Why the UK needs a Tax Policy Committee

Friday, January 08, 2010 | Posted by: Richard Jameson
Categories: Protecting your wealth | Tags: Richard Jameson, budget, legislation, tax policy, PBR, consultation, tax manifesto, petition, Monetary Policy Committee, MPC, committee, pre-budget report

The Pre-Budget Report is the second most important date in the tax calendar, second only to the annual Budget. It is often a time when a flurry of draft legislation is announced. In the run-up to a general election, the PBR often heralds the drawing up of battle lines. The danger with this is that political considerations can cloud tax policy. Remember the 10p tax debacle?

In the second of my series looking at Grant Thornton’s Tax Manifesto – in November I looked at NIC surcharges – I have considered the idea of establishing a tax policy committee. Why not create a committee to inform tax policy, a committee that can draw on experts to work with Parliament to formulate tax policy?

This idea is not new. There is a precedent: the Bank of England’s Monetary Policy Committee (MPC).

The MPC was granted independence in 1997 with the objective of setting the Bank’s base rate to meet its inflation target. Individuals are appointed to the Committee for fixed terms. One of the reasons for this is to remove the political pressures of potentially inflating/deflating the economy at different times according to the political cycle.

But there are other advantages…

Transparency
The MPC meets monthly and publishes its minutes from each meeting. This level of transparency is not always visible for tax policy. Sometimes, the decision-making for tax policy finds its way into the public arena by virtue of a Freedom of Information request, for example into the subject of removing the dividend tax credit for pension funds. What was apparent from this was that the impact of the policy – around £5bn tax annually on pension funds – was known ahead of its implementation. The disclosure of this highly sensitive information led to furious claims and counter claims from Government and bodies that had consulted on the change at the time.

Avoiding unintended consequences and saving time
When broad tax policy is being reviewed there is no guarantee that there is consultation with those who understand it the most. Much time can be saved if final draft law would have been more refined and if these proposals had received input at an earlier stage.

Greater consultation
It must be said that the current Government has been involved in wide-ranging consultation, which is to be commended. But some tax changes occur which appear to sidestep the consultation responses received and others are set with little time for discussion of policy, with the consequence that not all vested parties may be represented and/or not all relevant issues are considered.

The way forward?
Ideally, all tax policy should be put to public consultation but should also be reviewed by a Parliamentary Committee.

Legislation could receive an appropriate level of consideration by Parliament, which may not always be the case during the rushed Finance Bill process (ahead of Parliament’s summer recess). The added value of a Parliamentary Committee is that it can use tax experts and relevant business people to feedback on the best ways to achieve particular results but also provide practical considerations to avoid unintended consequences.

So once the dust has settled from last year’s Pre-Budget Report, perhaps this idea will gain greater momentum?

Sign Grant Thornton’s e-petition to Downing Street to set up a tax policy committee - you can read more about the petition details here.

Visit Grant Thornton’s Tax Manifesto web page to find out more about our proposals for pragmatic tax changes following the 2010 general election. The Tax Manifesto combines economic analysis undertaken in conjunction with Lombard Street Research with the solicited views from a business community of 500 UK finance directors.