There’s more to competitiveness than headline rates, Rachel Reeves should use the Autumn Budget to make taxes simpler and rules easier to comply with, says Colin Graham
Chancellor Rachel Reeves has been clear that the current state of government finances will only improve with economic growth. For this to work, there will need to be a greater focus on how tax policy can play a role in making the UK a more attractive place to do business.
An internationally competitive tax system is an essential part of a growing economy, in particular one that can differentiate itself from other markets to encourage outside investment. Competitiveness goes beyond the headline rate of corporate tax, and includes how easy it is to interact with the tax authorities, and how easy tax rules are to comply with. The government will publish a business tax roadmap, alongside the Budget, to set out its plans for business taxes, and it will be interesting to see whether this includes a commitment to simplification.
Calls to simplify the tax system are not new. In 1995 backbench MPs passed an amendment in the Finance Act requiring the Inland Revenue to reduce complexity, resulting in changes covering capital allowances, income tax and corporation tax. More recently, the Office of Tax Simplification (OTS) was established in 2010. This produced a number of reports, many of which led to simplification, but it was then disbanded in the 2022 ‘mini-budget’.
It is a goal worth focusing on again because the tax code has continued to grow – from 5,000 pages in 1995, to 10,000 in 2010 and over 20,000 pages today. Of course, there is much more to complexity than the length of the code and simplification will need to come in many forms to make it easier for businesses. We’d suggest three areas of focus; making the tax system easier to understand and to comply with; making the practicalities of tax compliance easier with straightforward design, administrative processes, technology and guidance; and ensuring processes and guidance are clear, understandable and easy to fulfill.
The tax code has gone from 5,000 pages in 1995 to 20,000 today
A few ‘starters for ten’ would be to review existing recommendations from the OTS that have fallen by the wayside and implement workable suggestions. In the short term there are some relatively inexpensive steps, for example, re-designing forms to make them as streamlined as possible; ensure new legislation is delivered with simplification in mind alongside improved guidance to help taxpayers navigate a complex system.
The CBI has suggested – and we agree – that a ‘quick fix’ team should be established within HMRC that can address any interpretative inconsistencies between courts, taxpayers, and the tax authority, allowing for swifter outcomes.
Make tax policy consistent
Businesses consistently tell me that the constant churn of tweaks, changes and adjustments have the unintended consequence of making long-term planning uncertain. Overall, the best tax simplification will be long-term consistency of tax policy, avoiding choppiness, aligning the UK tax law with international guidelines and streamlining reporting requirements.
The business tax roadmap is a positive step. Business would benefit from clear indication of any changes in policy with good notice to allow time for HMRC to consult with business and for business to prepare. Sir Dave Brailsford, performance director of British Cycling, famously adopted the philosophy of ‘marginal gains’, reviewing every aspect of performance to find even one per cent efficiency improvements. This mentality assisted British riders in winning seven Tours de France between 2012 and 2019. The UK tax system will not be changed overnight, but consistent small improvements in clarity, certainty and process could add up to big wins in the future.
Colin Graham is head of tax policy at PwC