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Coffee House

On tax policy, to govern is to maintain the status quo

19 February 2013

8:58 AM

19 February 2013

8:58 AM

To govern is to choose, wise people like to say when talking about policies which annoy voters but which might make good sense. Today we have another example of what happens when governments don’t choose. The Public Accounts Committee has published another one of its fierce reports on tax, arguing that tax avoidance companies ‘run rings around HMRC’. There’s plenty of criticism in it for HMRC, with the committee finding that HMRC doesn’t know how much it spends tackling tax avoidance, or whether the work that it does do is effective.

But the tax system itself, unsurprisingly, doesn’t get a good review either. The report says that Tax Trade Advisers, who specialise in income tax avoidance ‘told us that the complexity of the tax system contributed to the opportunities for tax avoidance, and that simplifying the tax system could reduce avoidance’. The report added:

‘HMRC said it was always actively engaged in planning future legislation and evaluating existing legislation and that the Office of Tax Simplification (OTS) was working to simplify the tax system, but we understand that there are only six people in the OTS.’

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Meanwhile Ed Miliband is also talking about tax avoidance and his plan for multinationals to publish how much tax they are paying.

Now, whisper it so no-one gets upset, but isn’t there a case for looking at the whole system at some point? Rather like George Osborne did in the depths of opposition when, as Shadow Chancellor, he got rather excited in 2005 about the benefits of flat taxes. Now, of course, as the PAC report says, even this sort of simplification isn’t going to end tax avoidance. But it would make it much more difficult for firms and individuals to hide within the labyrinths of the current system as the rule book would get torn up (by the world’s strongest man, presumably, as it is now over 11,000 pages long).

Either way, a real flat tax, where all income is taxed at the same rate – perhaps 30 per cent – is the sort of choice a Conservative chancellor with a particular penchant for awful headlines and painful PMQs sessions would advocate at the moment, given the current contest is not focused on how governments can fill their coffers as fully as they can in the fairest way, but how parties can flex their high tax muscles, regardless of whether their latest wheeze involving pearl earrings or a beloved 50p rate actually raises any more money. Like having an honest conversation about MPs’ pay, pensioner benefits or drugs policy, tax is becoming one of those issues where ministers fear to tread lest anyone think less of them. In these cases, to govern is to maintain the status quo.

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