The Conservative Party's "independent" tax commission has now reported.
First of all I saw the reports in the press, and they of course focused on the £21bn (or more) of tax cuts, and the cuts in personal and company taxes and the abolition of IHT. These proposals are of course unimaginable in the context of anything remotely like current levels of government spending, and have been hastily backed away from by the opposition spokesmen. Is this perhaps a cunning plan, so that Dave Cameron and George Osborne can deny this is what they mean, but old style Conservatives can be comforted with the idea that this is what they really really want? Tax cuts will appeal to those who want to roll back the state and leave people to provide for themselves, to buy their health care and education on the market: current opinion polls seem to suggest such people are few in number. Tax cuts will also of course appeal to large businesses who will see big cuts in their corporation tax bills.
The national press is only interested in the big shock headlines, and does not generally understand anything other than cuts or increases in tax rates. The fact is that the small print includes some sensible proposals (and some that may not bear closer examination). None of these are new ideas, and many of them are already under active consideration. While it must be assumed that the commission did not talk to HMRC about what is currently being looked at, given that the staff for this exercise were provided by KPMG, it would be surprising if the commission were not aware of them.
On personal taxation there is a proposal to equalise the basic rate with the savings rate, which is sensible, but equalisation at 20% would be very expensive. And again an increase in personal allowance – and a transferable personal allowance – will be very expensive. It then says "the complex web of tax free employee benefits and allowances should be reviewed and wherever possible abolished". That appears to mean that all employee benefits should be taxed (which is hardly going to be popular, though it might be a simplification), and would presumably include the abolition of approved share schemes, season ticket loans, and the rest.
It suggests that NICs and income tax rules should be aligned. Yes indeed, but this is something that people have been trying to do for years and there is already a committee looking at it. Actually merging tax and NICs looks like a good idea – until you think about pensioners.
On CGT, it suggests a single short term tax which would taper to zero over ten years (not unlike the French system), and that the exemption on death would disappear but IHT would be abolished. This is a proposal which would be exceedingly popular with the very rich, who would benefit immensely. The family home would continue to be exempt. Since it would be tax efficient to put as much money into your home as possible, this should give another unwanted boost to house prices at the top end.
We come then to business taxation. The corporation tax base should be broadened (it says) by replacing the schedular system with one based on accounting profit. Presumably that would include the allowance of depreciation. That is not what I understand by broadening the tax base, but let that pass. There is no reference to the chargeable gains of companies. Much more importantly, there is no indication that the authors of the report are aware that three quarters of the businesses in the UK are unincorporated. There is no reference to them, no indication that they have been considered.
Even in the company field there is no mention of abolishing IR35 or of changing the settlements legislation, which would seem to be the least that conservative voters might expect.
Above all, none of these ideas are new. Where they make sense they are being looked at already.
