Archive for the ‘Budget’ Category

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Tax simplification and better regulation.

January 18, 2017

My PhD-in-progress asks the question whether using better regulation techniques produces tax simplification, a question to which the glib answer is, of course, “it would, if they did”. So in keeping with the Making Tax Policy Better report and the suggestion that this is just the start of a conversation, I have been wondering what progress we might make towards a simpler tax system by making better use of the tools we already have.

Look, for example, at the 51 TIINs published on 5 December to support the draft 2017 Finance Bill.  If you take these and put them into a spreadsheet, listing the three quantifiable fields (exchequer impact, administrative burden and HMRC costs) what do you find?

The measures fall into three crude categories.  Firstly, there are those measures whose overall impact will be greater than £100 million.  Insurance Premium Tax: increase of standard rate, for example, or Abolition of Class 2 National Insurance contributions.  The Chancellor must be allowed to determine how and where he raises the money he needs to fund the expenditure he incurs: decisions about these large measures is political, and we can leave them alone for these purposes.

Secondly there are the measures which have smaller impacts. Personal Tax: changes to bands for ultra-low emission vehicles in company car tax for example will raise some tax, save some admin burden and cost HMRC some money.  Personally if I were an MP debating the Finance Bill I would want these relatively trivial measures to balance out: I would only allow as many measures which increase tax by amounts less than £100m as there were measures which decreased tax or administrative burden by similar amounts.  I suspect if this balance were demanded, the number of such measures might significantly decrease.

Finally there is the category to which I would wish to draw your attention today.  There are fully twenty measures where, so far as I can see, the exchequer effect (the actual tax raised or foregone) is zero, and both the administrative burden on taxpayers and the cost increases or savings for HMRC are either nil or negligible.

The question then is – why the hell are we doing them?  Here is a random selection:

Tobacco Duty: Illicit Trade Protocol – licensing of tobacco manufacturing machinery is a provision to licence tobacco manufacturing machinery.

Co-ownership authorised contractual schemes: reducing tax complexity seems to be a tidying-up of capital allowance rules for operators of co-ownership authorised contractual schemes (CoACS) and their investors, and yet will have a “negligible” impact on the tax they pay or on their administrative costs.

Landfill Tax: definition of taxable disposal will affect approximately 150 specialist disposal firms in England (the tax is or will be devolved in Scotland and Wales) and they will “incur negligible on-going savings through the removal of the requirement to inform HMRC about certain non-taxable activities.”  (HMRC couldn’t have just written them a letter??)

The Treasury and HMRC have an easier ride than other Departments in getting legislation before Parliament: they do not have to bid for space in the legislative programme, and Finance Bills are counted as “money bills” and subject to an easier passage through Parliament as the Lords can only delay rather than amend them.  There is a broad definition of “money bills”  which includes one “which in the opinion of the Speaker of the House of Commons contains only provisions dealing with … the imposition, repeal, alteration, or regulation of taxation…”  Perhaps someone should have a word with John Bercow?  It seems to me that, were he to declare that in his opinion no measure which produces neither tax, administrative burden saving nor government cost saving was a provision regulating taxation… and therefore no Finance Bill containing such measures could be certified as a money bill…

…well, perhaps he might, at a stroke, become tax personality of the year for his services to simplification of the tax system?

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Better

January 17, 2017

Yesterday I was in London for the launch of the joint Chartered Institute of Taxation, Institute for Fiscal Studies, and Institute for Government report on improving tax policymaking.

The report, Better Budgets: Making tax policy better, is here. There are ten suggested steps towards making tax policy better, the first of which – moving from two to one fiscal event each year – has already been adopted.

There was an interesting discussion at the launch including a response from the FST and contributions from Andrew Tyrie from the Treasury Select Committee and Edward Troup from HMRC.  There is even video – fortunately I was sitting out of sight of the cameras so it’s safe to watch!

The report is described as being the start of a conversation and I have some thoughts about that which I’ll put together later this week if I can.  However the interesting part of the discussion yesterday was, for me, the comments Edward Troup made about widening the conversation.  Because there was a feeling of familiarity about the collection of people in the room yesterday: I found I recognised a fair number of people and there was talk about “partnership” – between politicians and tax professionals – in making the Budget in future.  And, yes, I was tweeting that this horrified me, because tax policy is too important to be left to the wizards.  We need to bring the tax muggles on board too.  I was charmed – and immensely pleased and relieved – to find Edward Troup arguing for the inclusion of the muggles too.  Kudos!

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Tax Simplification: A Modest Proposal

September 12, 2016

There’s to be another Autumn Statement at the end of November.  Oh joy.

Here’s an idea.  Stop having an annual Finance Bill, an annual Budget, and an annual Autumn Statement.  Replace them with some kind of “state of the union” style speech telling us how we’re doing (and there goes the Autumn Statement), a Financial Statement – a set of annual accounts and details of routine uprating of allowances etc (and there goes the Budget), and, best of all, a Tax Bill that the Chancellor has to bid for space for alongside all the other bids for Parliamentary time that are out there, so the temptation to mess with the edges is abolished along with the Finance Bill.

Seriously.  Just stop letting Treasury and HMRC policy wonks float their favourite ideas as “budget starters” and do away with the thousand page Finance Bills.  Maybe you’d end up with a Tax Bill about every year anyway… and maybe you wouldn’t.  A moratorium on tax changes till after Brexit?  How about it?

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Tax credits, grandfathering, and Budget speeches

October 19, 2015

I have very little knowledge of the tax credit system but, like many other people, I was disturbed by the suggestion that the government was taking money from the working poor and claiming it would be replaced by the increase in the national minimum wage.  For one thing, the NMW is only £6.70 an hour, applies at even lower rates to apprentices and under 20s, doesn’t apply at all to the self employed, and is poorly enforced and… creatively interpreted, shall I say? – by rapacious employers.

The rebranding of the NMW as a National Living Wage (from April next year) seems to see the age limit rise again to 25 and the amount rise to £7.20 an hour, with the promise it will reach £9 an hour by 2020.  But how can a pay rise in 2020 compensate for a tax credit cut in 2015?

— Wendy Bradley (@wendybradley) October 8, 2015

However as the row about tax credits has been in the news I have been trying to clarify my own thinking about the subject.  Because I think that tax credits should – ultimately – wither on the vine, because I think that they can be a form of corporate welfare, allowing bad employers to pay poverty wages and let the taxpayer pick up the bill.  So I believe that increasing the minimum wage and decreasing tax credits is the right thing to do, and have said so before.

I was all set, in fact, to write a blog entry suggesting that grandfathering might be the “tweak” that politicians were looking for to get themselves out of the political row.  “Grandfathering” being the term used in tax and elsewhere for changing the law but allowing the old law to continue to apply in certain circumstances – for example, reducing the maximum amount you can put into a pension, but allowing people who have already put in more than that to “grandfather” the amount already there.

So – I thought, innocently – if you changed amount of tax credit but grandfathered those already in receipt of tax credits…

Say someone had 100 of wages and 50 of tax credits, you’d grandfather that total figure, so if tax credits went down to 25 you would pay a new claimant 25 but grandfather those already on 50.  But if their wages went up to 125 you would reduce the tax credits to 25, so they would still be on the grandfathered amount – they wouldn’t be a cash loser – but the state’s contribution to the amount would reduce.  And you would hope, of course, that by the end of the parliament they would be getting wages of 200+ and tax credits of zero so the benefits of the supposed economic improvements washed out the need for tax credits and people actually were better off.

Except…

Well, except when I started looking at what George Osborne had actually said in the Budget speech, I found he said this:

This approach means no family sees a cash loss.

Either he was being disingenuous in the Budget speech (it’s written in that dreadful, flat, verb-free politician-speak, so it’s entirely possible that the clear statement I picked out refers only to one, or some, or a few of the multiple changes he’s listing), or he’s changed his mind, or he’s lied to Parliament.

I’m sure there’s a simple explanation, but I’d like to hear someone ask him the question, please.

 

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Rejoice! Only a fifth of government legislation is nonsense! (last year it was a quarter)

August 27, 2014

Great news today from the Regulatory Policy Committee, the independent scrutineers of Impact Assessments.  There has been an improvement in the number of Impact Assessments marked as “fit for purpose”, from 75-77% to 80%.

Yes, that’s right.  Instead of a quarter of the government’s legislation having an evidence base which is not fit for purpose, it’s now only one in five – rejoice!

Let’s take a step back and look at what this means, shall we?  First of all, what is an Impact Assessment?  It’s a document that sets out the reasoning behind the government making a piece of legislation, particularly what the costs and benefits will be, and whether there are any other impacts on, for example, equality, small businesses, carbon emissions and, coming soon (if we are to believe David Cameron)  impacts on families.  They are supposedly a key part of policy development, making sure that the only legislation which sees the light of day is based on robust evidence.  I say “supposedly” because in my experience they are also on occasions produced at the last minute, between the policy being finalised and the announcement seeing the light of day, solely to justify the actions being taken rather than as part of a judicious consideration of alternatives.  At their heart, though, Impact Assessments should show you that there’s a good reason for the government to take the action that it’s taking.

So why would a panel of independent experts find that the ones you were publishing were “not fit for purpose”?  Well, let’s look at a few examples, shall we?  How about the BIS attempt to change the Trades Unions’ register of members regulations, where they managed not to know what they were requiring unions to do, not to give a long enough consultation for the unions to talk to them about it, and not to work out how much it would all cost to implement.  No?

Well then, how about the Cabinet Office trying to consult on the proposal to introduce a register of lobbyists, where they managed to forget to explain why they were proposing the change in the first place, what options were available, whether there were any benefits from what they were proposing, oh, and to base their costs on a register of dental professionals that the RPC thought was “unclear how relevant”!

I’m sorry, but as a former Impact Assessment professional you have to allow me my moment of schadenfreude here.  There is a serious point, however, which is that by the time an Impact Assessment goes to the RPC for its opinion, the responsible Minister will have physically signed the form (Jo Swinson in the case of the TU register) if it’s a final IA, or will have approved the documents for issue if it’s a consultation (Oliver Letwin and Mark Harper for the Lobbyists consultation) so the IA is the place where “the rubber meets the road” – the place where the responsible Minister has to rely on his Civil Service to give him the facts.  You don’t expect him or her personally to investigate whether the numbers should be 42 or 43, but you do expect them to be able to be confident that when they sign a piece of paper saying it’s 42 they’re damned certain there’s an infrastructure in place that gives them assurance they’ve got the right figures in their hands.

It’s embarrassing to the Minister, then, to be found wanting by the RPC.  It’s embarrassing to the government to have its expertise found wanting by a panel it appointed to give it independent scrutiny.

And then sometimes they go ahead and just plain do it anyway.

 a red-rated ‘not-fit-for-purpose’ opinion does not mean the policy is flawed, but that the evidence as presented in the impact assessment is lacking. Decisions on whether to proceed with regulatory proposals following the publication of an RPC opinion are for ministers to take. 

So that’s all right, then.  The impact assessment shows you the rationale and evidence for a piece of regulatory legislation.  Around a fifth of them aren’t fit for purpose.  But then the government can go ahead and do what it likes anyway, regardless of whether there’s any evidence underpinning what it wants to do.

But what of tax changes, I hear you ask?

Hmmm… well, for tax changes the impact assessment is contained in the TIIN, the Tax Information and Impact Note.  How do I know?  Because David Gauke told Parliament it was, so by definition it must be true. But, oddly enough, the New Approach to Tax Policy Making somehow forgot to include external scrutiny of the evidence base for tax changes, so the TIINs don’t go to the RPC.  I’m a lot keener on the idea that they should now that I no longer work on them, of course.  Practical experience tells me it’s enough of a nightmare to get the book of TIINs out of the door in time for the Budget and the autumn statement, let alone having to wrangle them past an external scrutiny panel first.

It would be difficult to do, and inconvenient for the civil servants who have to do it, and expensive for the government (because they’d need shed-loads more people on the RPC and so they’d need to resource them better, not to mention they’d need a big spike in analyst resource to get the TIINs produced in time to get them to the RPC in time to get the Budget out of the door on time so they’d probably have to buy in some resource there, too…)  But those are project management problems, not issues of principle.

It would be difficult in terms of Budget secrecy, too – increase the number of people who know about a package of measures by the number of people needed to give them independent scrutiny and you of course increase the number of opportunities for things to go astray.  Again, though, a practical rather than a principle issue.

Is there a principle behind the lofty insistence that tax is different and special?

No, I don’t have an answer: it’s a genuine question.  Is there?

 

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Women’s Budget Group reports

April 15, 2014

I had the unusual experience this year of watching the Budget at the LSE alongside a group of other feminist academics from around the country.  After we had watched the speech and discussed our first reactions, we split up the Budget according to our various specialisms and went off to do some rather fuller analysis than the insta-punditry that was going on in the papers.

You may have your own views on whether it’s better to hit the reporting cycle while the Budget itself is still news, or to think about it for a bit longer and come up with a reasoned response.  Personally I think you have to do both, but anyway, here’s the advert: the Women’s Budget Group analysis of this year’s Budget can be found here.

(Which bits, if any, were written by me, I leave as an exercise for the class!)

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More competitive, simpler, greener and fairer.

March 20, 2014

After the election, the Tories and the LibDems got together and agreed on a programme of what they would actually do together in government.  On taxes, they agreed their priorities were to make taxes simpler, fairer, greener and more competitive.

So how did yesterday’s Budget move them towards those objectives?

More competitive

Can we just kick this one into touch now please?  According to the back of my envelope, the budget is giving away £920 million next year on measures tagged with “investment and growth” (table 2.1) when, by the World Bank and Bloomberg‘s methodology we’re in the top ten places to do business and well placed in KPMG’s tax competitiveness survey.  So let’s say, yes, we’ve DONE this one, and stop throwing money at it?  Please?

Simpler

Is the Budget going to make taxes any simpler?  Well, pensions and savings maybe – insofar as big chunks of them won’t BE taxed.  But in general?  OOTLAR (the inelegantly named “Overview of Tax, Legislation and Rates” document) has only seven instances of use of the words “simple” or “simpler”:

  • In a reference to the revalorisation of the VAT registration limit, commenting that this and the “simpler” income tax cash basis will help SMEs
  • In talking about the processes banks and building societies already have in place for savings, in claiming the abolition of the starting rate for savers won’t have much of an impact on banks’ processes.
  • In the general measure to let governments give tax exemptions for future sporting events without having to go through the rigmarole of passing specific legislation like they did for the Olympics and the Champions League Finals.
  • In a claim that “Chargeable gains roll-over relief: reinvestment in intangible fixed asset”  (sic: what, only one?) “makes the tax system fairer and simpler by clarifying the current legislation.” Uhuh.
  • Twice in “Modernising the taxation of corporate debt and derivative contracts” where it is claimed that the change to de-grouping rules “supports the Government’s objective of establishing a simpler, more certain and more robust tax system”.  Well, I feel much better for that.  You?
  • In the change to the ISA rules, so you don’t have to decide whether it’s better to have a few quid in a cash ISA or a few more in a stocks and shares one.

I mean, I’ll give you the last one, and I appreciate there’s some stuff coming out of the OTS so I think on the whole I’ll mark this one as “some progress; more to be done”.

Greener

Stop laughing at the back!

The “green” elements of the tax system are mostly around fuel duty, and it’s coming up to an election year, so you couldn’t expect the government to carry on with any of “that green crap”, now, could you?  Section 2.27 et seq in the actual Budget document, under the heading for spending on “Energy and Environment” is just embarrassing: 140 million extra on flood defences, granted, and £200 million on potholes but 2.31, 2.32 and 2.33 are laughable.  The government “welcomes announcements”, “has agreed” someone else will “set out plans for how they will help”, and “welcomes announcements by the vast majority of suppliers…”

No.  Green measures are definitely marked “see me” in red ink.

Fairer 

The thing is, if you’ve got a bit of money, then it actually does seem like a fair budget.  You can earn a bit more and save a bit more without faffing about with tax, you can do more with your pension than buying a bog-standard annuity, and you’re not going to have to pay more for petrol and beer.

But what if you haven’t got a bit of money to start with?  What if you haven’t just not got £15,000 a year to save in an ISA but you haven’t even got £15,000 a year AT ALL?  What if you haven’t got a job, or haven’t got enough hours, or you’re on a zero hours contract or you have a disability or are a carer?

Well you’ll be under the cap.  Because while there’s no limit on the amount of money you can accumulate in profits or rents or inherited wealth, and no-one is going to tax you on the money you make just from having stuff that accumulates in value, not even when you die and pass it on in their silver spoons to your children.

But if you haven’t…

… if you haven’t, well, there’s going to be a fixed amount of money.  Fixed like a granite slab over the heads of the ordinary, poor or unlucky; regardless of how many of us there are, or what changes in circumstances might have pushed us under.  And once you’re under, well, the cap fixes the amount we can share out.  Let’s fight it out amongst themselves.   I warn you not to be ordinary.

Sorry George, but beer and bingo aren’t going to distract us from noticing.  Fairness – must try harder.