The tax burden in this country does not just consist of a big chunk of our money being handed over to the state. The misery is increased by the time taken up in making all the calculations. That process is also a significant item of public spending. HMRC’s recent annual accounts show the Revenue has a budget of £4.8bn and employs almost 62,000 staff, more than the number of GPs and double the number of sailors in the Royal Navy.
The true figure for our army of tax collectors is actually even higher when you factor in the thousands working in local authorities administering Council Tax and Business Rates. Then we have all those industry levies (which look and feel much like taxes) which are imposed by an array of Quangos.
All of which is a roundabout way of saying that tax simplification would not only ease the administrative burden on individuals and businesses, but allow some much needed savings in public spending. It was heartening to hear the Chancellor of the Exchequer express support for the general idea of tax simplification in the Budget last month – and to see him start a bit of rationalisation when it comes to alcohol taxes (though we still have some way to go even on that front).
But overall the situation gets worse every year. To quote the Chartered Institute of Taxation:
‘Since the turn of the century governments of all political complexions have been adding new taxes to the statute book at an average of one a year. This is a one way conveyor belt – they have not got rid of any non-temporary taxes this century. We should not just keep adding to the number of taxes the UK has. The Chancellor referred eight times in his speech to tax simplification but we could be set for six new taxes in the space of a couple of years – as many as in the previous eight years. Adding six new taxes to the tax code is not simplification.’
Back in 2010, new Chancellor George Osborne complained about the expansion of the tax code under Labour. ‘The tax system has become hugely complex over the last 13 years. Since 1997, the tax legislation handbook has more than doubled in length. It is now over 11,000 pages long. This spider-web of tax rules is holding back people who want to set up businesses.’
By the time he departed as Chancellor the Tax Code had almost doubled in length again to 21,000 pages. The Centre for Policy Studies calculated that there were 12 times as many words in the UK tax code as in the King James Bible. What of the Philip Hammond era? Perhaps ‘Spreadsheet Phil’ would have got to grips with this important task? Sadly not. The Taxpayers’ Alliance informs me that Tolley’s Tax Guide now weighs in at 25,412 pages.
At least Osborne had the excuse that he was only obeying orders. Great swathes of new tax regulation were imposed each year by the European Union. It is only this year that those obligations have been lifted. Yet we are being slow to take up the opportunities – which we had years to prepare for.
In any case, if it was all the EU’s fault then why is tax compliance in the UK more onerous than in some member states. The World Bank and PWC have done some calculations on the number of hours it takes a small firm to submit its tax returns. They put it at 114 for the UK – 81.5 for Ireland and 50 for Estonia.
Perhaps this is why tax simplification is one of the areas Dominic Cummings has suggested Labour should prioritise if they want to present a winning pitch to the electorate. In a recent blog which is, as far as I can make out, entirely sincere, Boris Johnson’s former aide says the Opposition should offer ‘meaningful ideas about how to remove tax distortions that disincentive long-term investment and helping small businesses for whom tax bureaucracy is a nightmare.’ The prize, Cummings goes on to say, is that ‘you will have Tory voters agreeing with your priorities, never mind swing voters’.
It would be a good theme for Labour. Tax avoidance thrives amidst the thickets of complexity. Big firms and wealthy individuals can afford to pay the high fees that really ingenious accountants demand. For the self-employed, the small firms, the retired with some savings, it is rather more onerous. Sir Keir Starmer could show sensitivity towards these groups without alienating his existing supporters. Is anyone really in favour of more complexity and bureaucracy than required? Would anyone object if the Government was able to employ more teachers and fewer tax collectors?
The difficulty is that the Budget will always offer a temptation for gimmicks and quick fixes – special exemption for this, a tough penalty for that. An easy route to favourable coverage. By contrast, stripping away tax regulation is detailed work that is unlikely to prove glamorous enough to grip the attention of the media. Osborne established an Office of Tax Simplification. It is still going. But the extent of its failure is all too apparent. The saga is worthy of a Yes Minister episode.
Yet there is nothing inevitable about all this. Rishi Sunak might feel it prudent to wait a year or two before cutting taxes. If so then simplifying would be a useful way for him to pass the time. He could set some genuinely radical requirements for his officials. Getting the number of pages in the Tax Code back down to the 5,000 pages we had in 1997 would be a start. He could insist that a self-employed businessman in Devon would not have to spend any more hours filling in a tax return than his equivalent in Dublin. Or for a shopkeeper in Teesside to one in Tallinn. Sunak could add that if his officials found this all too challenging he would bring in a team of accountants to do it for them. There would be no difficulty finding recruits all too well aware of the duplications and contradictions that litter our tax code. All those onerous requirements which result in little or no revenue.
Nigel Lawson used to abolish an entire tax each year when he was Chancellor. That is the ultimate simplification. Even if he can’t manage that, Sunak could do a lot to unshackle us by cutting Tolley’s printing bill. Just a few thousand pages would be a welcome start.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.