HMRC’s promise to the Treasury Select Committee that it will keep trade moving smoothly after Brexit, coupled with the Green Budget from the Institute for Fiscal Studies which indicates that by 2022 the UK tax burden will be at its highest level for more than 30 years, are unmissable reminders of the importance of the UK tax system both before and after Brexit.
There is a parallel view that Brexit and the evolving demands which will be placed on the UK tax system provide a once-in-a-lifetime opportunity to review tax policy and to create a tax system which is much more closely aligned to the needs of the nation.
The discussion was infused with a very great degree of realism, reflecting both the huge amount of work which has already been done on designing the UK’s tax system, and the recognition that in the run-up to and immediate aftermath of Brexit there will be minimal parliamentary time for any new tax legislation.
Having said that, the meeting recognised clearly that the UK tax system should be based on the “canons of taxation” put forward by Adam Smith and by others. These fundamental principles include:
- equity – tax should be levied on citizens on the basis of equality and in proportion to their income
- certainty – the amount of tax a person has to pay, to whom and when should be clear beyond doubt
- convenience – a good tax policy must be convenient for the taxpayer.
- economy – the costs of collecting taxes should be minimised in proportion to the amount of tax
- productivity – enough tax should be collected to run the country and to work for the welfare of its people
- elasticity – the tax system should be flexible so that the tax burden can be increased or reduced according to changing circumstances
- simplicity – the tax system should be so simple that the taxpayer can understand its complications without expert help
- diversity – different taxes should be used to spread the burden across society and to reflect changing economic times
Regular readers of tax brief will groan at the disparity between some of these fundamental principles – particularly simplicity – and the actual state of the UK tax system!
With £17bn of tax changes still in the pipeline from earlier budgets, and the IFS suggesting that a total of £40bn of tax increases or spending cuts will be required by 2022, it was felt that transparency and accountability in the UK tax system will play greater roles than ever before. Instead of short-termism, scapegoating and grandstanding, the emphasis should be on fostering a public debate regarding the role of tax in the provision of public services. Behind the headlines, what are citizens’ expectations? Are those expectations reasonable? How can they be met? And how can public trust in HMRC be rebuilt?
Clearly, the UK tax system must be more flexible than ever before, to cope with everything from geopolitical change to disruptive technologies affecting the way people work, the way businesses are run and the way economies function. The UK may be about to leave the EU but, in tax terms at least, it is not an island.