The Insititute for Government has issued a press release and report suggesting that:
The UK tax system needs substantial reform, but recent governments have shied away from it because of public resistance.
Given that I am working on what I call the Tax After Coronavirus (TACs) project I do, of course, agree.
The Institute argues that:
That needs to change — and government should seize the chance to do so. The coronavirus epidemic will accentuate existing problems — but may also bring public support for tax reform, offering government a rare opportunity to make sweeping changes.
Government has been finding it harder to raise revenue — for example, digital businesses are increasingly prevalent but harder to tax, while self-employment has been becoming more widespread but the self-employed have to date been more lightly taxed than employees. There are also long-standing, well-known inefficiencies in the tax system and unnecessary distortions, including expensive reliefs which have long outlived their purpose.
At the same time, the health and social care needs of the UK's ageing population have been putting increasing pressure on public spending, requiring tax rises unless the scale and scope of services is reduced. Even before the coronavirus crisis, there appeared to be no public appetite for paring back services; now, there is likely to be support for much more funding for the NHS.
These longstanding pressures all underline the need to reform the tax system to allow it to raise the revenue needed in an efficient and fair way.
And as they note:
The coronavirus outbreak adds new pressures. The government's economic rescue package will add many billions of pounds to public debt, which will have to be financed. It may create public desire for a permanently larger role for the state — with higher spending to increase resilience in public services and a more generous welfare system. The aftermath of this crisis could provide an opportunity to address longstanding problems and improve the way in which we raise tax — and indeed, to move to a higher tax system if that is indicated by public desire. But that will require major tax reform that previous governments have struggled to deliver.
Their suggestion is that:
This report sets out the main barriers that stand in the way of reforming the tax system and how the government could overcome them.
Based on over 70 interviews with former ministers, current and former civil servants, journalists, tax experts and others — and drawing on experience and practice from the UK and other similar countries — the report highlights the barriers to reform and identifies ways to overcome them:
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The prime minister and chancellor must set clear objectives for the tax system.
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The government should establish a tax commission.
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The Treasury should do more to build public understanding of the need for tax reform.
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The Treasury and HM Revenue and Customs (with the support of ministers) should work to build a stronger evidence base for tax reform.
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The Treasury Select Committee (TSC) should spend more time looking at the tax system.
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Tax reform measures need to be carefully packaged.
It is precisely to inform this type of decision making that I am developing the Tax After Coronavirus (TACs) project. It would seem that some at least think that this might be timely.
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No mention of tax havens or corporate tax avoidance or reducing inequalities in society. Lets hope the Institute of Government will come across these factors in their research and come up with some positive proposals to tackle these problems.
Hence the need for the Tax After Coronavirus (TACs) project….
It all seems to be framed in the tax and then spend mindset. I’m sure that your contributions will be framed around MMT. To me it would seem that no progress can be made until someone budges and since the neoliberal mindset is the way things are we are well and truly shafted.
Mine is framed in that mindset
I’m not sure what you mean. Do you mean yours will be framed in the neoliberal tax and spend mindset?
No, of course not
Since when did I promote that?
I hope so – sincere good luck.
I am not an expert. But I note that the UK tax system (if you can call it a system) has become increasingly complicated over my lifetime (70+ years) and therefore impenetrable to the common (wo)man, and that it provides work for numerous accountants. So I am putting in a plea for simplicity. Strip away the exemptions and start all over again. Perhaps all UK citizens should pay tax to HMG wherever they live in the world by being obliged to submit an annual return on income. That might go some way to tackling the challenge posed by the existence of tax havens.
David Harries:
So are you suggesting that permanent residents of one of the many countries which require payment of tax on worldwide income and who happen to be U.K. citizens should be doubly taxed? Nice one (not) !
So long as the country of residence has a double tax treaty with the UK (most countries do) then they will not be doubly taxed. If it doesn’t, there is a reason for the UK refusing to have one and this reason is probably similar to the reason the individual chooses to reside there. Are you suggesting that these people should enjoy the benefits of UK citizenship without making any contribution to the UK?
George:
No – of course I’m not suggesting that.
My comment was directed at David Harries, who was blithely proposing that “all” U.K. citizens should pay tax in U.K.
For me there are two things writ large:
1. Restricting tax havens ability to operate, including ensuring trusts are associated for tax purposes with named individual(s)
2. Entities being taxed where they generate profit
One barrier I don’t see mentioned is political dogma. The current parties are driven by ideology, largely of the political right. They need to start thinking about and planning for a fairer society which values all citizens equally in a way that corrects and prevents the great disparities we see around us, in health, mortality, education, earnings, wealth, housing, transport, environment, for example. I don’t see that kind of political imagination anywhere amongst the current crop of mediocrities.
Where are the political philosophers (in any party) who will show the way to a fairer society?
Taxes work best when they are simple, inexpensive to raise (in the context of practical tax application), and very difficult to avoid. In this context VAT, PAYE, Excise duties, taxes on the oil industry work well.
I have never understood why it is thought that a general profits tax, of Byzantine complexity in the British system, will work when it fulfils none of these necessary conditions.
Because otherwise we permit lots of abuse
corporation tax is an anti-avoidance mechanism from beginning to end
My problem is that the conceptual fluidity and interpetive flexibility that is possible in establishing the ‘profit’ of an enterprise, implies that the complex measurements required to protect against tax avoidance are not inherently robust, and therefore do not appear to me to make it a very effective anti-avoidance device. Taxable profit is a conceptual minefield in which I suspect quite legitimate tax avoidance ingenuity is a stronger element in the measurement than the rigour of the taxation measuring device we actually possess is capable of withstanding.
Is your own trenchant analysis of ‘country-by-country’ reporting not a good illustration of the scale and difficulty of the problem? Let us suppose you won that battle, decisively. I accept major progress is made, but I also strongly suspect that the ingenuity will reassert itself somewhere else, and soon enough some or much of the advances will begin to erode; essentially, in my estimation because that is the problem with the inherent weakness in the nature of ‘profit’. It lends itself to avoidance.
“Heraclitus, I believe, says that all things pass and nothing stays, and comparing existing things to the flow of a river, he says you could not step twice into the same river”. (Plato ‘Cratylus’). Perhaps Plato misunderstood Heraclitus; confusing the philosopher with a contemporary tax consultant, caught reflecting philosophically on the nature of his purpose…….
But if we permit income to go untaxed if it can be called profit how do we tax that which is not so described?
Or do we just create more objective accounting rules?
In answer to your direct questions, I have not done sufficient research to make any authoritative claim, but looking at 2018 statistics, for example I tentatively hazard that taxation of profit in the UK accounts for perhaps around 9% of total UK tax receipts. I may be wrong. My general point is that profit tax is much less important than other sources, and is very expensive to police; and indeed we make little effort to provide the resources to do so. Most of UK tax actually raised is actually based on taxes that meet the criteria of simplicity, ease and difficulty to avoid; PAYE, VAT etc., the simple, easy and cheap to raise, hard to avoid taxes. I accept there are problems serious problems with fairness that require to be corrected one way or another; but for me that is not an argument to pursue profit tax when it does not seem to work particularly well. I would rather look at new prospects that allow us to use these more reliable tests of utility. Land is one, of course, and is overlooked, but only one; even corporations need a foot on the ground, but I do not suggest it as a panacea.
What does that 9% (or whatever the accurate figure for profit tax/to tax receipts is), represent as a percentage of total UK corporate profits? Or rather, what is the chargeable profit figure on which the profit tax figure we actually raise based? How do we measure that chargeable profit, and what precisely are we doing, or trying to do when we make the measurement? I hope not by checking it against the template of that immortal ‘length of a piece of string’(!)
I accept my analysis is crude, I am not an ‘insider’ and do not claim special insight. I simply have this intuition that in our attempt to tax profit directly we are trying to bottle smoke, without much notable success to show for it; but I suspect the tax consultants are successfully blowing smoke rings around us all.
CT works: that is 9pc that would not have been collected, or more
So it costs to collect? So what? What price is tax, economic and social justice worth?
I think you are asking the wrong question
“These longstanding pressures all underline the need to reform the tax system to allow it to raise the revenue needed in an efficient and fair way.”
That may well be how it us explained, but since taxes are not the source of government revenue the whole charade will be……… a charade.
No it won’t …. for reasons I am explaining in this week’s series the blog
Tax is fundamental to MMT and social and economic justice
Someone wrote: “So tax cancels the money-creation process, and does not pay for the spend itself. So, counter-intuitive as it may seem, tax is not about money-raising, as most people think. It does not have that function. It reclaims the money the government has already spent.”
Now you seem to be agreeing that sometimes tax is used to raise revenue to “pay for the spend”. Some of us are getting confused.
I am saying tax cancels the money spent when the government is a money creator
I have not changed anything there
When the government is not a money creator – and most governments are not money creators because they are local, for example – then tax pays for spend
If one is going down the MMT track, then as I understand it, the role of tax is primarily to ‘cancel’ money, taking it out of the economy as a mechanism to manage inflation.
How does that fit with the other roles of taxation, such as discouraging ‘bads’ (eg pollution, excessive rewards), incentivising ‘goods’ (eg investment – in people, r&d et al)
Robin
I did a blog on this very recently
I can’t add the link from a long queue in Tesco though
It was on tax and MMT
Richard
Thanks Richard – will hunt it out
Enjoy Tesco’s!
I forgot the onions….very annoying…..
This is the one I think
https://www.taxresearch.org.uk/Blog/2020/04/11/tax-abuse-tax-havens-and-modern-monetary-theory/
Indeed….
Goodness me!!………………it seems that more reading is required on the relationship between Tax and Direct Monetary Finance – may I recommend John F Week’s ‘The Debt Delusion’, that is until Ms Kelton’s book is published in July?
DMF/MMT does not require higher taxes – the increased volume of taxable transactions created by a ‘real’ (not credit) cash injection of this sort, increases tax revenue itself – not through higher rates of tax.
The way I see it is that Richard is saying that the other operative factors of taxation need come into play other than just revenue – what is being taxed and why? The stuff he talks about in The Joy of Tax.
We tax to alter behaviour for example; we tax to help control inflation; we tax to redistribute wealth through transfer payments by taxing wealth’s income streams which may now be undertaxed – taxing those will address inequality won’t it if the collected money is distributed to other areas of life that impact on equality. There are other areas where tax may be inappropriate or where there is too much emphasis whilst other areas are untaxed or not taxed at all (assets that count as unlearnt income come to mind, such as land).
One thing we are not doing and hopefully agree on is the total bollocks around supposedly collecting taxes to pay off debt (although taxes according to Weeks are used to fund the returns to privately held Government bonds). But these are long term commitments and can planned for.
Let’s not get hung up on the revenue aspect of tax – tax is much more complex than that and we need to acknowledge this more often.
You get it PSR
Tax is a multi-faceted tool
But the one thing we think it does in the UK – which is pay for government – os the thing it definitely does not do here
Unless, you’re the government of Scotland, or Wales, or a local authority….when it does
And that is hard to make clear, I agree
And that’s where changing the narrative and education is so critical. Tax as the means for spending is about the only story we hear, including from people who ought to know better.
Arguably, until and less that narrative starts to change, building a better tax system is going to be pretty tough.
Agreed…