Conference on tax simplification

Up betimes on 6 April (or indeed rather earlier than that) and off to a conference on tax simplification. What larks!

And on the taxman’s New Year's Day too. This conference was organised jointly by the IFS Tax Law Review Committee and the Office of Tax Simplification. The TLRC, of course, has lately produced the Mirrlees report on UK taxation: a report which basically illustrates how far away the economist's view of tax is from everybody else's.

I suppose the general reaction to the OTS reports and the government's response has in the main been mild disappointment, flavoured as ever with cynicism – why haven't they done more? But the critics struggle to say what more might have been done, except for the implacable foes of IR35 on the one hand and those who want to burn everything to the ground and start again. Yes, on those terms you can have a simpler tax system (say, scrap everything else and have 50% VAT on everything levied from £1), but it won't meet objectives like fairness – and a tax system has to be fair and perceived to be fair by those who pay.

Gladstone pointed out that the complexity of the tax system (the Schedular system) was linked to the complexity of the different forms of property, and Gladstone did not know about complex financial derivatives. But if you did not tax complex financial derivatives, you would find that a surprising number of people apparently drew their entire income from them.

S.160 of the 1995 Finance Act (repealed in 1998) committed the then Inland Revenue to a programme of simplification and led to a paper called The Path to Tax Simplification. The idea didn't disappear completely, because it led to the Tax Law Rewrite. This recognised that it was not in the end a simplification of underlying complexity, just a recasting of the existing law into a more comprehensible form, but I remember being very impressed by the 2001 Capital Allowances Act and the way it had managed to make things so much more intelligible. The rewritten legislation is often longer, which suggests that merely weighing the yellow book year on year does not provide a measure of either simplicity or complexity. Having said that, the Chancellor claimed that the work of OTS had cleared 100 pages of tax legislation (so he produced 382 new ones in the Finance Bill).

The big question of course concerns the future of income tax and NIC. There have been those who saw a merger on the cards, but no: the Treasury is clear that it picked the words carefully and it is the administration which might be combined. A merger is quite off limits. Working out that has been thrown back to OTS.

There is one area where cynicism is justified. The mantra is “improved administration” (which like “efficiency savings” is always about to be with us). And how is HMRC, under resourced, madly shifting its resources to fight one fire after another, and running efficiently only for large business, going to improve its administration?  I am not knocking HMRC: it simply has not been given the tools to do the job and its managers, not being admirals or air marshals, do not have licence to moan about it.

Graham Aaronson QC talked about the possibility of simplification by GAAR, pointing out that if an effective GAAR could be produced then hundreds of pages of specific anti-avoidance legislation could be thrown away. This might be a way to go, as at the moment we have demands for both simplification and an end to serious avoidance: the calls come from different parts of the forest at the moment but it seems the tide is flowing for both of these. A successful GAAR could therefore help both.

Perhaps, strangely enough, that is the way forward.