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Fantasy Budget: Simplify to save our tax system


While there is uncertainty around what the Spring Budget will include, it does present the Chancellor with the opportunity to set the wheels in motion to simplify the tax system.

29th Feb 2024
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For the past 18 months, tax policy has rarely been out of the headlines. With the Spring Budget looming and a general election on the horizon, debate over whether we could see tax changes and what these could be continues to run rife. 

The reality is that, if the Conservative Party plans to implement any tax changes – they would do so on 6 March. But the tax system has undergone a significant amount of upheaval over the past few years, and multiple U-turns in the wake of Kwasi Kwarteng’s mini-Budget in 2022 have left it hanging by a thread. 

Causing further upheaval by abolishing or making significant cuts to any taxes could see the system buckle under the pressure. With this in mind, if there is one thing I would like to see this spring, it is for simplification to be placed at the top of the tax agenda. 

Hold off with radical changes

Amid ongoing calls for tax reform, the key priority for many seems to be inheritance tax (IHT). While a tax that has always been viewed as unfair and punitive, the reality is that IHT brings in over £8bn a year to the Treasury’s coffers. If it is to be abolished, changes will have to be made to other taxes to replace this stream of income.

But now is not the time for significant reform – the UK economy fell into a recession at the end of last year, and government gross debt is approximately 100% of gross domestic product. If we’ve learnt anything from the disastrous upheaval of 2022, it is that the government should avoid any radical proposals at this point. 

In fact, if we have learnt anything from the past two years, it is that confusion does not breed confidence. The drastic tax changes we saw, and their subsequent reversals, made planning incredibly difficult for businesses and individuals alike, and for tax advisers it wasn’t much easier – I had to give one of my clients different advice three times in a single month.

We are at a point where the tax system is buckling under its own weight, and any further upheaval will, frankly, be more trouble than it is worth. If anything, we need to ensure simplicity is right at the heart of any future changes to our tax system – when the time is right to make them.

End the big freeze

While radical upheaval will do more harm than good – we also have to recognise the impact of the current tax burden on the wider population, which is currently at its highest level since the Second World War. 

The stealth tax raids that have been in play since 2021 have brought in billions for the Treasury. With personal tax thresholds frozen in place – and inflation having skyrocketed since – the costs have been quickly adding up for all taxpayers. Although originally forecast to bring in an additional £8bn of income a year once fully rolled out, rising inflation now means that the big freeze is expected to raise £40bn a year from 2027/28. 

Stealth taxes affect any and all taxpayers, and in a cost-of-living crisis, the burden for many is becoming too great. While we are in difficult times, and would have to approach any changes with care, we must also do what we can to lessen this burden on the taxpayer. 

By ending the big freeze to income tax, inheritance tax and capital gains tax, and allowing the thresholds to start to increase in line with inflation from this point on, we could offer those feeling the pressure a light at the end of the tunnel – without adding unnecessary complexity to the tax system.

Bring back the OTS

Like many of us in the sector, I found the abolition of the Office for Tax Simplification (OTS) a disappointing development. As an arm’s-length body, the OTS carried out detailed and valuable work since it was set up in 2010, offering insightful recommendations on how various aspects of the tax system could be made as simple and efficient as possible. 

Although the intention behind this has been to embed simplification into the heart of the government, we are yet to see any action on this to date. Additionally, as an independent body, the OTS helped bridge the gap between businesses, tax advisers, taxpayers and the government, allowing free and open discussion on the impact of often complex tax rules.

In my view, reinstating the OTS – or introducing a body that provides the same function – will be key in driving forward a simplified tax system in future. Not only would it ensure that simplicity is at the core of any tax policy, but it would also take on board soundings from those closest to the issue.

The year ahead is set to be full of uncertainty for many of us in the tax industry, as each political party prepares its manifesto for the general election. While it is unclear exactly what this year’s Spring Budget will include, it does present the Chancellor with the opportunity to set the wheels in motion to simplify the system. After all, the potential impact of any unnecessary upheaval could prove to be costly – as we saw back in 2022.

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