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Replacement for OTS - Edward Troup report | accountingweb

Should the OTS be replaced and with what?


In his paper for the Institute for Government, tax lawyer Edward Troup concludes the Office of Tax Simplification was set up to fail, as without the power to influence tax policy it could only highlight tax complexity and make little improvement.

4th Apr 2023
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The Office of Tax Simplification (OTS) was set up by Conservative Chancellor George Osborne in 2010 as a political reaction to 10 years of Labour Chancellor Gordon Brown’s extensive tinkering with the tax system. It was abolished in a similar political act by another Conservative Chancellor Kwasi Kwarteng.

Half baked plan

In 2006, while still Shadow Chancellor, Osborne established the Tax Reform Commission chaired by Lord Forsyth, which had a broad aim to improve “the economic efficiency, transparency, simplicity and fairness of the tax system”.

The findings of this commission were fleshed out in a working party report, Making Taxes Simpler, which recommended that there should be a new Joint Parliamentary Select Committee on Taxation. The remit of this committee would be to review tax legislation as part of its passage through Parliament, and to also oversee the new Office of Tax Simplification.

However, when Osborne came to power he took greater control of the new OTS than was envisaged, and made it an office of the Treasury (so not strictly independent), with no external oversight or accountability. The Joint Select Committee on Taxation never materialised, so the OTS had no input into the tax legislative process, and could only focus on the stock not the flow of tax complexity. 

Defining the problem 

From the formation of the OTS there was no agreement around what problem the body should be trying to solve, whether it was:

  • the length of tax legislation
  • the confusing wording of tax law and regulation
  • structural complexity, for example the duplication of income tax and national insurance contributions (NIC) on the same income
  • excessive tax reliefs and exemptions which create confusion, or 
  • continuous meddling with the tax system. 

Over 12 years the OTS published more than 60 reports, but very few of its recommendations were implemented. Its small wins were all in the area of tax administration. Any large-scale policy recommendations it made, such as simplifying the design of inheritance tax, were rejected by Ministers. 

Address the weaknesses

In Edward Troup’s paper on the OTS for the Institute of Government, the former HMRC permanent secretary concludes there are three weaknesses in the tax system that need to be addressed.

1. Evaluating and improving existing tax law 

The tax law rewrite project improved the readability of the Tax Acts it tackled but it was not permitted to change tax policy to simplify as it went along. Although this helped the tiny minority of people who actually read the tax law, the majority of taxpayers rely on HMRC guidance. It is the quality of that guidance and the process of tax administration that determines the “simplicity” of the tax system for the majority of users.

2. Managing the parliamentary process 

There is currently little effective scrutiny of new tax law within Parliament. The House of Commons Finance Bill committee will always vote on Government lines and reject any opposition amendments to draft law, while the House of Lords has no power to alter “money bills”. 

These issues were discussed in the Institute of Government report Better Budgets: making tax policy better, which argued for a post-legislative review of whether tax measures are achieving their objectives at an acceptable cost – a form of cost/benefit analysis. 

3. Improving tax administration 

This is an area where the OTS had some limited successes, such as harmonising definitions and rules across the different employee share schemes.

Troup states the case for a replacement OTS body to focus on how tax legislation is applied and suggest improvements, but not make substantive changes to tax policy. 

The work of this OTS replacement may overlap with the existing role of the Administrative Burdens Advisory Board (ABAB), so Troup recommends that the formation of a new OTS should also review the future role of the ABAB.

Tackling the issues

Troup argues that the weaknesses in the tax system need to be tackled with different approaches through three or four different bodies.

  1. An independent body that focuses on tax administration without changing tax policy. 
  2. A body independent from HMRC that consults on pressure points in the tax administration system but also has the potential to engage on policy areas.
  3. A parliamentary body to advise and scrutinise tax legislation during its passage through Parliament, and comment publicly. 
  4. A national audit office-type body to scrutinise existing tax legislation, including evaluation of the costs and benefits of particular tax policies.

Tasks 1 and 2 above could be undertaken by the same body. 

Replies (7)

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By Hugo Fair
04th Apr 2023 22:56

There's little for any sensible person to quibble about or disagree with in Edward Troup’s excellent paper ... but, however obvious, I can see no sign of the most obvious point:
* Getting clarity on objectives and separating administration & process from policy would be laudable steps in the right direction - but none of it is relevant unless, unlike with Mr Osborne, there is real buy-in at the top to the central concepts.

Objectives should be set on a rolling 3+ year schedule that transcend party politics and elections - and performance against pre-set criteria should be independently measured (and publicly reported) annually.

Thanks (1)
By Nebs
05th Apr 2023 11:16

Set up an Office of Tax Complication. When that inevitably fails we will get the result that everyone wants.

Thanks (3)
By Mike Warburton
05th Apr 2023 11:48

It is one of those sad facts of history that the excellent report by the Tax Reform Commission failed to obtain the recognition that it deserved.
This report was produced in October 2006 after the commission was formed by George Osborne. I was asked to carry out the peer review on the document before publication.
I was present at the London offices of KPMG when the report was presented to the assembled media. All the TV stations and business journalists were in attendance, well over 100 in all, while George Osborne and Chris Gent made presentations.
It was all set to be the lead story in the evening TV news.
Sadly that event coincided with the day Jack Straw wrote an article in the Lancashire Evening Telegraph suggesting that he would like his constituents to remove their face veils at his surgeries.
That became the dominant news story of the week and the publicity for the report was shelved
So it came about that a much needed review to improve our complex tax system became derailed by a nine inch square of material. A wated opportunity

Thanks (1)
By AndyC555
05th Apr 2023 14:57

I suggest that a committee is set up, calls for evidence which it ignores, sits for a few years, holds innumerable meetings and then announces that the Office For Tax Simplification is to be replaced by the Tax Simplification Office.

Thanks (0)
paddle steamer
05th Apr 2023 18:06

Create" The Circumlocution Office", it might even be an improvement.

(Little Dorrit for those semi literates who do not appreciate Charles Dickens)

Thanks (1)
paddle steamer
05th Apr 2023 18:06

Duplicate post deleted-I am suffering from hanging posts today (not to be confused with Hanging Chads(good name for a band))

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By kevinringer
06th Apr 2023 11:58

Tax has become considerably more complex since the OTS was formed eg HICB tax charge, 60-day CGT. And there's plenty more complexity on its way eg basis period reform. There has been very little simplification since the OTS has existed. The OTS hasn't been effective. There's no doubt we need simplification, but it needs to be taken seriously. HMRC and the Government need to understand that as tax becomes more complicated, compliance will reduce. They don't need the OTS to tell them what needs simplifying, they only need to subscribe to Accounting Web and can read our threads for free.

Thanks (0)