ICAS: Time to scrap the annual Budget

The annual Budget creates short-termism according to Derek Allen, the director of tax at the Institute of Chartered Accountants of Scotland (ICAS).

A longer-term approach and thinking would promote stability and certainty for taxpayers and businesses.

It would encourage governments to set a clear strategy for the taxation system and avoid the political temptation of an eye-catching announcement every year

If there is only one Budget every few years, changes to the taxation system outside that process may also attract a better level of scrutiny from MPs. At present, it is not realistic to expect many MPs to look in detail at 600 plus pages of legislation.

Any interim amendments to the tax system should be regarded as extraordinary in response to exceptional circumstances.

UK tax law is too complex and is incompatible with a Self Assessment regime where, in theory, taxpayers are expected to understand tax legislation.

In addition the annual Budget and Autumn Statement are far too politicised a process and has led to an ever growing volume of tax legislation. The aggregate effect is that responsible citizens find compliance with our tax laws confusing and expensive, and businesses and their advisers struggle to cope with the amount of red tape.

The elements of the ritual that tend to cause the most fuss for accountants is quite simply the time needed to be spent on keeping on top of endless changes in law and guidance.

The speech delivered by the Chancellor is merely the tip of the iceberg as the related papers to the budget generally run to encyclopaedic length.

Changes to proposals that have dominated coverage of the aftermath of the March Budget include the so-called ‘pasty tax’, relating to VAT charged on savoury snacks; proposals for VAT charged on static caravans; the exemption of charitable donations from a £50,000 tax relief cap and the freezing of a planned increase in fuel duty until the start of next year.

Some parties are still concerned over the amount of ‘u-turns’ taken since the March Budget, while others say it is a sign of a government that consults and listens.

In his Budget statement, the Chancellor said Britain would earn its way “With a simpler tax system, where ordinary taxpayers understand what they are being asked to pay.”  The amount of change and tinkering that has taken place over the last few months just creates further uncertainty. It is difficult to square this call for simplicity with the 696-page amended Finance Bill [enacted on 17 July].

Governments must also recognise that there may well be unintended consequences of tax change. Groups not previously affected may find this to be the case as result of changes introduced. Government should not necessarily react to every pressure group.

The UK tax law is too complex and lacks stability. If government is serious about promoting a stable tax regime then annual change to the UK’s fiscal arrangements should be avoided unless it is vital for economic growth.

Comments
John Stokdyk's picture

You've got my vote

John Stokdyk | | Permalink

A nice summary of the arguments, Derek. Many thanks. You have the support of the AccountingWEB team. Even if we acknowledge that some of our antagonism to the ritual is based on the futility and stress of trying to cope with all the Budget paperwork in a very short time, the parliamentary conventions that have grown up around the Budget are ludicrous and damaging.

I understand that the rigmarole is based on the requirement for the Finance Act to be given royal assent by 5 August or, if later, four months after the date of the initial Commons budget resolutions. (Though the CIOT helpfully pointed out recently that Finance Act 2011 amended the Provisional Collection of Taxes Act 1968 so that Budget resolutions now apply for a maximum of seven months).

I remember questioning the arrangements in 2002 when Gordon Brown's 10-day-old daughter died in January, delaying the presentation of the Budget until 17 April - 11 days after the beginning of the tax year. They were very sad extenuating circumstances, but the dependence of the country's financial infrastructure on such a situation seemed an anachronism too far.

The points on short-termism and political point-scoring are well made too. The coalition government has committed itself to a new approach to tax-making policy that involves much more rigorous consultation. Some of the policy proposals may not be popular, but by giving them a public airing first rather than springing them on an unsuspecting nation at the Budget, George Osborne is heading in the right direction. The hammering many of his last minute surprises (the "pasty tax" and static caravan VAT increases, tax relief cap, and so on) should encourage him to stick to his roadmap.

The logic of a more strategic approach to government financial management and taxation is compelling, but as many have questioned before, is there the political will in Westminster to do something about it?

There's a debate on tax simplification with John Whiting, Robert Maas and Rebecca Benneyworth at Chartered Accountants Hall in London tonight. I'll ask for their views on the ICAS proposal.

Old Greying Accountant's picture

How about ....

Old Greying Acc... | | Permalink

... fixed term parliaments, and all contending parties have to present their full term budget prior to polling day?

Not Realistic

trevv69 | | Permalink

Old Greying Accountant wrote:

... fixed term parliaments, and all contending parties have to present their full term budget prior to polling day?

Well, of course we now do have fixed term parliaments, thanks to this Government's Fixed Term Parliaments Act.

But the first rule of politics is "Events, dear boy, events", as Harold MacMillan supposedly said. Bad weather, earthquakes, and man-made events beyond a British government's control (particularly overseas) all are capable of throwing an economy into turmoil and may require a fiscal response.

Take the fuel duty freeze. The last government set the rules for how these rises should take place - precisely the sort of forward planning that is called for here. And yet, I only know of the most ardent eco-warriors thinking these plans should have gone ahead in the face of oil prices being around double the price they were before.

To suggest a government could set its plans in advance for the full five years of the new fixed term is fine in principle (and an incoming government often does set out the principles that it will apply and its direction of travel), but unrealistic in practice.

Old Greying Accountant's picture

'Tis a terrible thing ...

Old Greying Acc... | | Permalink

... to be plagued with sardonic wit!

I don't think anyone understands me, let alone the wife!!

John Stokdyk's picture

Qualified support from Wyman symposium speakers

John Stokdyk | | Permalink

 

As promised, I asked the panel at the ICAEW Tax Faculty debate on tax simplification on Wednesday night what they thought of the ICAS proposal. Here’s what they said:

Robert Maas (Blackstone Franks): "I would agree because the Budget has lost its impact under George Osborne. Exposing ideas in advance is good - I’d like to see legislation earlier."

John Whiting (CIOT & OTS tax policy director): "The Budget cycle is necessary. Occasionally they need to talk about other things, like the economic cycle or dealing with the deficit.

"Used properly, the policy consultation and development cycle can be very effective."

David Heaton (Tax Faculty & Baker Tilly): "I would go with a longer cycle and start the process on the basis that legislation is exposed for much longer so the consultation can be telescoped. Because of time pressure, some feedback is ignored at the moment. If the same feedback was used and explored, tax policy would benefit."

John Whiting: "I’d like to take slightly longer to get the Finance Bill through. At the end of the day that’s one of the biggest constraints."

It makes a lot of sense

Alf | | Permalink

The suggestion to scrap the annual budget and merely react if and when events occur that require a governmental reaction makes a lot of sense. I suspect we would see fewer changes in legislation as the government would not sit down each year with a mindset of "what shall we change now".

Things like personal allowances etc could simply be adjusted automtaically each year eg by linking to, say, RPI

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