Time for change: AAT’s initiative for a fairer, better tax system

In the aftermath of the Spring Statement, AAT is calling for a national debate to create a better tax system.

The Spring Statement has created many reactions. Some will applaud Rishi Sunak for springing a few surprises with very little for manoeuvre.

But others feel they have watched a conjuring trick showing headline tax cuts against the reality that seven out of eight will pay more tax by the end of this Parliament.

Others are ruing the missed opportunity to introduce a windfall tax on oil and gas companies, or are realising that the eye-catching five pence off fuel duty will benefit the top 20% of households and reduce the incentive to buy electric vehicles.

There was also the hopeful announcement of a Tax Plan for the life of this Parliament, which turned out to be mostly a repackaging of the Chancellor’s statement.

Time for change

Against this backdrop, AAT is calling for a national debate to make the tax system fairer and more efficient. We have published a new report: Time for change: towards a fairer more efficient tax system.

The report brings together an array of experts spanning the political and social spectrum. Together they propose an array of ideas ranging from overhauling corporation and inheritance taxes to scrapping council tax and taxing carbon and meat consumption.

• A windfall tax
• Simplifying taxes
• A carbon wealth tax/green taxes
• Social offsetting
• A strategic approach
• Inheritance tax
• Corporation and income tax
• Environment
• Property tax reforms

It’s a broad range of concepts, but they share one thing in common: they are offered as ideas to make the tax system more effective and more equitable. With public finances stretched as tight as piano strings by the pandemic, and the cost of living now spiralling due to the energy crisis and the war in Ukraine, it’s never been more critical to achieve both goals.  

Through Time for change AAT wants to begin a national dialogue on the best way forward. But it also has a message of its own – a fairer and better system will only be fully achieved by taking a long-term approach to taxation.

In the spirit of debate, we want to know what others think, so we invite our members to tell us through our online survey.

A windfall tax

Could taxing oil and gas companies help with the energy crisis?

The UK is facing its worst energy crisis – and biggest drop in living standards – in decades. A spike in gas prices has resulted in a rise in energy bills for households, but also record profits for North Sea oil and gas giants. Shell’s annual profit quadrupled to $20bn in the last year, while BP’s chief executive described the market as a “cash machine”.

Earlier this year Labour proposed a windfall tax on additional profits made by oil and gas companies, with the revenues helping reduce energy bills for low-income consumers. In Time for change Pat McFadden MP, Labour’s shadow chief secretary to the Treasury, argues such a windfall tax would “prove a vital lifejacket for millions of hardworking families who are struggling to pay their bills.”

Simplifying taxes

How to make the byzantine world of UK tax easier to understand

The UK tax code is a notoriously abstruse beast. Twelve times longer than the King James Bible, it’s 50 times the size of Hong Kong’s tax code and has trebled in length in the last 25 years.

These facts are provided in Time for change by Mark Littlewood, director-general at the Institute of Economic Affairs thinktank, as part of his overall argument that the “bloated and unfair” UK tax system results in loopholes that encourage “people and businesses to avoid paying their ‘fair share’.”

To simplify things, Littlewood suggests many things, including:

• Pooling taxes together, such as air passenger duty, the aggregates levy and renewables obligations into either an improved emissions trading scheme or a carbon tax.
• The eradication of business rates, council tax, the community infrastructure levy and other property taxes. Instead, there could be a single tax on land value.

A lack of tax literacy from the UK public doesn’t help matters. As Littlewood puts it, “For many Britons,

paying tax is something that happens without requiring any real engagement from them. When they receive a payslip at the end of the month they see the amount they have paid to HMRC, but they never really ‘own’ that money. It never enters their bank account.”

To remedy this, he suggests ditching PAYE altogether, with all Britons paying their taxes directly to HMRC. Controversially, this would mean everyone would complete a simple annual tax return.But it would be a price worth paying. Littlewood believes these measures “would force people to actually see the money going out of their account at the end of the tax year,” and would boost accountability.

Environment

Could carbon and food taxes turn us from meat?

The idea of a food levy, particularly a sugar tax to improve eating habits, has been proposed by successive governments since David Cameron. But it hasn’t progressed any further, mainly because it “hits those on lower incomes but may do nothing to alter the conduct of the well-off”, as Conservative MP Sir John Redwood points out in Time for change.

Meanwhile, a much-mooted ‘meat tax’ which could tackle the environmental impact of meat production (animal agriculture creates nearly 15% of global greenhouse gas emissions) has been dismissed by experts due to its unpopularity with the public, job losses and the risk of black market meat.

Perhaps a more effective tax solution is the one outlined by Richard McIlwain, chief executive of the Vegetarian Society in Time for change. He suggests a two-pronged approach: a) a consumer-focused carbon tax (which could be priced to reduce consumption of meat and other high-carbon products) and b) a food tax targeted at the public’s poor diets and consumption of unhealthy foods.

Corporation and income tax

Corporation tax should go down to 15% while income tax should be abolished for half of households

Last year’s historic OECD tax deal saw a minimum corporate tax rate of 15% adopted by nearly 140 countries across the world, which it’s hoped would force multinationals to pay a fairer share of tax. In Time for change, Sir John Redwood proposes the UK also drops its corporate tax rate to 15%, down from its current level of 19%.

Time for change also includes some significant proposals for income tax. Stephen Herring, member of the Taxpayers’ Alliance and AAT’s Tax Panel suggests introducing a fixed-rate income tax of 20% for any earnings made from private pensions, removing the £50,000 higher income tax charge (which he argues creates an “unnecessary income tax cliff edge”) and freezing the £150,000 threshold for the 45% income tax rate.

Meanwhile, Tom Burgess, Director at Taxpayers Against Poverty suggests that income tax should be abolished for half of households replaced by a tax on the assets on the wealthiest 1% of the population which, he says, “would make no difference to their lifestyle.”

Inheritance tax

 Is it time for the unpopular tax to finally be retired? 

Inheritance tax is the UK’s most hated tax, according to a study by Hargreaves Lansdown last year. Despite only 4% of the population’s estates paying the death levy, the tax is reviled because it’s believed rich families avoid paying it by exploiting loopholes and giving assets away.

In recent years, AAT has suggested making the tax more relatable to the public by halving the current headline rate from 40% to 20%,

Tax expert Stephen Herring goes one step further. In Time for change, he suggests scrapping inheritance tax altogether, which could be financed “by removing the Capital Gains Tax free uplift to probate value for beneficiaries.”

The idea would face strong resistance from the government: inheritance tax currently lines Treasury coffers to the tune of £5.2bn a year.

Property tax reforms

Proportional property tax and commercial landowner levy tax

Council tax has long been a bête noire for tax experts: its disparities are laid bare by the fact the owner of a £15m Westminster mansion (residents only pay 0.06% council tax as proportion of property value) could pay less than a pensioner in a Hartlepool bungalow (where it’s 1.13%).

It’s time for the Government to scrap council tax altogether (along with stamp duty) argues Andrew Dixon, founder/chairman of the Fairer Share campaign.

Instead, people should pay an annual tax proportionate to the value of their property, charged at 0.48%. This ‘proportional property tax’ could result in an average saving of £435 a year, with 19m households better off. Dixon also proposes that owners of second, foreign-owned and empty homes should pay an additional surcharge, which could raise £4.5bn.

Elsewhere in Time for change, Sarah Olney MP, the Liberal Democrat spokesperson for business, energy & industrial strategy (BEIS) advocates abolishing business rates, replacing them with a ‘commercial landowner levy’. This tax would be paid by landlords and be calculated by the land value of commercial sites, which could help revive the high street and town centres.

A strategic approach

AAT calls for long-term stability

All good accountants realise the importance of keeping abreast of the latest tax legislation. But even the most on-the-ball financial adviser would have trouble deciphering the avalanche of changes to the tax system in recent years: whether it’s the raft of new taxes (Apprenticeship Levy, Soft Drinks Levy etc), planned changes to national insurance and corporation tax, plus (of course) Making Tax Digital.

It’s causing much confusion in the accounting industry, says AAT CEO Sarah Beale in Time for change.

She references AAT’s ongoing recommendation that the Government should publish a robust tax strategy; something Scotland has already done with its Framework for Tax, which Kate Forbes MSP also discusses, Scotland’s cabinet secretary for finance and economy, in Time for change.

Introducing changes in a strategic way over a longer period would allow Government to consult stakeholders and run pilot schemes.

AAT also argues for a period of three-five years of no tax changes, a hiatus Beale believes “would benefit businesses large and small as well as their accountants, and it would also greatly benefit an increasingly stretched HMRC.”

Social offsetting

Rewarding socially responsible companies with tax breaks

Social offsetting is an incentivising model which rewards tax breaks to businesses who behave responsibly, such as paying a real living wage to employees, offering flexible hours, making pledges to help tackle the climate crisis, and not engaging in tax avoidance by shifting profits overseas.

Tom Burgess, Director of Taxpayers Against Poverty sketches how social offsetting could work in Time for change, envisioning that “we could see more companies making a positive contribution to all of society, not just for the privileged few.”

A carbon wealth tax/green taxes

The fight against climate breakdown might not be won until we start taxing the super-rich

There’s an inextricable link between wealth and polluting behaviour: the richest 1% of the world’s population produce around 17% of global greenhouse gas emissions.

The super-rich should pay to fix the climate crisis through a carbon wealth tax, argues Tom Peters in Time for change, head of advocacy at the Tax Justice UK campaign group. Many of these billionaires have accumulated their fortunes through carbon-intensive means and spend it on carbon-intensive consumption, such as private jets.

The profits could be ploughed into the national transition to a green economy which Peters predicts “generating a virtuous circle of productive green investment.”

Tell us what you think

The Spring Statement is not the final word on tax this year. The Autumn Budget is another opportunity. AAT wants to hear what members think of the ideas advanced in Time for change, including our own call for a strategic approach. Please contribute to the debate now by completing our online questionnaire about the proposals.

Christian Koch is an award-winning journalist/editor who has written for the Evening Standard, Sunday Times, Guardian, Telegraph, The Independent, Q, The Face and Metro. He's also written about business for Accounting Technician, 20 and Director, where he is contributing editor.