UK tax policy too short-term and politicised, say think tanks

UK Chancellor of the Exchequer, Philip Hammond

Experts have called for a more straightforward tax system in the UK, warning against the “unfettered power” built up by HM Treasury over the past 20 years.

In an open letter, think tanks the Institute for Government (IfG), the Institute for Fiscal Studies and the Chartered Institute of Taxation have called on new chancellor Philip Hammond to prevent autumn statements from becoming second budgets, and to adopt a more long-term approach to tax policymaking.

Jill Rutter, programme director at the IfG, told Global Government Forum that, although tax is a complex policy area that has stumped countries all over the world, the UK’s short-termist, party political approach has rendered its system one of the most complex.

“One of the things about the UK system is the Treasury is incredibly powerful. Since 1997 we’ve also had extremely political chancellors who’ve used that power of the Treasury to extend over quite a wide range of issues,” she said.

“In countries with coalitions you appear to get less tax activism because chancellors don’t have the same sort of unfettered power.”

Rutter pointed to New Zealand as an example of a country that changed its tax system for the better: in the 1980s it switched to a simpler system, with low rates and virtually no tax reliefs. Almost all tax policy now goes through a long process of external consultation before it is agreed upon.

“The notion that this is a big political playground, or political sandpit the chancellor can play in, is much less so in the New Zealand system,” she said.

Other recommendations put forward in the letter include establishing clear priorities now to guide tax policy through the rest of this parliament, using external reviews to open up public debate about the system, and starting the consultation process for tax changes at an earlier stage.

“Other countries are much more willing to open up conversations about tax,” said Rutter, citing Australia and Sweden as two countries that commission external reviews of their tax systems. Canada is also currently conducting a review of tax expenditures, she said.

The current UK system has led to “significant forced U-turns post-Budget, at considerable political cost”, says the joint letter to Hammond. Just last year, former UK chancellor George Osborne had to backpedal on his plan to cut tax credits for low income families.

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