Gerry Brown, consultant at QB Partners, considers the implications of the announced closure of the Office of Tax Simplification.
In his speech to Parliament on 23 September the then Chancellor Kwasi Kwarteng said: “I’m hugely grateful to the Office of Tax Simplification for everything they have achieved since 2010. But instead of a single arms-length body which is separate from the Treasury and HMRC, we need to embed tax simplification into the heart of Government. That is why I have decided to wind down the Office of Tax Simplification, and mandated every one of my tax officials to focus on simplifying our tax code.”
The Office of Tax Simplification (OTS) was set up in 2010 as an independent adviser to the government on simplifying the tax system. Its role was to offer recommendations and advice to the Chancellor about how to make the UK tax system simpler, not least for individuals and smaller businesses. The OTS was staffed by a team drawn from both the Civil Service and the private sector.
It is understood that the current projects will continue until they are completed. Its report on the taxation of property income is due for publication in October. It will continue to gather evidence on its review of ‘hybrid and distance working’.
HM Treasury is tasked with conducting reviews of the effectiveness of the OTS in performing its functions every five years. The last five-year review covered the period ending 28 November 2021. This report made a number of suggestions which can be summarised as follows;
- OTS should explain the reasoning behind its recommendations. This is particularly important where there are trade-offs between simplification and other government policy objectives;
- It should more clearly prioritise those recommendations which the OTS considers of most value to taxpayers;
- The breadth and balance of knowledge, experience and expertise within OTS should be maintained and expanded while it should also seek professional expertise in how it consults externally;
- OTS should consider the volume and type of output it produces, and focus more on activities that build its preliminary evidence base and embed its work; and,
- It should clarify its aims and objectives in light of its interpretation of ‘tax simplification’, using this to inform which areas it will prioritise over the next five year period to maximise its impact.
Clearly there was still a lot to do.
According to a 2020 article in Taxation magazine, the UK has the world’s longest tax code with in excess of ten million words. That is more than eleven times the total number of words in Shakespeare’s plays or over twelve times the number of words in the King James Bible.
The main reason for this length is that simple concepts are complicated by numerous reliefs and exemptions. An example is the exemption from capital gains tax for an individual’s private residence. There can be no doubt that when capital gains tax was introduced in the 1960s a political decision was made to exempt gains on such residences and few would disagree with that approach. However the legislation has add-ons covering, among other things ,
– residences provided for dependent relatives,
– situations in which the individual is not in actual occupation but remains the owner,
– situations in which the individual has more than one residence
– trustee owned residences
– treatment of gains following a divorce
– considerations as to whether gardens or grounds also qualify for relief
There may be good grounds for such possible extensions of the relief but they add considerably to the length of the legislation.
Perhaps the main reason for the downfall of OTS is that it was unable to deal with policy considerations except in the broadest sense. Politicians and ministers set policy – civil servants (and the OTS was an independent office of the Treasury) implement that policy. The OTS had to accept the reliefs and exemptions that flowed from policy decisions. It could make recommendations on the implementation of policy but could not (except to a very limited extent) help formulate policy.
We are told that tax simplification is still on the government’s agenda but that such simplification will now be the responsibility of the Treasury and HMRC. It remains to be seen how effective that change will be.
