Tax reform: a recipe for disaster

Lord Howe’s recent Making Taxes Simpler report has been widely
welcomed, and rightly so. It criticises the exponential growth of the tax code,
fiscal complexity and the government’s repeated failures to consult
appropriately on tax changes.

The report recommends the setting up of an Office of Tax Simplification and a
parliamentary select committee on taxation. The former would suggest reforms to
the fiscal system, the latter will take evidence from experts.

Clearly, these will be bodies with some influence.
But one essential component is missing. The bodies have no power. This is clear
both by implication – the report uses verbs like scrutinise, recommend, examine
and listen; and it is also explicit – the bodies ‘have no power to initiate tax
changes…there would be no threat to the Commons privileges in the fiscal field’.

The Tories need to be braver than this. One of prime minister Gordon Brown’s
better decisions was granting independence to the Bank of England. We need
something similar on the tax front.

The report declares that the changes will ‘revolutionise the framework within
which we make tax law’. Sadly, they won’t. There can be no revolution without a
transfer of power.

The right to veto administratively burdensome legislation would be a start.
This could be the fiscal equivalent of judicial review – new tax laws would be
judged by independent standards of fairness, proportionality and legitimate

And if (as is likely) a veto is seen as a step too far, the OTC could have
the power to declare tax law incompatible with these standards, following the
model of the Human Rights Act. The knowledge that sub-standard laws could be
struck out or declared incompatible would itself act as a discipline on
ministers and Treasury officials.

Lord Howe’s report correctly says that tax reform is urgently needed. But
real change requires a transfer of (at least some) power to people who
understand fiscal mechanics, just as power over interest rates was given to
economists and financiers at the Bank of England.

I hope the mechanism for this transfer of power, as well as its scope and
limits, will form the subject of his next report.

Anne Redston is visiting professor in revenue law at
King’s College London. She writes in a personal capacity

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