TaxPersonal TaxView from the House – Malcolm Bruce

View from the House - Malcolm Bruce

Chancellor Gordon Brown is in the process of making the tax system much more complicated. This may be good news for tax accountants but it is bad for the efficiency of the tax system.

Nigel Lawson reduced the number of personal taxes to four. Kenneth Clarke doubled it to eight.

Gordon Brown has raised it to 56.

The chancellor has also deliberately changed the way the Budget analysis is presented to remove straight comparisons with previous Budgets. So, for example, the Treasury no longer publishes the impact of the Budget on an average household.

Changing the presentation of tax credits has been used to claim the tax burden has been reduced under Labour.

In fact, comparing like with like, the tax burden, which rose as a percentage of GDP under the Tories, will continue to rise under Labour during this parliament.

The introduction of the ten-pence tax rate is a complication that has done less to boost the take-home pay of lower-income earners than an increase in the personal allowance. Also, by excluding the income from savings from the ten-pence rate, the chancellor has left low-income pensioners paying 23 pence on savings interest.

The chancellor seems to have a particular down on pensioners who have savings or small investments. Last year, he withdrew tax refund on dividends to non-income taxpayers. This year, as reducing interest rates cut the yield on savings, the chancellor has missed the opportunity to help small savers and make it easier for financial institutions to pass on the full interest-rate reductions to borrowers.

The chancellor’s use of the escalator on fuel tax is also bringing the idea of green taxation into disrepute. Taxing pollution and applying the revenue to tax cuts elsewhere has merit. Mr Brown, however, has increased the tax on road fuel without corresponding tax offsets or coherent thought as to what behavioural changes are sought and would be practical.

If he carries on like this, Mr Brown will soon need to be replaced by a reforming chancellor who can unravel the damaging complications he has created.

Malcolm Bruce is Liberal Democrat MP for Gordon and the party’s spokesman for Treasury affairs

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