax – both the purpose of policies and how taxes are being spent. Individuals and businesses are more likely to support policies they understand.
  • While everyone recognises that tax is governed by politics, more must be done to counter political short-termism and encourage a more sustainable approach to policy making. Some of the ideas we’re hearing echo recent suggestions made on this blog  by Stephen Herring and Jolyon Maugham for independent scrutiny of costings.
  • Tax simplification is crucial and people are more likely to accept the trade-offs that come with say streamlining VAT or reducing the number of reliefs, if they understand the big picture goal and are confident progress will be made.

Perhaps for me the most illuminating part of the research is the willingness of taxpayers to put aside self interest. For instance our Citizens’ Jury rejected the idea of a mansion tax, even though none of their homes would touch the threshold. They just didn’t like the principle. It is important that we don’t make assumptions about different groups of taxpayers, and too often this has been the case.

Ultimately comprehensive tax reform can only be achieved if people buy-in to the common goal. And the only way to find out what people really want on tax is by speaking to them.

12 thoughts on “Future of Tax. Guest post by Kevin Nicholson, Head of Tax, PWC

  1. I am curious to know who ‘the experts’ were.

    If all came from PWC and those listening were genuinely lay people then there was clearly bias in the discussion and the conclusions drawn must be seen as such.

    Would PWC like to explain?

    Could they also explain how they recruited the 22?

  2. I might well find myself seeking employment with PwC, so I take issue with Kevin Nicholson very reluctantly. However, ‘tax simplification’ is so facile and so often parroted. Tax ‘complication’ results from:
    1. HMRC perceiving the need for anti – avoidance measures or even further anti – avoidance measures. Perhaps PwC’s head of Tax can tell us; is HMRC wrong?
    2. New measures, particularly reliefs, are often introduced at the request of business and industry. These are usually highly targeted, nuanced and often followed by anti – avoidance measures to counter marketed avoidance that springs up in their wake. Not much sign of any trade off for clarity and simplification there.
    3. Many measures are micro measures, aimed at often very small groups affected in small ways by another provision.

    So I hear what the citizen’s juries are saying, buy I pay more attention to their unspoken revealed preferences.

  3. An observation: one might think about the need for tax simplification as arising from two different things. First, as a response to encrustrations of drafting. Us humble practitioners get animated about this because we have to scrape away the encrustrations. I think your points 1 and 2 are directed at this. Second, to improve transparency. The fact that we call National Insurance Contributions National Insurance Contributions rather than income tax is a good example of both unnecessary obscurity – and a resultant loss of transparency. Your point 3 might come into this category. As, I suspect, do Kevin’s observations from the ‘Citizen’s Jury’.

  4. One thing about tax simplification which gets unnoticed. One reason – but not the only one – for tax getting more and more complicated, is that the world has become more complicated.

    As an example:

    Once upon a time, a bank took in deposits and paid them out in loans. They also issued/accepted bills of exchange and provided credit for overseas commerce.

    What they do now – the many different ways in which you can provide finance – is a very very different beast from what they were doing in medieval times. Options, futures – options upon options. The mind boggles.

    And so the tax system has to adjust to cater for all this. And it isn’t just tax – the law itself has to adapt, which is what one should expect.

    So to say that we need to simplify the system – well, yes, but remember there is a limit to how much simplifying you can do.

  5. By reading the report (easily found on the internet) I note that Dawn Primarolo (Labour MP) and John Christensen (Director of the Tax Justice Network) were among the speakers.

  6. Extracting from Iain’s post below, the link shows:

    “Methodology: BritainThinks recruited 22 members of the British public, broadly representative of the nation’s demographics in terms of age, gender, social class and ethnicity. The Jury took place in central London, and lasted two days. Jurors were from a range of locations across the UK:
    • Greater London
    • The South East of England
    • Midlands
    • The North
    • Wales
    • Scotland”

    And there were presentations from John Whiting, Tax Director, Office of Tax Simplification; Paul Johnson of the IFS; John Christensen, Director of the Tax Justice Network; Rt. Hon. Dawn Primarolo MP, Deputy Speaker of the House of Commons, and former Paymaster General, HM Treasury; Fraser Nelson, Editor, The Spectator.

  7. In fact though Jolyon the UK tax regimes have all become much more complicated and much more voluminous over past 15 years or so and it goes far beyond a bit of encrusting. Renaming NIC or using clearer language (which is being done already) only really scratches the surface.
    I am suggesting, as was Satwaki Chanda, that the tax system is now necessarily more complicated and nobody would be very happy if it wasn’t.

  8. Before we start inventing a new tax system, may I please suggest that we all remember that the present one is so complicated because of changes and new legislation added (at an accelerating rate) over the years. There must be safeguards to prevent this happening in the future otherwise all the work and the good intentions will be wasted.

  9. The problem with this ‘solution’ is it only appropriate if the legislation was not necessary/desired in the first place. If that legislation was not ‘necessary’ then fine, stop it. But if it was, that is not a solution.

  10. In terms of simplification, I think I would start by explicitly dividing taxes into four main kinds:
    Income taxes;
    Transaction taxes;
    Consumption taxes; and
    Wealth taxes.

    Legislation to tax each of these would then make clear what the purpose was. I would further divide income taxes into taxes that are returns to capital and taxes that are returns to labour.

    Legislation would, rather than looking at the legal form of a transaction, focus on its economic substance. IR 35 style arrangements are clearly returns to labour, not returns to capital and should be taxed as such. I think many of the current problems are because the current tax system aims for legal form (company/dividends) rather than economic substance (compensation for labour).

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