”…Our tax system has become one of the most complex in the world… We can only make a sustainable economic recovery if we send a clear signal that Britain is open for business again. That means… lowering corporate tax rates, reducing the regulatory burden, and supporting innovation and sustainable development… The Conservative Party believes in lower and simpler taxation (1)… We will restore the tax system’s reputation for simplicity, stability and predictability (2)… We will increase the proportion of tax revenues accounted for by environmental taxes, ensuring that any additional revenues from new green taxes that are principally designed as an environmental measure to change behaviour are used to reduce the burden of taxation elsewhere (3)… Instead of holding businesses back by imposing unfair retrospective stealth taxes (4), we will unleash the power of green enterprise and promote resource efficiency (5) to generate thousands of green jobs.”
This chunk of the Conservative Manifesto from 2010 bears re-reading – I’ve added some emphases and some markers so you can refer back when I discuss those points below. Conservatives do believe in lower taxes, in simpler taxes and in fair taxes (point 1 above). But tax is also hugely political – who pays, how much, and what it’s spent on.
The really really big thing about politics at the moment is confidence. Confidence is what is needed in the economy, and it’s what is needed in a different way in politicians. There are various things that politicians can do about both – and one of them is sticking to what they promised (point 2 above). Yes of course it’s a coalition and of course there have to be compromises.
But one of the big problems about the Budget (apart from the cut in the 50p rate to 45p – which looked dreadful and isn’t even a very meaningful cut – the worst of all worlds) was the number of ’refinements’ which had to be made afterwards. In most cases, the political hit was enormous AND then they u-turned which meant they took the hit and then didn’t even get the revenue in (worst of all worlds again).
Today, George Osborne has announced that there will be tax-breaks on the new tax (point 4 above) he brought in in 2011 on North Sea oil and gas exploration which was used to fund the freeze in petrol duty last year (point 3 above). On the one hand, these incentives should encourage better exploitation of existing fields – rather like encouraging building on brownfield land (point 5 above). So kind of a good thing. And, to be fair, it was a (sort of) environmental tax rise that then reduced the cost of living for millions of people. But on the other hand, and actually probably more importantly in the long-term, it introduces yet more complexity.
The argument he used – or should have done, anyway – for the pasty tax, the static caravan tax, the granny tax – was all about simplifying and streamlining. The big one – the so-called granny tax, which is in fact about raising everyone else’s allowances until they meet the age-related allowance – IS a big simplifying and fairness introducing measure, in spades.
One of the things that really riles people is an absence of fairness in all sorts of things. People don’t, I don’t think, mind contributing as long as they feel that others are too. But one of the things that really gets to them is that normal people in normal jobs just have to pay their PAYE and lump it, while companies and the very rich get to use all sorts of accounting techniques to reduce their burden. Spending money on a good accountant is almost always worth it. I’ve written before about why I think that the Chancellor should have stuck to his guns on the charity tax idea (people should indeed pay up what they owe before they start being able to pick and choose what to spend their money on). Once again, though, the problem is that these exemptions and incentives and so on exist - of course people will take advantage of them, that’s what they’re there for.
The answer surely must be that instead of giving with one hand and taking away with the other, we have fewer wiggles in the tax system, so it’s clear and easy to understand, fairly and universally applied, and clear and coherent. One might say that those principles should apply in lots of other policy areas as well; but we have a real problem of confidence in the economy and in politicians – there are things that can be done about that but on the evidence of today’s increase in complexity, I’m questioning whether anyone wants to.