CIOT/IFS Debate: What should the tax priorities for the new parliament be?

*Click here to watch a recording of the debate*

The event on Tuesday 16 July was chaired by CIOT President Charlotte Barbour and featured speakers:

• Helen Miller, Deputy Director at the Institute for Fiscal Studies (IFS)
• Alice Jeffries, Head of Tax Policy at the Confederation of British Industry (CBI)
• Polly Toynbee, Columnist at The Guardian
• Richard Wild, Head of Tax Technical at CIOT

Charlotte introduced the debate by emphasising the purpose of these events: to bring together all those with an interest in tax policy to share perspectives and debate matters of topical interest relating to taxation.

She highlighted several tax policy changes proposed by the Labour government, including proposals affecting non-doms, private schools and the private equity industry. She then posed a broader question: should the government consider a more comprehensive approach to the design, management, and operation of the tax system?

Miller – tax reform a tool for fostering growth

In her opening remarks Helen Miller urged the new government to prioritise tax reform. She argued that there is a lot of unnecessary complexity in the tax system that fails to achieve policy goals and is costly for businesses and HMRC. Helen agreed with Chancellor Rachel Reeves that economic growth should be a ‘central mission’ and added that while “tax reform isn't the silver bullet”, it is a crucial tool for fostering a better growing economy.

Helen acknowledged that implementing reforms is challenging politically. She identified two areas where she believes the Labour government could make a change:

• Business rates: Helen challenged the idea that business rates are ‘killing the high street’, saying that the problem with the business rates system is “that its design discourages the use and development of business property”.  She argued that an ideal solution would be a land value tax, “taking the business property out of the tax base, just tax the underlying land”, to encourage investment and capital reallocation.
• Capital gains tax (CGT): The design of the tax base is flawed, leading to issues like income shifting across taxes as well as fairness concerns, Helen explained. She said that higher CGT rates have worsened some problems, but lower rates can't fix the underlying issues.

In conclusion, the IFS deputy director said she believes that a better-designed system would bring broad benefits and support economic growth. At least, she implored the government, “don’t make the system worse!”

Jeffries – three strategic areas where policy change is needed

Alice Jeffries of the CBI discussed the complexity of the tax system for businesses, saying that in the last parliament, there were at least seven new taxes introduced, with another four in the previous two years; this complexity has a “chilling effect on business investment”.

Alice said that the first big call from businesses on tax policy is to minimise changes to the tax system, allowing current rates and reliefs to bed in. She suggested that any changes should focus on better aligning the tax system to achieve the government’s main aims. From this perspective, she identified three strategic areas where policy change is needed: net zero, business support for local communities, and labour market activation.

On net zero, Alice argued that the UK needs to increase spending on green tech development to keep up with competitors like France and Germany and that tax incentives in these areas could help boost this spending. On support for local communities she welcomed the government’s recognition of “how broken the current business rate system is”. She reported that the CBI is working on improvements to the current business rate system to make it simpler, fairer and more competitive.

On the third objective – labour market activation - the Head of Tax Policy at the CBI suggested that the UK faces barriers such as a lack of appropriate skills and ill health and that “the current tax system actually hinders more than it helps addressing those issues”. She welcomed the government's commitment to changing the apprenticeship levy to a more flexible growth and skills levy, allowing businesses to support skills development more effectively.

Alice concluded her remarks by highlighting that tax administration is crucial for businesses as they play multiple roles in the tax system: taxpayers, tax collectors for HMRC and data providers. These additional roles create significant administrative burdens for businesses, as costly as the tax revenue they have to pay. She believes that reducing these burdens is vital to enhancing the UK's business attractiveness. Alice said that businesses would like HMRC customer service to be improved in four key ways: clarity on applying the tax system, more use of pre-emptive processes, better data handling, and better-coordinated digital systems.

Toynbee – why don’t I pay national insurance?

Polly Toynbee began her remarks by saying that she is optimistic that Rachel Reeves is a serious reformer at heart. She suggested pension tax relief as an area for the Labour government to reform, saying that the system is “very unfair” with lower earners receiving 20% relief and higher earners getting 40%.

Polly agreed with Helen on the introduction of land value tax, suggesting that with large-scale new house building, the land value could belong in many places to a development corporation.

Regarding national insurance, Polly argued that it should be aligned with income tax. We should at least apply NI to every form of income. “When I reached pension age… until I got my pay slip I’d completely forgotten that you no longer pay NI. Suddenly I look at my pay slip and I’m paying a whole lot less for no good reason!”

She suggested bringing back Boris Johnson's social care levy policy, which was abolished by Kwasi Kwarteng. She recognised that the levy is a hypothecated tax, which she thought made it “ a bit cowardly”, but she recognised Jean-Baptiste Colbert's famous saying about “plucking the feathers off the goose with as little hissing as possible” and making it a hypothecated tax raises public support for it. She also advocated looking again at Andy Burnham's proposal of payment of a lump sum on retirement for social care

Ignorance about tax and financial matters is a “serious democratic deficit”, said Polly. She suggested that the current maths GCSE exam is inadequate and a compulsory exam covering tax, pensions, mortgages and savings is needed. Paul Johnson and Helen Miller should set the curriculum for this and everyone should come out of schools knowing the basics.

Wild – watch the health of the tax system

Richard Wild focused his comments around two main themes to improve the ‘health’ of the tax system: the development of tax policy and helping people get their tax right.  He highlighted the value of the five-stage consultation process, beginning with “blue-sky thinking” and ending with reviewing changes. However, the first and fifth stages are often skipped, missing valuable input from those affected and leading to costly or delayed rules. Richard urged the government to recommit to all five stages of the tax consultation framework and to ensure policy costings genuinely capture the true costs. There are probably several measures that wouldn’t have gone ahead, had the figures been more accurately calculated in the first place, he added.

And finally on this topic, Richard encouraged the government to stick to a single fiscal event, reducing the proliferation of tax changes, as advocated in the 2017 CIOT/IFS/Institute for Government Better Budgets report. This would provide some stability and certainty, and allow time for the development of policies before they come into effect, he said, welcoming that Labour have expressed support for such an approach.

On helping people get their tax right, Richard pointed out the poor customer service of HMRC and emphasised that their service levels have been a priority for the CIOT for a few years; this affects businesses, trust in the tax system and damaging attitudes to compliance. He called on the government to “urgently ensure that HMRC is resourced and operating effectively”. He also highlighted the UK’s complex tax system and the need for tax simplification, citing the latest tax gap figures which show that “mistakes represent nearly half of the tax gap”.

Digitalisation should benefit taxpayers, agents, and HMRC, improving the tax ecosystem, stated Richard. He added that agent standards need addressing without adding unnecessary administrative burdens on the compliant majority. He concluded that “we need to recognise smooth running and easy to navigate tax system without excessive delays or bureaucracy is a real key part of our national economic infrastructure”.

Questions – simplification, skills and the super-rich

The second half of the debate saw the chair put audience questions to the panel. These included -

• Should the Office of Tax Simplification (OTS) be reinstated?  
  Helen Miller believed that while the OTS was effective at getting experts and officials to discuss reform details, politicians had to lead tax reform efforts. Polly Toynbee supported the OTS but argued that much complexity is to catch people who are trying to ‘outrun’ the Treasury.
• Should we tax the super-rich more?  
  Polly discussed the potential revenue from a wealth tax but acknowledged the difficulties, noting that other countries have had to abandon them. She suggested a Royal Commission on tax changes to increase contributions from the wealthy. Richard Wild also saw challenges with implementing wealth taxes and questioned if adding new taxes was the right approach.
• Can we use the tax system to make working - and working for longer - more attractive to people amid our acute labour and skills shortages?  
  Yes said Alice, highlighting that the current tax system doesn't do enough to support training and continuous professional development (CPD). Introducing a tax break for health-related expenses could help address this issue.
• Does the panel agree that the government should provide more HMRC staff to identify the tax that is due?
  Richard said there is a sense that HMRC are under-resourced. Labour's tax gap document sets out plans to invest in HMRC compliance and systems. He would encourage part of that investment to be in customer service. Alice pointed out that while Labour's paper talks a lot about big business and avoidance, small businesses make up more than half of tax gap, and errors make up much more than avoidance. How do we make it easier for businesses to get their tax right in the first place, she asked. Helen said a lot of difficulties knowing how much tax is due arise from poor tax design. The “massive great boundary” between employment and contracting is what requires IR35 rules. If we can remove the boundary by not having a difference between how we tax the employed, self-employed and companies we can remove the rules.
• Can HMRC's processes be digitised better, and can agents be enabled to do more?  
  Richard said that the current difficulties with registrations are a significant problem. It would be beneficial if HMRC could place more confidence in claims and registrations from regulated agents (members of professional bodies).

Watch the full debate. You can also follow our Twitter/X thread of the debate here.

The speaker slides can be viewed here.