Principles of Tax Policy

The Government has set out its commitment to a new approach to tax policy making, with a focus on its ambition for a more predictable, stable and simple system. Whilst we on the Treasury Select Committee have welcomed this commitment, in November last year we launched an inquiry into the fundamental principles of tax policy given our concern that the Government has not done enough to establish these principles itself.

Given that the Office of Tax Simplification has revealed that there are over 1,000 reliefs in the UK tax system, our inquiry is specifically looking at:

  • What are the key principles which should underlie tax policy?

  • How can tax policy best support growth?

  • To what extent should the tax system be structured to support other specific policy goals?

  • How much account should be taken of the ease and efficiency with which a particular tax can be imposed and collected?

  • Are there aspects of the current tax system which are particularly distorting?

Earlier today, we heard oral evidence from two panels: the Mirrlees Review team, followed by a panel of experts from the industry.

The Mirrlees Review, published by the Institute for Fiscal Studies (IFS), argues that the tax system should be considered as a whole with the benefit system, seek neutrality, and achieve progressivity as efficiently as possible.

I was particularly interested to question the IFS team about the principles of fairness vs simplicity within a tax system, and to what extent they agreed that those two issues are mutually exclusive. For instance, it would be much fairer to consider total household income for the purposes of tax, but this is substantially more complicated.

I also questioned their underlying supposition that somebody on benefits is poorer than somebody paying income tax, given the risks taken by small businesses who may go bust but still have tax bills to pay at the end of the year.

You can watch this exchange below.

We then turned to hear oral evidence from the panel of industry experts. I was keen to hear more about the panel’s views on the ease with which taxes are collected, and whether enough consideration was given to making it easier and simpler for people to pay their taxes, including the move towards self-assessment and online filing. I also was interested in their thoughts on how we can reduce the costs of collecting tax more generally.

You can watch this part of the oral evidence session below.

The TSC will publish its report in due course.