Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

Tax policy needs clearer principles: report

15 March 2011
Issue: 4297 / Categories: News
Treasury report recommends more scrutiny

An influential group of MPs has expressed concern that the government has not done enough to set out the principles underlying its approach to tax policy making.

In its latest report, the cross-party Treasury select committee welcomes the Con-Lib coalition’s ambition for a more predictable, stable and simple tax system, but has stressed that tax policy ‘could be and should be better scrutinised’ by Parliament, with the help of government officials and members of the tax profession.

The MPs’ new document, Principles of Tax Policy Report, recommends that tax policy should be fair, support growth and encourage competition, and provide certainty and stability. It must also be practicable – to allow for a person's tax liability to be easy to calculate and straightforward and cheap to collect – and coherent: new provisions ought to complement the existing tax system, not conflict with it.

The select committee notes that a tax system that is theoretically structured to promote growth – that is, which has the basic principles right – will not succeed if businesses are faced with constant change, or if the inefficiency of collection outweighs the benefits. And it suggests that even if they are stable, clearly targeted, and efficiently collected, taxes can reduce growth.

‘The coherence of the system affects the basic principles of both fairness and growth; a system that is riddled with anomalies will not be considered fair and will impair economic performance,’ said Andrew Tyrie, committee chairman. ‘It also matters for the procedural principles of certainty, stability and practicability, since incoherence will make all of these harder to achieve.’

The cross-party report warns that a tax system that is felt to be fundamentally unfair would lose political support quickly. There is a significant amount of consensus on fairness, while differences are often matters of degree and emphasis, say the MPs.

They also note that the scope for tax arbitrage has grown substantially over the past quarter of a century, and it is likely to be increased further by globalisation; a tax system that is not competitive by international standards will not support growth.

The Chartered Institute of Taxation (CIOT) said the committee’s report, published today, as appropriate and welcome. The professional body’s president, Vincent Oratore, has been campaigning for improvements to the process in which tax law is made, with a particular emphasis on the need for better parliamentary scrutiny.

Mr Oratore applauded the proposals on the same subject for being ‘effectively [an] endorsement of the CIOT’s constant campaign for better consultation’, but he warned that the MPs’ suggested annual timetable for a Finance Act – bill drafted in late summer and then published in autumn, followed by the act at the end of the calendar year – ‘does truncate the time available for the vital stages of consulting on the principles of the change’ and ‘cannot be at the expense of proper time to evaluate the design of the measure’.

Issue: 4297 / Categories: News
back to top icon