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Mischief managed

August 21, 2015

Let us put away the metaphor of comparing tax knowledge to wizardry for the moment.  What would a functioning democratic tax system look like?  How would we get from where we are now to where we would like to be?

I can’t remember whether I posted this link before, to an article I wrote in The Conversation, drawing on a piece of academic research I published over the summer.  In it I, rather impertinently, offer some advice to Meg Hillier as she takes over from Margaret Hodge as chair of the PAC.  There are two things I think are essential: first, there has to be some way of including those who don’t speak the language of tax in debates about tax.  And, second, we have to form a collective view of the morality of tax: what is and is not acceptable behaviour by businesses, individuals and their advisors.

Which is all very nice, but where would we start?

Well, if I were Meg Hillier I’d start with a concrete example – say the patent box.  (Other tax measures which annoy different people for different reasons are available).  I’d take the TIIN and look at how much it said the measure would cost.  I’d ask whether the costs and benefits had been reviewed yet.  I would ask, specifically, whether the cost for 2014/15 had in fact been £800 million or some other figure, and what economic benefit had been achieved by giving businesses this tax break.  Can the government provide details of factories built, jobs created and protected, research invested in and proving productive, products in the pipeline or other positive results that flow from this decision to allow businesses to save £800m of tax last year?  I’d want to ask what the final compliance costs to business and to HMRC had turned out to be, and then I’d want a new cost benefit analysis prepared to show whether the measure had been worth doing.  And then I’d want to advise the government that either this was an economically sound decision which – although it looks like corporate welfare – was actually doing the job of boosting the economy.  Or that it wasn’t.  So it ought to be sunsetted (or, in plain English, repealed).

Then I’d make it very clear that my committee would be looking systematically at tax changes, at the cost benefit analysis which validated the decision to introduce them, and at the evidence of whether those analyses had been accurate, and recommending repeal of the ones which weren’t working.

The general public can understand this kind of discussion, surely?  The government said it would change the rules in a way which would save businesses £800 million last year.  Was it actually £800 million?  Or more?  Or less?  And what did we, the rest of the country, get as a result?

Move the conversation into this space, using the tools which are already there in the TIIN and the other supporting documents from the introduction of a measure, and we can all look at the government’s decision making.  And, since sunlight remains the best disinfectant, this would also improve its decision making in future.  (Crosses fingers)

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