Towards Better Tax Policymaking


I recently picked up the tax review report written by Mirrlees et al. back in 2011 and was very disappointed to find how few of the sensible, progressive recommendations made in that report have been followed through. There has been some tinkering around the edges but no fundamental reforms. But looking at the parliamentary meltdown surrounding Brexit it is not difficult to see why there are rarely game changing tax reforms as party political tribalism prevents genuine cross-party approaches – if there cannot be cross-party consensus on something as fundamental as Brexit what chance does income tax or inheritance tax have.

Short-termism

The issue is the short-term nature of politics and the consequential policy making. Parties have to garner votes and any tax change that can be perceived or spun as being detrimental to a particular group of the electorate is never proposed or if it is proposed, is shot down in flames. Just look at the proposal made by the conservatives in the 2017 general election to address the social care funding crisis. The proposal suggested that people would pay for their own care out of their own wealth, subject to a floor on their resources. This seemed like a good first step in addressing the issue in a realistic way albeit requiring much consultation. However, this was pounced upon by the opposition and the media as a ‘dementia tax’ and immediately withdrawn.

This behaviour inevitably leads to a policy setting through media consensus rather than addressing real issues faced by the population and resolutely doing the best thing for the country. It also means that every policy is introduced as a winners vs. losers battle, creating division and highlighting extreme worst cases rather than the overarching national benefit. It also leads to hidden tax rises to raise funds such as fiscal drag, removing allowances etc. (mastered by Gordon Brown during the Blair years) or tax rises by another name (national insurance – still not described as a tax despite the link between NI contributions and pension/NHS funding being broken years ago).

Bandwagon policy making

This bandwagon policy making (riding the wave of populist outrage) means the policies that are introduced treat the symptoms and not the cause of the issue. The recent consultation document of IR35 in the private sector being a classic example. The anti-avoidance measure introducing further complication into an already over complex tax system rather than the government having the political strength to change the underlying issue being the discrepancy in treatment of tax of ‘employment’ dependent upon the structure used to engage that worker.

Cross-party is the only real solution

I fear this situation is likely to continue as the two-party system has become ever more entrenched in recent years making cross-party tax policy consensus much more distant. One light has been the parliamentary select committees which have addressed serious areas of public policy across the House. If we can feed tax policy through these structures, we may have hope of progressive change.

#Taxpolicy #IR35 #Politics

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