IFS review set to make waves

The report, commissioned by the Institute for Fiscal Studies, is being billed
as a new incarnation of the Meade report from the late 70s. That review
underlined ideas of moving from a direct tax burden to an indirect tax burden, a
shift that took place throughout the 1980s as the Tory governments then hiked
VAT and dropped direct tax rates.

The challenge for the Mirrlees report will be to find a unifying idea that
carves out a future UK tax system. Can the difficulties of tax complexity be
resolved without creating windows for avoidance? Can the global mobility of
companies and capital and the difficulties of transfer pricing be resolved in a
sensible way?

The difficulties for Mirrlees may be as much about staying ahead of the curve
as anything else.

The Treasury is currently undertaking its own review of international
taxation for instance, which takes into account a possible scrapping of tax on
dividends and limitations to group relief. If it moves on that before the IFS
review is concluded, it will have different issues to wrestle with, and perhaps
fewer complications relating to the EC Treaty rules, which the UK government is
trying to resolve through the discussions.

Separately, the Tories are set to report on their views on tax, which revolve
around two ideas: cutting corporation tax to stimulate growth; and scrapping the
range of reliefs which complicate the tax system.

That, equally, will pose a challenge to the IFS should the Tories come to
power, in terms of shaping the direction of the tax system.

Looking at the review’s participants, it is strong on economists and short on
business experience, giving it the scope to think broadly and originally. But
will business feel the result is distant from reality?

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