Stephen Herring argues the case for a more radical approach to tax reform after a lukewarm Autumn Statement
The overarching priority for the elimination reduction of the structural fiscal deficit is accepted by most Institute of Director (IOD) members and it is understood that substantial tax cuts, which are not capable of being matched by equivalent public spending cuts, are simply not going to happen over the next few years. This ought not to mean, however, that the Chancellor does not have scope for tax reforms, tax simplification and affordable tax cuts focussed upon business and thereby accelerating economic growth, boosting employment and, indeed, contributing to the reduction of the fiscal deficit.
Stephen Herring argues the case for a more radical approach to tax reform after a lukewarm Autumn Statement
The overarching priority for the elimination reduction of the structural fiscal deficit is accepted by most Institute of Director (IOD) members and it is understood that substantial tax cuts, which are not capable of being matched by equivalent public spending cuts, are simply not going to happen over the next few years. This ought not to mean, however, that the Chancellor does not have scope for tax reforms, tax simplification and affordable tax cuts focussed upon business and thereby accelerating economic growth, boosting employment and, indeed, contributing to the reduction of the fiscal deficit.
IOD representations to the Treasury in the run-up to the Autumn Statement identified four areas as priorities for immediate tax reforms taking effect from 2014/15 (as well as calling for lower environmental taxes on energy). We are supportive of the coalition government's road map for tax reforms which embraces the announcement of the proposed reform in the Budget followed by consultation over the summer, the publication of draft legislation in December and further consultation before the legislation is enacted by the following year's Finance Bill. Accordingly, we selected four areas which could be enacted without the need for such consultation.
Before commenting upon these four areas, however, I ought to state that we were encouraged by the Chancellor being the first in that office to describe employers' national insurance contributions as a 'jobs tax' and we welcome the removal of this jobs tax upon the under-21s who are basic income tax rate employees. Let's hope that future policy constraints allow the Chancellor to cut the jobs tax further in future Budgets.
Indexation of business rates
The first area we highlighted was the considerable opposition to the indexation of business rates in the light of the postponement of the rating revaluation. We acknowledge that the Chancellor has, in the Autumn Statement, capped the indexation at 2% and introduced a fixed £1,000 business rates discount for retail premises but we consider that he ought to have – and could have – gone further and by freezing business rates up to the implementation of the revaluation in 2017. How can it be right that many businesses, especially medium sized businesses, regional manufacturers and high street businesses will pay higher rates in the next three years when they would have paid lower rates if the revaluation had taken place?
Stamp duty land tax
Secondly, there is increasing frustration with government refusal to scrap the 'slab' or 'cliff edge' system of Stamp Duty Land Tax (SDLT). This means, for example, that an additional £1 of purchase price paid for residential or commercial premises over £250,000 increases the SDLT payable by £5,000 as the 1% SDLT rate is replaced on the entire price by the 3% SDLT rate. Such economic distortions and the creation of 'cold spots' in financial markets are especially abhorrent and it is disappointing that the Chancellor that has not removed this ridiculous aspect of SDLT.
Capital gains tax
Our third priority recognises our strongly held belief that the fiscal receipts obtained from capital gains tax would be increased, not decreased, by a reduction in its 28% rate to, say, 20%; indeed, a lower fixed rate of 18% was in place for much of the Labour Government's final term. A lower rate discourages the crystallisation of gains and the reinvestment of the proceeds. We remain optimistic that HM Treasury Ministers are sympathetic to this viewpoint and eagerly await Budget 2014 to see if the fiscal and economic drivers will triumph over any perceived political obstacles. It is quite understandable that the Chancellor has introduced a tax charge upon capital gains made by non-residents on residential investment property to create a level playing field with UK residents and he was right not to extend this to commercial property as most larger commercial properties held by UK investors are now held within UK-REITs or pension funds which do not pay tax on capital gains.
Simplification of corporation tax
Our final priority emphasises the authentic demand from our members for broad-based simplification of corporation tax, especially as it impacts upon medium size entrepreneurial companies and smaller listed companies. Many of the Coalition Government's tax reforms to date have principally benefited the largest listed companies and global corporations. We support these reforms but the Chancellor's focus for corporate taxation reform should now move to other affordable priorities. We are disappointed that the Chancellor has not used the opportunity of the Autumn Statement to, for example, simplify group relief, allow an election to deduct accounting depreciation rather than capital allowances, permit a group to file a single group corporation tax computation, improve the set off rules for genuine tax losses and, finally, to simplify and align the criteria for enterprise investment relief and venture capital trusts. Such measures could have been introduced by way of a taxpayer election, thereby avoiding the need for protracted consultation.
The late timing of the Autumn Statement 2013 means that, after a short Christmas break, we will re-focus on run up to the Budget 2014 which ought to include not only many of the tax reforms identified above but other reforms necessitating consultation with businesses and their advisers.
The Institute of Directors (IoD) has over 30,000 members who work across the business spectrum from SMEs to listed companies. The comments above reflect and build upon the feedback received by the IoD policy unit in the run-up to and following the Chancellor's Autumn Statement on 5 December 2013.
Stephen Herring is head of taxation at the Institute of Directors