Britain’s tax system is so complicated it has become an “obstacle to economic dynamism” and needs to be simplified, an influential committee in Parliament concluded.
(Bloomberg) — Britain’s tax system is so complicated it has become an “obstacle to economic dynamism” and needs to be simplified, an influential committee in Parliament concluded.
A review by the Treasury Committee found that there are more than 1,180 separate tax reliefs that can cause such perverse outcomes some people may end up poorer by taking a job or getting a pay rise.
“It’s widely acknowledged – including by the Chancellor – that our tax system is over complicated, confusing and inefficient,” said Harriett Baldwin, chair of the committee. “It contains numerous cliff edges which at worst leave someone worse off by earning more money, create disincentives to work or grow a business.”
The MPs also criticized Chancellor of the Exchequer Jeremy Hunt’s decision to press ahead with a decision by his predecessor, Kwasi Kwarteng, to scrap the Office for Tax Simplification, saying it suggests he is “not serious” about reform.
Hunt told the committee at a hearing that fed into the report that “taxes are too complex” and that he has instructed Treasury officials to find “opportunities to simplify existing tax rules, as well as new policy and administrative changes.”
MPs on the Treasury Committee have proposed amendments to the Finance Bill that would maintain the OTS. If it is scrapped, the Chancellor should testify once a year before the committee on how the system is being simplified, the report proposed.
As it currently stands, the tax system creates perverse incentives such as:
- The £85,000 ($108,180) turnover threshold above which companies are subject to VAT. There is “a huge pile-up of companies just under the threshold” deterring small firms from growing.
- A second earner in a low income household is “worse off by earning more money” as the family loses free school meals and uniforms, council tax help and NHS healthy start vouchers.
- A family on benefits is worse off by earning more at incomes between £50,000 and £60,000 as universal credit is tapered away and child benefit is clawed back.
- A family with full-time childcare for two children in London is better off earning less than £100,000 than nearly £150,000 due to the way in which both the income tax personal allowance and tax free childcare are withdrawn.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.