Axing the Office of Tax Simplification is a mistake

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AAT believes abolishing the Office of Tax Simplification (OTS) is one of a number of missteps in the Chancellor’s Growth Plan that will affect accountancy and the economy.

Last week’s major fiscal event may not have carried the official title of Budget, but to all intents and purposes, it served as a clear statement of action and priority for the new Liz Truss administration.

Aside from the top line measures picked over by political pundits – there are three key areas of Chancellor Kwasi Kwarteng’s plan that are worth highlighting because of their relevance to accountants.

Surprise end for the OTS

First, the Chancellor’s unexpected decision to wind down the Office of Tax Simplification is significant and stood out even in the swathe of tax cuts.

AAT’s position on the OTS  was made clear in response to the recent HM Treasury review consultation. We view it as a successful contributor to the tax reform agenda. In fact, it’s fair to say the number of successful tax simplifications over the past decade would be significantly lower without the OTS’s input.

Equally importantly, the OTS has introduced some stability in a volatile area of regulation.

AAT’s report Time for change, towards a fairer, more efficient tax system argued for stability and a longer-term approach to changing the tax system. The OTS could have been a force for good towards that end.

That’s why we argued for more resources and an enhanced role for the OTS – not just in advising on existing tax structures, but also contributing to the development of new taxes. We have also maintained that the OTS was an ideal forum for independent and dissenting views to be heard alongside the political dialogue of the day, something with added value in these extraordinary times.

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Why the OTS should have remained

The OTS has marshalled broad and deep insights that have significantly contributed to the tax debate.

One of its early reports – reviewing tax reliefs – paved the way for the abolition of dozens of reliefs. The OTS’s work on approved and unapproved share schemes recommended changes that were subsequently accepted and benefitted the UK’s two million employee shareholders.

These are real achievements, and they underscore our belief that the OTS’s service could in fact play a more active role in scrutinising and improving the effectiveness of future tax reform. And at a time when instability appears to be the new normal, the stability offered by the OTS was immensely valuable.

Its abolition, therefore, is both concerning and puzzling.  

Stamp Duty – a dissenting view

The second area of concern is stamp duty. The Chancellor set out his plan for a permanent stamp duty cut, with no tax to be paid on properties up to the value of £250,000. Again this is an issue where we have advocated for a different approach to the current set-up: to switch liability from the buyer to the seller. Doing that would create a fairer, simpler and more effective system.

We have long argued that Stamp Duty can act as a serious barrier to housing mobility. Reforming it would remove first-time buyers from Stamp Duty Liability, reducing their upfront costs and allowing them easier access to the property ladder. It would also take cost out of the property ladder further up, freeing up starter properties for first-time buyers. Effective reform is never simple but that one measure, we believe, would deliver lasting benefit.

How to fund social care

Finally, the issue of health and social care remains urgent. There appears to be unanimity on the need to increase both the levels of investment and the impact of funding; however, how to pay for it remains a thorny topic. The Chancellor has indicated he intends to cancel the Health and Social Care Levy, and has reversed the decision to increase National Insurance. These are decisions that have their merits.

We have been firm in stating that reform is necessary. The commitment to retain funding at the same level is welcome – but we question whether borrowing to fund this is appropriate. There is no magic bullet to such a daunting structural challenge, but if the Levy is to be ditched, there are alternatives – we have suggested reforms to Capital Gains Tax or reductions in Inheritance Tax – that could be considered. Simply shifting the funding burden by borrowing more without tackling the root of the problem only stores up difficulty further down the line.

Ultimately, times change, and politicians are always faced with difficult decisions. That makes it imperative that the voice of the profession is heard in order to provide context, certainty and stability. We invite you to speak up and tell us how these reforms might affect your business and your clients.

Times like these require strong voices and clear thinking to navigate the road ahead.  

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This expert-led virtual training is proving to be as popular as ever. Don’t miss out on hours of expert insight and advice, interactive training and in-depth analysis of all the latest taxation issues.

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Adam Harper is AAT's Director of Professional Standards & Policy..

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