Joe Marshall, a researcher at the Institute for Government and co-author of ‘Taxing Times: The Need to Reform the UK Tax System’, says tax reform is long overdue.
Threats to existing tax bases should act as a wake-up call to government. Tax reform is long overdue, and politicians cannot continue to take tax policy for granted.
With the move away from the use of fossil fuels, many people switching from tobacco to vaping, and other similar changes, UK Government revenue from taxes and particularly duties is set to decline radically.
Flaws in the system
Economists and tax practitioners have long lamented the flaws in the UK tax system. Not only is it complex, but it is also increasingly outdated, and beset with perverse incentives that do little to raise revenue or achieve the government’s wider economic objectives.
As technological and behavioural changes continue to undermine existing revenues, the tax system is going to have to adapt. Despite the political challenges, governments of all stripes must acknowledge that only structural reforms can put the tax system on a sustainable footing.
Free lunch with new taxes
It is not only the amount of money raised that matters, but also how it is raised.
Structural tax reform could offer a ‘free lunch’, raising revenues without the need to hike tax rates.
Broadening tax bases while lowering headline rates, removing poorly targeted exemptions and improving the coherence of the system could allow the tax system to raise additional revenue while removing economic distortions that hinder economic growth.
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But delivery comes at high risk
However, the real problem is not identifying what reform is needed, but finding a way to deliver it in practice.
The political risks are high, public understanding of tax is poor and some aspects of tax policy will militate against improvements.
Despite these hurdles, however, previous experience both in the UK and internationally shows that it is possible to overcome these barriers.
Politicians have managed to fend off an adverse public reaction by laying the foundations for change well in advance, packaging reforms together and building broad coalitions.
Thinking carefully about implementation and improving scrutiny of tax policy can also help smooth the change. A healthy dose of pragmatism can also be helpful, as can pursuing reform when the economic and political timing is most favourable.
Read more on tax as part of our #AATPowerUp Tax 2020 campaign for September and October:
- Power up your tax knowledge with AAT
- How MTD for income tax will shape the digital landscape
- How green taxes will shake up life in the UK
- 5 ways HMRC could plug the tax gap
AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.