Conservative Party Conference 2023: No shortcuts to lower taxes, says Chancellor

Contents:
Taxes are not permanently higher, promises Chancellor
MPs pledge to oppose any further tax increases
Employment Taxes - ‘New Conservatives’ call for family-friendly reforms
Calls for VAT and IR35 changes to help small business
Ministers focus on regulation and productivity but members want corporate tax cuts
Inheritance tax – knives out for the ‘most hated tax in Britain’
Calls for reform of property taxes
Green taxes mostly off the government’s agenda
Financial literacy key to tackling fraud, says minister
New sanctions for benefit claimants and triple lock remains
Other points of interest

Taxes are not permanently higher, promises Chancellor

‘There are no shortcuts to lower taxes’ Chancellor Jeremy Hunt told the conference, accepting that the level of tax was too high and promising to bring it down, but not until the public finances allow. He suggested that lowering taxes on business would be the first priority.

In his keynote speech to the conference the Chancellor stressed the importance of reducing inflation, explaining: “when we halve inflation, that’s not a one percent income tax cut, it’s a 5% boost to incomes compared to if it stayed the same”.

Acknowledging concerns among party members (see below) about the size of the tax burden he agreed that: “After a once in a century pandemic and the biggest energy crisis in a generation, the level of tax is too high.” Observing that the Institute for Fiscal Studies had said last week that this was likely to be a ‘decisive and permanent shift to a higher tax economy’ he responded firmly: “Conference, they are wrong.”

Asked on radio station LBC where he would prioritise for tax cuts when the money becomes available the Chancellor replied: “There are good arguments for cutting taxes across the board… [But] if you said to me right now what is my biggest priority it is to cut taxes on business to get growth going in the economy.”

He said people wanted to know the answer to the question: ‘Can we have faster growth and get away from ever-ratcheting taxes going up and up?’ The answer, he said, is: “we can, but there are no short cuts. We have to unleash companies, allow them to grow, make it easier for them to grow… [W]e also have to spend taxpayers’ money more efficiently including reforms to the welfare state.”

Hunt expanded upon his priorities at a Centre for Policy Studies (CPS) event during the conference: “If I was putting on my finance minister hat my first priority… would be business tax cuts, because the job of a Conservative government is to make the economy competitive… Obviously in the run up to an election I would love to do a tax cut that ordinary people felt, to show people our values and that we believe that money is better when it stays in people’s pockets than when the state takes it away. At the moment we are not in a position to have that discussion – even to have that ‘what if’ scenario in our minds – because any tax cut would be inflationary and we are midway through a journey to bring inflation right down. And it would be absolutely crazy to give people money with a tax cut in one hand and then for them to see all that money taken away by inflation going back up in the other… and also our public finances are in a pretty stretched state.”

The ‘no shortcuts to lower taxes’ message was repeated by the Chancellor and other ministers throughout the conference. Asked on GB News how the Conservatives can win the next election without slashing taxes, the Chancellor said: “The way you win elections is by making promises that people believe. And we are being very honest with people, there is no shortcut to tax cuts." The Prime Minister, Rishi Sunak, told the BBC: “Of course I want to cut taxes” but said that his focus is on reducing inflation.

Michael Gove, Secretary of State for Levelling Up, went perhaps a little further than the official line during an interview with The Times, stating that: “I would like to see the tax burden reduced by the next election". However John Glen, the Chief Secretary to the Treasury, suggested in an interview with the Daily Telegraph that tax cuts could come before a general election: “It’s not as simple as a simple trigger where you get to a certain point and then you say: ‘Right, we’re now going to cut taxes,’” he said. “But obviously there will be a budget in the spring of next year and we will look sympathetically at what we can do to create those conditions for growth in the economy.”

MPs pledge to oppose any further tax increases

Senior Conservative MPs, including former Prime Minister Liz Truss, are pressing for tax cuts and have vowed not to vote for any tax increases that appear in the Autumn Statement or Spring Budget.

Ahead of the conference 33 Conservatives MPs signed a pledge vowing not to “vote for or support any new taxes that increase the overall tax burden”. In an article in The Times, former party chairman Sir Jake Berry set out the group’s argument, saying that, “with taxes at a 75-year high — the highest since the Second World War — taxes cannot continue to go up. This is why, as a group of Conservative MPs, we have decided to send a clear signal to our constituents that we will not vote for any further tax rises. We want to see growth in the economy and allow people to spend their money as they wish rather than the government deciding it knows best.”

He invited other parliamentarians, members of the devolved parliaments and – less realistically – members of other political parties to join in signing the pledge. In a sign that the pledge may be intended to have staying power beyond the general election he invited local Conservative associations to ask their parliamentary candidates to sign it. This followed a statement in the article that the MPs making this vow “have pledged to never vote for tax rises again”.

One of the MPs making the vow is former Prime Minister Liz Truss. A year ago Truss was, of course, leader of the party and defending her ill-fated mini-Budget. She was back at the conference this year, still making headlines but now from the backbenches, headlining a packed ‘Great British Growth Rally’ alongside her former cabinet ministers Dame Priti Patel, Sir Jacob Rees-Mogg and Ranil Jayawardena, all involved with the ‘Conservative Growth Group’ pressure group (now 60 MPs strong, reportedly). Truss urged the Chancellor to reverse his recent corporation tax increase. “We can’t stand idly while companies like AstraZeneca move operations abroad because of our huge tax burden or small businesses shut up shop because they are drowning in red tape,” she said.

Elsewhere on the conference fringe it was not hard to find parliamentarians urging tax cuts on the party leadership. Treasury Committee member Andrea Leadsom told a Centre for Policy Studies (CPS) event that Conservatives believe in the “moral and practical” case for tax cuts. Lord Frost said he had been “reassured by the way the Growth Coalition is bubbling up again and people saying Liz got it right, she just got the methodology wrong.” He put the widely expressed view that Truss’s main mistakes as Prime Minister were of inadequate preparation and explanation rather than the policies themselves being wrong.

Employment Taxes - ‘New Conservatives’ call for family-friendly reforms

Conservative MPs are calling for the High Income Child Benefit Charge to be scrapped and the income tax personal allowance to be made fully transferrable.

A group of Conservative MPs calling themselves the ‘New Conservatives’ have set out a plan to reduce taxes on working families and small business. The MPs – largely elected following the 2016 European referendum – would like to see the government abolish the High Income Child Benefit Charge, reverse the recent reforms to IR35 and increase the VAT threshold to £250,000.  The proposals are set out in a paper produced by the group and launched at the conference.

Launching the report, Nick Fletcher MP (co-author alongside Miriam Cates MP) argued that the child benefit charge “penalises those families where one parent, usually mum, stays at home to look after small children while the other parent works. Such a family will pay higher tax than another family where both parents work, yet earn the same joint wage. To be penalised for the structure of earnings in a household makes no sense. And it is particularly bad when we know that many women want to spend the early years at home with their children, and also that this is good for small children, where it is possible.”

Writing in the Telegraph, Danny Kruger MP, one of the co-chairs of the New Conservatives, argued that the plans can help the Conservatives retain the coalition of voters that delivered a majority for the party at the 2019 election. Speaking at a conference fringe meeting Kruger spoke of how he saw a huge social benefit in family formation and believes the tax system can support this. He also advocated the consideration of ‘negative income tax’.

The authors of the paper are also supportive of the recent report by the Centre for Policy Studies (CPS) and Ranil Jayawardena MP, co-chair of the Conservative Growth Group, arguing for the personal allowance to be made fully transferable between spouses. “In the long run,” the New Conservatives paper states, “we agree [with Jayawardena]… that the UK should move to a system of household taxation”.

At a CPS fringe event Dame Andrea Leadsom MP, the former Business Secretary, also backed joint taxation for couples – but only if it was ‘opt in’. She was concerned about making it compulsory due to ‘potential power dynamics’. Leadsom considered the transferable tax allowance introduced by David Cameron a positive step for families. At the same event Leadsom also criticized the child benefit charge and offered support for the abolition of national insurance (presumably rolling it into income tax rather than just foregoing the revenue, though she was not explicit).

A number of speakers on the conference fringe criticized the freezing of the income tax personal allowance and/or called for the allowance to be raised as a priority. Ben Houchen, Mayor of Tees Valley, praised the party’s record of raising personal allowances, describing this as a ‘strong and sound’ approach. Emily Fielder of the Adam Smith Institute said the link to inflation should be re-established. Liam Halligan, Economics and Business Editor of GB News, suggested that the personal allowance should be increased to £20,000 and the higher rate threshold to £70,000. Andrea Leadsom also called for the higher rate threshold to rise.

Calls for VAT and IR35 changes to help small business

Two of the three ‘priorities for tax reform’ identified in ‘The New Conservatives’ Tax Plan’ are measures aimed at small business – raising the VAT threshold and reversing the recent IR35 reforms.

The New Conservatives’ paper explains that the VAT registration threshold previously increased in line with inflation but has been frozen at £85,000 since 2017, and is expected to remain frozen until 2026. Yet had the threshold increased with inflation during this time, the threshold would now be around £103,000 – over 20 per cent higher.

At an event promoting the plan, Nick Fletcher said that keeping the VAT threshold at £85,000 means opportunities lost – income and growth kept down, potential jobs not being created. It is also, he suggested, deterring many from starting a business in the first place. Fletcher also suggested that increasing the VAT threshold would decrease the black market of cash-in-hand work.

At a separate event, hosted by the thinktank Onward, a bookkeeper in the audience backed raising the VAT threshold. Danny Kruger, a member of the Commons Treasury Committee, was supportive, saying VAT was difficult to register for and the current threshold means many businesses “bunch” below the limit and are “not working as hard as they would like to”. Financial Secretary Victoria Atkins responded to him that VAT is the country’s third most profitable tax and the current threshold is the highest in the EU. She continued: “I get lobbied by people who want it to go up and I also get lobbied by people who want it to go down to, say, £20,000.” The minister said that when she hears this, she says: “Crikey, at a time of cost of living crisis we don’t want to increase pressure on prices further!” Kruger responded that the current threshold might be okay if it was easier to register.

The third priority tax policy of the New Conservatives is scrapping the reforms to off-payroll working (IR35) rules which put the onus for determining a worker’s employment status on the company engaging them (making them potentially liable for tax that should have been paid). In their paper, the New Conservatives argue that although IR35 reforms may have prevented some tax avoidance, looked at in a wider context they “have failed the self-employed”. Scrapping the reforms would, they believe, “increase certainty around contract transactions in the market economy, in turn leading to growth. In particular, this would help the self-employed.”

At the New Conservatives’ fringe event, Nick Fletcher suggested the IR35 reforms are causing many businesses not to employ British people. He added that the reforms have driven down self-employment, saying: “as a country and a party we should want to incentivise people to start businesses.” Fletcher argued all three of the policies in the plan would generate more resources for the public finances.

At a separate event, a local party chair who works as an accountant raised the reforms, warning that some of their clients were leaving the UK because of IR35. Liam Halligan of GB News claimed that ‘one of the reasons the Treasury hate Liz Truss is she wants to scrap IR35’. They think it’s a tax dodger’s charter, he explained, but he agrees with Liz: “We should scrap IR35.”

Economic Secretary Andrew Griffith had the tricky task of replying to the discussion at the New Conservatives event. He responded carefully, praising the paper for its ‘insightful understanding of incentives’. He stressed that the Prime Minister had said it was a question of when we cut taxes, not if. “The big job we have to do is create the capacity to cut taxes,” he explained. “It’s always good to hear from fellow Conservatives about what we should do when we have the capacity to do so.” Pressed by event chair Danny Kruger to agree that the reforms could pay for themselves the minister argued that they wouldn’t pay for themselves straightaway before turning to the less tricky issues of red tape and supply side reforms.

Ministers focus on regulation and productivity but members want corporate tax cuts

The Business Secretary has announced a review of regulation. Grumbling continues over the increase in corporation tax. The tax minister has reassured a colleague that the government can veto any attempt to raise the global minimum rate.

Business Secretary Kemi Badenoch has announced an in-depth review into the UK’s regulatory system as the government seeks out post-Brexit advantages. “I want us to use our Brexit freedoms to scrap unnecessary regulations that hold back firms and hamper growth,” Badenoch said. “It’s clear that the regulators that enforce the rules can also sometimes be a blocker to businesses, so our review will seek to root out the bad practices with the aim of making companies’ lives easier and reducing costs for consumers,” she added. The government announcement states that there will be a 12 week call for evidence for the review.

The increase in corporation tax from 19 per cent to 25 per cent is an especially unpopular move among Conservative members and MPs. “Deeply un-Conservative”, was the verdict of one veteran party activist. Contributors at fringe meetings called it ‘counterproductive’ and ‘anti-growth’. Lance Forman, an entrepreneur on the panel at one event, complained that to incentivise success you need lower taxes: “Low tax, deregulation, it’s not complicated.” He thought there was a case for scrapping corporation tax completely. Liam Halligan of GB News, on the same panel, called for a £100,000 corporation tax threshold.

Former PM Liz Truss called on the Chancellor to reverse the change at the Autumn Statement: “put corporation tax back down to 19 per cent, and frankly, if we can get it lower, the better”. She linked the high corporation tax rate to Astra Zeneca’s decision ‘to locate elsewhere’, and said small companies are struggling with the level of tax and regulation.

Speaking at a fringe event held by Onward, Danny Kruger aired concerns about a global minimum 15% corporate tax, saying it is not “unrealistic” to hope for corporation tax in the UK to fall to that level. He added: “The dangerous thing about a floor is it can be raised.” Financial Secretary Victoria Atkins reassured him that the government had made sure there would be a single country veto to avoid such an event.

At the same event, Tom Pope, deputy chief economist for the Institute for Government, warned against big corporation tax cuts. "We raise £50 billion from corporation tax and I’m not sure governments are willing to get that from somewhere else,” he said.

Speaking at a fringe event hosted by CIOT and the Institute for Fiscal Studies, IFS director Paul Johnson made a similar point: “Lower corporate tax is better than higher corporate tax for economic growth. But 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.”

Also at that event, CIOT president Gary Ashford posed the question of whether an alternative to corporation tax cuts could be a high rate with a generous set of reliefs. Fellow panellist Lord Leigh of Hurley agreed, saying: "If you have high tax rates, that’s fine, but you have to have deductions.”

The need for greater productivity in UK industry was a repeated refrain at the conference, including from ministers, though the only significant initiative in this area appeared to be one relating to the public sector. The Chancellor announced in his platform speech that he had commissioned the Chief Secretary to the Treasury, John Glen, to restart the process of public service reform, and that he was freezing the expansion of the civil service and putting in place a plan to reduce its numbers to pre-pandemic levels. He said he would not lift the freeze “until we have a proper plan not just for the civil service but for all public sector productivity improvements”.

The Chancellor expanded upon the reasoning behind this at a fringe meeting, telling party members: “I asked my officials in the Treasury – what’s the result we have to achieve if we want to stop taxes going up? And they said we have to increase productivity growth in the public sector by half a per cent a year, roughly from 0.8 per cent to 1.3 per cent.” That might not sound a big number to people used to the private sector, he said, “but those of us who have worked in the public sector know actually it is a very big challenge”.

The Chancellor and other ministers defended the need for tax increases at fringe meetings and in the media. But they did offer two more hopeful hints to those aggrieved about current corporation tax levels. First there was his repeated statement (see above) that business would be the first priority for any early tax cuts. Second he once again made it clear, during a question and answer session on the fringe, his desire to make full-expensing a permanent fixture in the future.

Inheritance tax – knives out for the ‘most hated tax in Britain’

Rumours that big cuts to inheritance tax are under consideration, potentially even abolition, excited Conservatives in Manchester. But would they be the vote winner their advocates think?

A week ahead of the conference the Sunday Times reported that there is “a live discussion at the highest level of government” about reforming inheritance tax (IHT) with one proposal under consideration being for Rishi Sunak “to announce his intention to phase out the levy by reducing the 40 per cent inheritance tax rate in the Budget in March, while setting out a pathway to abolish it completely in future years.”

Later briefing by unnamed government sources rowed back a little on this suggestion, emphasising that there was currently ‘no room for tax cuts’ and that it was ‘too early to speculate’ but nevertheless acknowledging that scrapping IHT was being looked at “as something that might get in the manifesto” for next year’s general election.

Treasury ministers stayed mum on the possibility in Manchester but plenty of others weighed in enthusiastically. Former home secretary Priti Patel called IHT “aggressive and punitive” and said it should be scrapped. Former business secretary Jacob Rees-Mogg called it “pernicious” and said it should be “extinguished”. Another former business secretary – and a member of the Treasury Committee - Angela Leadsom called it ‘the most hated tax’ and said its abolition should be funded with the money saved from scrapping HS2 (this was before the Prime Minister allocated that to local transport projects).

There was little doubt at the conference that scrapping IHT would be a hugely popular move. Asked about the potential policy at an IEA fringe meeting by CIOT’s George Crozier, the panellists not only backed it enthusiastically, they were convinced it would be a nailed on vote winner. Former cabinet minister Ranil Jayawardena told the audience that “every income decile thinks IHT should be abolished” and that it would create ‘an important dividing line’ with Labour. Emily Fielder of the Adam Smith Institute said IHT is seen as ‘the most unfair tax’ and she didn’t think persuading the public would be an issue.

Are they right? Research by the thinktank Demos, published in June, suggests the situation is more nuanced. While there are high levels of public opposition to taxing inheritance in a general sense, there are high levels of support for taxing inheritance when specific inheritances are mentioned. Just 21 per cent of people say all inheritances should be tax free, regardless of the amount. Polling carried out by Ipsos, also in June, found that just 14 per cent of the public chose IHT as one of their three preferred taxes to cut (if resources allowed), leaving it well behind the basic rate of income tax (44 per cent), council tax (34 per cent) and VAT (26 per cent) and also behind fuel duty (20 per cent) and national insurance (19 per cent). But, as Ben Glover of Demos notes, the more fundamental point is that the British public do not want tax cuts. According to the latest wave of the British Social Attitudes (BSA) Survey, just 8 per cent of people want tax cuts and lower spending, with 55 per cent supporting higher taxes and spending (the rest are broadly happy with current tax and spend levels).

Not all Conservatives think cutting IHT should be a priority. New Conservatives co-chair Miriam Cates thinks employment taxes should be the priority rather than IHT, saying at a fringe meeting: “Too often we focus on the tax paid by the very wealthiest… but tax rates and thresholds are stifling those on ordinary wages in ordinary places.” Ahead of the conference, Sir Simon Clarke, a former cabinet minister, said: “If we are choosing our priorities for tax cuts, income tax should surely trump inheritance tax every time”. Both Cates and Clarke are advocates of tax cuts more generally. It is possible that their north of England constituencies – with relatively low property prices – are a factor in their prioritisation.

Calls for reform of property taxes

A prominent Conservative peer has called for the government to increase council tax on the most valuable properties. A former cabinet minister has said stamp duty land tax on main homes should be scrapped.

At a fringe debate organised by CIOT and the Institute for Fiscal Studies, Lord Leigh of Hurley, chair of the House of Lords Finance Bill Sub-Committee and a Senior Treasurer for the Conservative Party, proposed a revaluation of properties currently in Band H, which comprises approximately 200,000 properties in England and 5,600 in Wales. Lord Leigh stated that: “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.”

Paul Johnson, director of the IFS, who was also amongst the panelists at the event, 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. The IFS has previously criticised the council tax system as being “out of date and arbitrary”, highlighting its regressive nature.

Calls for reforming local taxation were also made by Treasury Committee member Danny Kruger who, at a different fringe meeting, called for a ‘comprehensive review’ of local taxes, in particular thinking “about business rates and the impact they have. They are absolutely punitive rates of taxation”.

Former Trade Secretary Ranil Jayawardena told a conference rally that stamp duty land tax (SDLT) on principal private residences should be scrapped. This echoed calls made by other Conservative MPs in a parliamentary debate in May, calling for both SDLT and council tax to be replaced with a ‘proportional property tax’, as advocated by the campaign group, Fairer Share.

Paul Scully, Minister for Tech and the Digital Economy, told a fringe that he is determined to level the playing field between small and large businesses. He wants to see a complete re-evaluation of business rates. The government’s Non-Domestic Rating Bill, currently going through Parliament, looks to reform the business rates system in England by increasing the frequency of valuations from five years to three and introducing a new business rates relief for improvements to properties.

Green taxes mostly off the government’s agenda

Climate change was all over the conference agenda – especially on the fringe - but ministers are cooling on environmental policy, especially anything – such as green taxes – which will hit the public in their wallets.

‘The path to net zero’ was a prominent topic at the conference, with the government’s recent policy changes, such as pushing back the date when new petrol and diesel vehicles can be sold, a source of controversy and debate. From energy companies to green campaigners to the wider business lobby every interest group seemed to want to put forward their proposals and plans for combating climate change. However the reaction of party members, from ministers down, was mostly lukewarm.

In her keynote conference speech Claire Coutinho, Energy Security and Net Zero Secretary, criticised “net-zero zealots” and those who “view net zero as a religion”. She accused Labour of wanting to bring in ‘meat taxes’. Members enthusiastically applauded an attack on the “war on motorists”.

The threat of ‘meat taxes’ had been raised ahead of the conference by the Prime Minister. In a speech on the UK’s climate policies, he claimed to have scrapped proposals which would tell drivers how many passengers they must carry, to tax meat, a plan to give each household seven bins, and new taxes on flying. Pressed in an interview on who was proposing a tax on meat, the PM mentioned the Climate Change Committee, a government advisory body, but while the committee had made a recommendation about cutting meat and dairy consumption it does not appear to have specifically recommended a ‘meat tax’ (a position the committee’s chief executive has confirmed).

In his interview the Prime Minister also said he had scrapped proposals “to create new taxes to discourage flying or going on holiday.” This is believed to refer to the Climate Change Committee’s recommendation that “[t]axes should send clearer signals to consumers on the high emissions cost of flying (e.g. by reversing the 2021 cut in Air Passenger Duty).” This of course suggests an increase in an existing tax (APD) rather than a new one. It is worth noting that having cut APD from £13 to £6.50 for domestic flights the government will raise the duty slightly to £7 from next year.

Former Prime Minister Theresa May was among those stressing the importance of not regressing on the path to net zero during a packed event hosted by the Conservative Environment Network.  She suggested that the party’s recent by-election success in Uxbridge and South Ruislip was not rooted in an “anti-environment ticket” but rather a rebellion specifically against motoring taxes imposed by London Mayor Sadiq Khan. “Remember, we are the only party with ‘conserve’ in our name,” she told attendees.

Vicky Ford, a member of the House of Commons Energy Security and Net Zero Committee, emphasised the continuing commitment of the Prime Minister to combating climate change and the need for delivering international climate finance. She suggested tax incentives, such as an SDLT break, to encourage energy-efficient home improvements. Ford acknowledged the challenges of achieving net zero amidst a cost-of-living crisis, including the limited availability of government funding (ie taxpayers money). Increased private investment would have to be found to support the net-zero agenda, she concluded.

The ongoing consideration by the government of a carbon border levy was not noticeably discussed at the conference.

Financial literacy key to tackling fraud, says minister

A number of tax administration and compliance issues were raised on the conference fringe. Treasury ministers stresses the importance of financial education. There was widespread support for simplification though disagreement on whether abolishing the OTS was a welcome move.

During a fringe event organized by Bright Blue, John Glen, Chief Secretary to the Treasury, expressed concern about the state of financial education, and noted that there is still work to be done. He emphasised the importance of teaching children, ideally before they leave school, about the value of compound interest in both savings and debt management. Andrea Leadsom, the former Business Secretary, called for increased financial education in schools at a separate event.

The Financial Secretary to the Treasury, Victoria Atkins, also stressed the importance of improving financial literacy, at an event about tackling financial fraud, where she praised the work of MoneySavingExpert, Money Box and others.

Security minister Tom Tugendhat told the event that the amount of fraud had increased tenfold since 2012. This is partly better recording, he acknowledged, but also people moving online – especially as a result of the pandemic – which had led to massive increases in online fraud/theft, a huge amount of which originates overseas.

Atkins focused her remarks on tax fraud. The less tax HMRC collects the more pressure it puts on public services, she told attendees. Internationally we have one of the smallest tax gaps in the world, she said, but the scale of some of the frauds carried out by organised crime gangs is ‘mindblowing’. She described R&D credits as a ‘critical form of support’ but one which was under attack from organised criminals as well as “people who pop up on Instagram and tell a pub landlord they can get R&D tax credits for discovering avocado” (a real example apparently).

At the joint CIOT and IFS event, CIOT president Gary Ashford also noted that digitalisation is having an impact on compliance: “We have to be alert to the challenges of cybercrime and how it challenges the way we do tax.” But, he said, digitalization also offers opportunities to tax authorities. “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… Are HMRC harvesting it properly?”

Ashford also noted that 56 per cent of the ‘tax gap’ comes from small business. “What can HMRC do about that? 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. The simpler a tax system is, the easier it is to comply.”

Simplification was also raised by a number of prominent Conservatives on the conference fringe. Former Business Secretary Andrea Leadsom shared her disagreement with the abolition of the Office of Tax Simplification (OTS). She was doubtful about the value of the Treasury’s promise of an annual report on how they are simplifying taxes. The reality is, if you’re a small business, you’re having to do ever more complicated tax calculations, said Leadsom. She wants to see flatter and simpler taxes.

Leadsom’s fellow Treasury Committee member Danny Kruger also argued for a greater emphasis on simplification, criticising the “incredible complexity” of the tax system. However he welcomed the abolition of the OTS “because that isn’t a responsibility to be put in an office, it’s the responsibility of the Government and the Treasury.” Ranil Jayawardena said he is “very attracted” to simplification, adding: “If we make simpler tax policy our policy as a Conservative party I think we’ll all be better off.”

Tom Pope of the Institute for Government, speaking at the same event as Kruger, said the tax system is not moving towards simplification despite broad consensus about how it could achieve this. “There’s a lot of agreement across academics, policy experts and even politicians about what reforms we could make,” he said. “And yet, if anything, the system keeps getting more complex and that’s because tax policy is a really difficult area to reform and design well. The loser always shouts the loudest so even a reform which might be popular overall might be politically difficult.”

New sanctions for benefit claimants and triple lock remains

The government have announced plans for new sanctions on benefit claimants who refuse to seek work, and is looking at how the tax system interacts with pensions.

The government look set to retain the pension ‘triple lock’ into the next Parliament. Chancellor Jeremy Hunt – asked about it at a fringe event – said only that “we should be careful not to break our manifesto promises”. However it was widely reported ahead of the conference that the Conservatives will remain committed to it. “The rise in wages and inflation has made it a very expensive measure, but the political cost of abolishing it would be higher,” said an anonymous Tory ‘source’ quoted in the Daily Mail.

The Secretary of State for Work and Pensions, Mel Stride, praised Hunt's abolition of the pensions lifetime allowance, making it “worthwhile” for people to continue working. He revealed that he is “looking at how the tax system interacts with pensions”, and asking retirees to conduct a “Midlife MOT” to ask if they can afford to retire early. 

One of the Chancellor’s main announcements during his speech at the conference was of an intention to introduce new sanctions on benefit claimants who refuse to seek work. While specific policy details are set to be announced in the Autumn Statement, some proposed measures include reducing benefits for those who consistently decline job interviews and introducing new conditions requiring people to pursue job opportunities before getting their out of work benefits.

Stride echoed the Chancellor's message in his conference speech. He said “That safety net is paid from tax. And that social contract depends on fairness to those in work alongside compassion to those who are not. That means work must pay, and we’re making sure it does. From last year, for the first time ever, you can earn £1,000 a month without paying a penny of tax or national insurance. But despite that even when companies are struggling to find enough workers, around 100,000 people are leaving the labour market every year for a life on benefits”.

At a fringe event, John Glen, Chief Secretary to the Treasury, engaged in a discussion regarding the government's role in providing a robust safety net for society's most vulnerable while fostering resilience. While acknowledging some progress, Glen highlighted the importance of improving access to affordable credit and savings options for vulnerable individuals.

Other points of interest

Business investment

Speaking at a CPS fringe event the Chancellor hinted he would address the issue of business investment in his upcoming Autumn Statement.

VAT-free shopping

A representative from the Association for International Retail made the case for tax-free shopping for overseas visitors to be restored. At an IEA fringe meeting Paul Barnes said Britain had missed the opportunity to be the place for international travel. Data showed Britain now back to the 2019 level of spending on international travel but France has three times as much, Italy two and a half times as much. Speaking at a separate event, the Exchequer Secretary argued that the reintroduction of VAT-free shopping was likely to have a minimal impact on the economy.

Government IT

Speaking at a fringe event on new technologies, MP Katherine Fletcher said the IT systems used by the government are “clunky”. Lord Ranger said technology used by the Government can “get your passport renewed or your taxes put online”, but does not match up to how bigger technology companies carry out their tasks. He said there will be an expectation that this technology improves over the coming years but, using the example of football’s VAR (video assisted referee), he added: “Whatever technology we bring in to public services there are going to be errors.” DWP minister Alex Burghart was more positive, saying many overseas visitors ask him about the gov.uk website. He said that the rise of AI is opening up opportunities “on almost a weekly basis”, while improvement in technology reduce the need for swollen teams of people. “You often don’t need very many people, you just need people of high quality,” he said.

Government intervention

One theme that popped up at a few events, particularly those hosted by the free market thinktanks, is the idea (fear, for some) that events of recent years – especially the pandemic – may have led people to look to the state to do more. One questioner wondered this had created a ‘psychological issue’ – ‘people looking to government to do things for us to generate growth when we should be looking to ourselves’. Lord Frost made a similar point, calling for a move away from government intervention in favour of personal responsibility.

The case for the centre-right

Former tax minister (and Lord Chancellor) David Gauke has pulled together a collection of essays – making ‘the case for the centre-right’ and spoke about it at a fringe meeting organized by Conservative Home. Gauke, who left the Conservative Party during the last Parliament and fought the last election unsuccessfully as an independent candidate, argued that the political centre ground is not just about splitting the difference: centrists recognize the complexity and trade offs in policy-making and tend to be more cautious, he thought. What distinguishes the centre-right from the centre-left? He gave an example: the centre-right are more confident tax rises on wealthy will bring about a behavioural response; the centre-left are more confident it brings in money.