CIOT/IFS Conservative Party Conference Debate 2023: Tax and Public Finance Challenges Facing Britain

The joint event, “Tax and Public Finance Challenges Facing Britain”, featured a panel of tax and economic experts, chaired by Rhiannon Kinghall Were, Head of Tax Policy at law firm Macfarlane’s. They were:

• Paul Johnson, Director of the IFS
• Gary Ashford, CIOT president and tax partner at Harbottle and Lewis
• Lord Leigh of Hurley, Conservative Party senior treasurer and chair of the House of Lords Finance Bill Sub-Committee

Opening the discussion, Paul Johnson said the UK is “not somewhere we want to be” with public finances, as taxes as a fraction of national income are at their highest level ever, debt is high and there is not much remaining for spending. He blamed most of this on the freezing of personal allowances which has led to a record number of higher rate taxpayers in particular.

Johnson was pessimistic about the scope for future tax cuts “unless we can think of some pretty radical changes to the way we are spending money”. With taxes having grown steadily over a prolonged period of time, it is likely to take fundamental change in one area of government spending such as the NHS, schools or policing to provide the Chancellor with the headroom to cut taxes. “To get growth going we need consistent planning on those areas where we’ve seen a remarkable lack of consistency over a considerable period of time. The chances of tax cuts are very remote,” he added.

He said the tax reforms he would make if he had the money would be abolishing stamp duty land tax and making the temporary rules around expensing permanent. However, whatever the changes, he impressed the need for long-term stability to allow taxpayers and businesses to plan ahead. He said: “The main thing I’d say in terms of business taxes is to have some level of consistency and certainty of where we’re going with it. Talking to businesses, they’re much more concerned about having certainty then they are about rates of tax. The lack of consistency and certainty is a bigger problem than most of the individual aspects of the system.”

Lord Leigh backed the Government’s approach on tax cuts, saying the current state of public finances means they are currently unfeasible.

“Because of COVID costs and other costs the Government has to find ways of replenishing its reserves,” he said. “While I’m generally of the low tax and watch it grow school, it only works up to a point and typically when we’re in a position to have low tax.

“I think the route Rishi Sunak and Jeremy Hunt have taken is refreshing. I know them both well, they are Tory tax-cutters at heart and if they could, they would. When Kwasi Kwarteng tried to drop the top rate of tax no-one wanted it. So it isn’t always the answer to drop the top rate of tax.”

Lord Leigh suggested higher rates of council tax could be levied on luxury properties such as mansions and penthouses. He called for the Government to “revalue properties in Band H, of which there are 200,000 in England and about 5,600 in Wales.” 

“We should revalue those and add new higher bands so we have H, I, J, K. And then all sorts of revenue would come in from those properties,” he added. 

Johnson agreed, saying some properties in the UK pay very little in property taxes compared to other countries like the US. He added that some houses in London pay less in council tax in nominal terms than they did in the 1990s.

Gary Ashford said if HMRC were to be able to close the tax gap there is a theoretical £35 billion up for grabs, with as much as 56% of that coming from small business. He called for greater simplicity to help avoid honest mistakes.

“The tax gap is not just about fraud and contrived avoidance, it’s about mistakes, errors and that always takes you back to that discussion around simplicity,” he said. “The simpler a tax system is, the easier it is to comply. There needs to be some discussions on how HMRC are resourced and what they can do about that tax gap.”

Ashford said the continued rise of technology will transform the way taxes are implemented and paid, but could also give rise to greater avoidance and evasion. He said: “A lot of tax avoidance now may be coming through a digital channel. We have to be alert to the challenges of cyber crime and how it challenges the way we do tax.

“HMRC for a while have used the internet to try to identify people with offshore structures. There’s lots of data out there and the world has become hugely more transparent.”

Questioned on the delays around the implementation of Making Tax Digital (MTD), he added that the focus on a digital tax system “can’t be at the expense of everything else”. “There’s nothing magic about it (technology), it won’t solve every problem,” he said.

Questioned on the future of non-dom tax status, which Labour would look to abolish should it win the next election, Johnson said around a third of highest-income people in the country were born abroad and they contribute a lot to the public purse, meaning any changes would be “risky”. “If large numbers of these people do decide to leave the cost for us is very high,” he added.

He continued that while lower corporate tax is better than higher corporate tax for economic growth, any cuts must be properly thought-out with a plan for how that money will be replaced. He said: “As we discovered a year ago you cannot cut taxes dramatically without saying how you are going to balance public finance. If you are taking corporate tax back down to 19% you have to have some sort of plan for how you’re going to fill that.”

Ashford agreed that the debate around abolishing non-dom status “needs to be a bit more nuanced”, as without a replacement, the UK risks losing investment to other countries. He said: “If you get rid of the non-dom system you have to replace it with something else because you need to attract wealth-creators to the UK. Perhaps we need to reform it but we can’t have no system that attracts them.”

Ashford added that tax policies should try to make the UK “as interesting as possible” to foreign investors, and suggested an alternative approach could be a slightly higher tax rate but a more comprehensive relief system. “You almost reward them by having massive incentives,” he said.

Lord Leigh, who chairs the House of Lords Finance Bill sub-committee, said it has had “a good, hard look” at research and development (R&D) tax credits, while he also backed the Digital Services Tax, Pillars One and Two of the OECD Inclusive Framework and the “tightening-up” of VAT on goods.

Watch the full event.