Tax system an “obstacle to economic dynamism” and Government efforts to simplify it need scrutiny, says Treasury Committee

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• Read other publications related to this inquiry, including written and oral evidence

In a new report, the cross-party Committee of MPs concludes that the UK’s overcomplicated tax system is an obstacle to economic dynamism, creating compliance burdens, confusion and disincentives to work or grow a business.

There are over 1,180 separate tax reliefs in existence, as well as numerous ‘cliff edges’ littering the tax system, such as the threshold for tax-free childcare and the VAT threshold for small businesses.

The Committee concludes that the Chancellor’s decision to disband the Office of Tax Simplification (OTS) – the independent body responsible for advising on tax simplification – risks signalling it is not a priority for the Government. The former director of the OTS argued the Government would miss this “champion for simplification" if the office were abolished.

The MPs argue that, given the Chancellor has stated his intention to “make progress in simplifying the tax system”, it is right the Government's performance be subject to public scrutiny. The Treasury Committee must be a core component of that accountability.

Should the Government succeed in receiving Parliament’s support to proceed with abolishing the OTS, the Treasury should report to the Committee annually on steps taken to simplify the tax system, covering both new and existing taxes. Such reports should set out the Government’s performance against tax simplification metrics, what the Treasury has done to understand taxpayer needs for tax simplification, and how the complexity of the UK’s tax system compares with other countries.

Alongside the report, members of the Committee have tabled two amendments to the Finance (No. 2) Bill (which gives legislative effect to the Budget), due to be debated in the House of Commons on Tuesday. Amendment 7 seeks to prevent the abolition of the OTS, while New Clause 2 would require the Treasury to report annually to the Treasury Committee on tax simplification should the OTS be abolished.

Chair comment

Commenting on the report, Harriett Baldwin MP, Chair of the Treasury Committee, said:

“It’s widely acknowledged – including by the Chancellor – that our tax system is over complicated, confusing and inefficient. It contains numerous cliff edges which disincentivise work, business growth and personal development.

“Disbanding the office established to champion tax simplification risks signalling the Government is not serious about the task at hand. Action needs to be taken, and public scrutiny of Government efforts are vital. That’s why we’re calling for the Government to report to our Committee each year on the success of the Treasury’s tax simplification efforts.”

Further information

• The Treasury Committee held an evidence session with the leadership of the Office of Tax Simplification in March. A video replay, transcript, and further information can be found here.
• The House of Commons will debate all remaining stages of the Finance Bill on Tuesday 20 June.

Image credit: UK Parliament/Tyler Allicock