National debt is above £2 trillion for the first time in history, and it’s growing as the country continues to fund much of the economic impact of coronavirus (Covid-19). We all know this can’t go on indefinitely, but how will it be paid for?
In a comprehensive response to the current Treasury Select Committee inquiry Tax after Coronavirus, AAT has proposed several carefully considered recommendations for change, making an important contribution to the debate as to exactly how this enormous and unprecedented challenge can be met. Not all recommendations will be to everyone’s liking but the submission recognises the immensely difficult financial position the country is in and the need for action that may previously have been considered too drastic.
Recommendations include scrapping exemptions and reliefs for Capital Gains Tax, Inheritance Tax and VAT and for a small and temporary increase in the basic rate of income tax when it is fiscally prudent to do so – probably not until April 2022 at the earliest.
We have also suggested grasping the prickly nettle of National Insurance Contributions (NICs) by proposing an end to the NICs exemption for those in receipt of the state pension (1.2m pensioners are in employment and paying no NICs), which would raise over £1.5bn annually.
Similarly, with regard to the so-called “three-person problem” AAT firmly believes that if someone is undertaking similar, sometimes identical work, then whether that person is employed, self-employed or employed through a company, there is no reason why each of those individuals should not pay the same rate of tax and NICs.
Despite the obvious need to generate revenue, the response we submitted also urges the Government to resist the increasing demands for a windfall tax, a populist measure that punishes success and will inevitably be passed on to consumers.
Likewise, the vociferous minority calling for a new wealth tax should be ignored because it is unlikely to raise much money in the suggested format and could deter much needed investment in the UK – and wealth could be better taxed through reformed CGT and IHT as AAT has previously highlighted.
Although understanding and appreciating the likely controversy and the sensitivities of pensioners, AAT has also proposed scrapping the pensions triple lock and replacing it with a, “more predictable, established and reputable measure…” – the Consumer Price Index (CPI) measure of inflation. As the AAT submission explains, this would, “…continue to provide annual increases that ensure older people are able to live with dignity and the respect they rightly deserve whilst simultaneously saving £6bn for British taxpayers by 2024-25.”
As well as changes to existing taxes, AAT recommends the Treasury explore the viability of introducing a new tax on data control and usage. Often described as the new gold or the new oil, data is certainly not taxed as such. We are likely to establish a working group of external specialists to look more closely at this idea in 2021.
We have also recognised that our own sector should not be immune to change, again calling for Government to regulate the third of accountants and tax advisers who are currently unregulated with a view to reducing tax evasion, money laundering, unethical behaviour and simple mistakes that cost both individual taxpayers and businesses money. The simplest and most effective way of doing this would be to require anyone giving paid for tax and accountancy services to be a member of a relevant professional body.
The AAT submission should help to kickstart a debate around how best to tackle these enormous financial pressures but there remains much more to be said and done in this vital area of tax policy.
Phil Hall is AAT's Head of Public Affairs and Public Policy.