“publish individual reports on its inquiries that set out evidence it has collected, including on the views of interested parties, its analysis of potential options, and proposals for simplification. The Board members will meet the Chancellor or the Exchequer Secretary to the Treasury following publication of each report to discuss its findings. The Chancellor will lay the Office’s reports before Parliament, and Board members may be required to give evidence before the relevant Parliamentary committees on the contents of these reports”. (www.hm-treasury.gov.uk/ots.htm)
But since the Office is hardly one month in existence, it is too early to say how effective it will be. In a year or two, analysts will be able to judge if the Office has stood up to its stated objectives and has achieved noticeable simplifications in the tax code. Moreover, in the documents released by the OTS so far, no concrete plan of action is mentioned, making it difficult to predict how successful this measure will prove to be. In the meanwhile, it is interesting to study more concrete proposals put forth by financial analysts and political commentators. In an article written for CPI Financial, its Chief Editor presents a few valid points. Firstly, there has to be a stable tax policy. The New Labour Party, despite being in power for thirteen years has failed to bring a semblance of stability to the taxation policy framework. With every passing Budget, more changes and complexities have been added during the New Labour regime. In order to arrive at a simpler set of tax laws, the government needs to be firm with its policy framework. The added advantage of such simplification is that it will attract foreign investments. Also, “if the Government is looking to rationalise the tax code, an obvious candidate for abolition is the fund-specific and very low tax-generating Stamp Duty Reserve Tax regime. If this tax was abolished, the UK could then capitalise on the growth opportunities created by the revised UCITS Directive and the Alternative Investment Fund Managers Directive. This would bring more business to the UK and therefore greater tax revenues.” (Brummer, 2007)
Similar constructive inputs to simplify the tax system have come from renowned economists of our time as well. For example, Ludovit Odor, the chief economist at Slovakia’s ministry of finance has made important contributions to economic reforms in Europe. Meeting up with prominent members of the Conservative Party on the occasion of the Seventh Annual Julian Hodge Institute of Applied Macroeconomics lecture at the National Museum of Wales in Cardiff, the veteran economist made some valuable suggestions toward simplifying the tax system in the UK. Ludovit Odor told the attendees of the lecture that “if Wales followed the example of Slovakia, corporate tax rates would be cut in half. A radical simplification and reduction in corporate tax could stimulate economic growth dramatically”. (as told to David Williamson, Western Mail, May 10, 2006) He noted that dominant members of the EU, including the UK will ultimately have to modify their taxation rates to the standards set by newly joined members of the EU. He further added, “in our experience, and in that of other countries in Eastern and Central Europe, the flat tax is a success story. If a flat tax regime is currently too radical for the UK, then definitely a simplification and flattening of the tax system will be helpful for the British economy.” (as told to David Williamson, Western Mail, May 10, 2006) Inputs such as these could be very valuable for officials in the Office for Tax Simplification, for intellectuals such as Ludovit Odor have been involved in key economic development programs in Europe in the past.
Another measure taken by the UK government in simplifying the tax system is the instituting of Tax Policy Committee (TPC). Taking cue from the successful role played by the Monetary Policy Committee (MPC) over the last ten years, the government saw merit in setting up a similar regulatory body. In the case of the MPC, the prime objective was to control inflation through careful adjustment of bank interest rates. Following a similar operating model as the MPC, the TPC is expected to issue tax policy decision that would be “more effective, open, accountable and free from short term political manipulation”. (The Daily Mail, 2007, July 16)
“Like inflation, the effective management of the taxation system is an important factor in helping to encourage long-term stability and competitiveness in the economy. Tax simplification is no mean feat. It will take a valiant and determined group of people to tackle issues such as capital gains tax taper relief, inheritance tax in relation to trusts, national insurance and income tax benefit rules, VAT partial exemption; the list is endless. AND because tax touches all aspects of our personal and business lives, there would undoubtedly be a lot to review and discuss. An independent, apolitical group to tackle tax issues would be the more modern way of doing things”. (Graetz & Warren, 2006)
But the TPC alone will not be able to achieve the intended simplification. The Budgetary process also needs an overhaul. There is a compelling case to be made for any newly appointed Chancellor to set long term Budgets at the beginning of a Parliament and make small adjustments to it each year. The TPC will also bring in an element of certainty to the tax system. It would also be instrumental in creating “independent, transparent and robust consultative mechanisms about key tax changes” (The Daily Mail, 2007, July 16). In collaboration with HMRC and the Treasury, the TPC can greatly help simplify the present tax system.