Tax simplification - an oxymoron too far?

The PM's latest wheeze - the Office for Tax Simplification - sounds great. But will it work?

Last Updated: 09 Nov 2010

The Cameregg coalition’s assault on the bloated mechanisms of the state continues apace, with today’s news that the latest candidates for a drastic slim-down are the UK’s infamously labyrinthine tax laws.

A new body, the Office for Tax Simplification is to be charged with excising (geddit?) the abundant fat from the tax code, reducing it from its current unwieldy doorstop proportions to a slick, agile and business-friendly pamphlet.

Sounds good to us. Whatever your views on the previous government, there’s little doubt that closing tax loopholes was a subject very close to Gordy’s stony Presbyterian heart, or that he loved nothing more in an idle moment than dashing off a new amendment to fiscal policy.

The sum total of over a decade of such interventions is a tax code so top-heavy and byzantine that even HMRC, the body which is supposed to be in charge, struggles to get to grips with it. So much so that it seems to have given up helping people with their tax returns, and now simply sits back and watches while you struggle to do your own online, then fines you if you get it wrong.

So the OTS – which is to be run pro bono by former PWC tax partner John Whiting and sometime Conservative Treasury minister Michael Jack – can expect a lot of support out there in the business community. Even if the changes don’t amount to paying less tax (and given the state of public finances that seems unlikely), making the whole business simpler will help firms to save admin costs and time at least.

Rather like spending watchdog the OBR, the OTS will be an independent body reporting to government. (Is it just us, or is there a rather delicious irony in the fact that the coalition’s first move in dismantling the state has been the creation of two new state bodies?).

Let’s hope it can avoid the accusations of partisanship which have already dogged the OBR – if it started to look like the OTS was just a figleaf for a clandestine tax-raising agenda, support could very quickly turn to anger. The fact that its first actions will be to review existing tax reliefs and exemptions, ‘particularly those which are rarely used and do not seem to have an obvious public policy justification’ won’t provide all that much comfort to those who suspect it might be.

Employers would probably rather the OTS began by looking at combining income tax with NI, thus relieving firms of the task of having to treat these two – both deductions from individual salaries after all – separately.

But that could prove politically difficult – lumping them both together would in effect create a basic rate of income tax of around 30%, hardly something that Cameron and co would want to put their names to.

The law of unintended consequences is likely to ensure that, as with so many other attempts at legisiative reform, this tax simplification business will prove harder than it looks…

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