Tax is not a political football, says Stephen Herring. Politicians, tax lawyers and accountants must work together to give the UK a simplification lead

Although it is unrealistic to expect politicians not to be politicians, it is very disappointing that shadow chancellor George Osborne’s proposals for tax simplification have been launched in an adversarial and party political fashion. It is equally disappointing that Kitty Ussher, Labour’s City minister, has responded in an equally adversarial fashion.

The level of the total national tax take and the particular taxes that make this up are very fair and proper areas for party political debate. There are clearly socio-economic and political judgments concerning the most equitable manner to extract money from taxpayers (or the electorate, as politicians would think) to meet the perceived level of public spending and, in the shorter term, the amount of public borrowing considered appropriate. The recent furore concerning the abolition of the 10% tax bracket, the reduction in the rate of corporation tax and the reform of capital gains tax all involved underlying political value judgments about how taxation should be collected.

This perspective is not, however, the right one when it comes to tax simplification, which should be an imperative for all taxes. It is only through tax simplification that both individuals and businesses are able to focus their activities on economic activity to the benefit of the economy as a whole without unnecessary hindrances from excessively complex and opaque taxation legislation.

From an international perspective, while the taxation of non-domiciles and non-residents is important, of much more importance is the taxation of business activities. In my experience, international tax comparisons inevitably become complex and the principal decision often focuses upon the mainstream rate of corporation tax. A corporate tax framework that looks to reduce this rate from 28% to 20% or below at the cost of the abolition of certain highly targeted and accelerated reliefs would improve UK plc’s competitive position. For example, the corporation tax computation could merely be focused on accounting profits, assuming that the financial statements were prepared under International Financial Reporting Standards, with simple, fixed debt/equity ratios to prevent earnings stripping set at, perhaps, 4:1 or 5:1 on a group basis. Revenue & Customs would no doubt argue that some element of transfer pricing legislation would also be necessary but, hopefully, this could be simplified.

In essence, this requires an acceptance by all major political parties that tax rates should be reduced as far as possible, with the funding for rate cuts being provided by the abolition of unduly complex and expensive-to-administer tax reliefs and exemptions. It will be incumbent upon the tax profession to support both the objective of tax simplification and the particular goals to achieve this, but to resist the temptation for knee-jerk responses to tax simplification measures by identifying ever more obscure and marginal downsides to every simplification measure.

If the three major political parties, tax lawyers and tax accountants could agree that tax simplification should, indeed, be at the top of the agenda for the taxation of individuals and of businesses, and if everyone could show some willingness to avoid the cheap shot, the UK could seize the real prize available to the first advanced economy that shows itself to be determined to work progressively towards a simpler taxation system. This is, as footballers might say, ‘a big ask’ but the alternative is more years where tax simplification is no more than a meaningless phrase and a football kicked around by successive governments, oppositions and tax commentators.

Stephen Herring is senior tax partner at BDO Stoy Hayward.