Policy recommendations from the Tax Professionals Forum

Chris Sanger

Speed read

In December, the Treasury published the latest report of the Tax Professionals Forum on the coalition government’s handling of the tax policy making process in the period up to the election. The report contains four key recommendations – to deliver on promises or provide explanations where not delivered; to avoid rushing through legislation in a pre-election Finance Bill; to clearly define the Office of Tax Simplification (OTS); and to integrate international reform into the UK’s consultation framework in the consultation and policy development process – as well as reporting on how the government fared against the recommendations of previous reports.

Chris Sanger (EY) considers the Forum’s key recommendations on the coalition government’s handling of the tax policy making process in the period up to the election.

My Christmas list this year included a number of books; and my subsequent New Year’s resolutions included making more time to read them. For those of you who are in a similar position (or indeed who are already on the lookout for more reading material), there is one document that you might otherwise have missed. That is the Fourth annual independent report of the Tax Professionals Forum, which was published on 17 December, along with the response from the government.

As set out in the box below, the Tax Professionals Forum was set up to hold the government to account over the way it makes tax policy and this fourth report seeks to do exactly that. The report completes the work of the last parliament and draws conclusions on the period up to the general election. The reappointment of the Forum members reinforces the government’s commitment to ‘living the values’ set out in the document Tax policy making: A new approach, including that of taking criticism where it is due.

So what’s covered?

The fourth report covered the period from 1 January 2014 to 30 March 2015 (the date of the dissolution of parliament) and was somewhat busier than earlier reports, as it encompassed not one, but two, budgets. With the ongoing intention to publish the Forum’s reports around the time of the Autumn Statement, we can expect next year’s report to also cover two budgets, namely the so-called Summer Budget of 2015 and Budget 2016.

The aim of the report is to reflect on the outcomes of the period concerned and to raise areas of concern. The areas covered in the report are discussed with the financial secretary to the Treasury in our regular meetings, but also form part of the public record. Over time, it is hoped that these areas will diminish and that policy making will adapt to address the shortcomings that these reports identify.

This year, we have also seen the publication of a response to the findings by the government, a helpful innovation that maintains the productive dialogue that policy requires.

This year’s findings

The report follows the now traditional approach of identifying key lessons from the Budget and Finance Bill in the period, and provides examples of good (or indeed bad) performance against the lessons identified in previous reports. This year, the Forum identified four new lessons and four areas where government has either made improvements or has not yet learned from past efficiencies.

1. Deliver on promises or provide explanations

One of the features of the new framework for tax policy is an increased level of consultation, as most policy changes go through the five stages identified in Tax policy making: a new approach. In many ways, this is a great approach that leads to better policies and better implementation. However, it also runs the risk of creating consultation fatigue, as the extent of consultation becomes a burden in its own right.

In order to mitigate this risk, it is really important that the contributions to consultations are seen to be worthwhile and considered. Of course, the government will not adopt all that is asked for by respondents; where its view differs, though, the government should explain why. In many cases, the ‘Summary of responses’ documents provide just that explanation, explaining what decisions have been made. It is important that these are carried through.

For example, HMRC’s response to the consultation on the direct recovery of debts, which gives HMRC the power to collect a tax debt by way of a deduction from the taxpayer’s bank account, included the agreement that a face to face meeting between HMRC and the taxpayer would be introduced as an additional safeguard. In the event, this requirement was not included in Sch 8 of F(No. 2)A 2015, which granted HMRC this power. No explanation was made at the time as to why this was not included in the legislation.

2. Take time to get things right – particularly before an election

The length of the Finance Bill has become a perennial moan whenever one is published, but the pre-election Finance Bill, at 127 sections and 21 schedules, deserves a special mention. Although it contained important legislation (including pension flexibility and the new diverted profits tax), it passed through Parliament with barely a comment, due to the curtailment of the debate. By way of contrast, the pre-election Finance Act 1979 had but two pages of rate allowances and changes, and the pre-election FA 1992 consisted of 11 sections and one schedule.

Given the predictability of the timing of pre-election Finance Bills (following the Fixed Term Parliament Act 2011), the Forum considers that an agreement should be reached between HM Government and HM Opposition that the Finance Bill immediately before a general election is limited to:

changes to tax allowances and rates;
essential anti-avoidance legislation that cannot be postponed; and
uncontroversial amending legislation to correct errors or lacunae from previous the Finance Act.
In practice, there are very few changes that could not have been postponed until after the election.

3. Embed the role of the Office of Tax Simplification

Despite protestations to the contrary, the Office of Tax Simplification (OTS) has become a creature of policy making, as it tackles many of the issues that the government appears fearful to consider in its own right. However, the OTS does not feature in the five stage consultation framework that the government operates, and hence it is not clear whether its work obviates the need for consideration of the early stages of consultation, once the government has accepted the rationale for a policy change.

Given the increasing role to be played by the OTS (as further exemplified by clauses 83 to 88 of Finance Bill 2016, which establishes the OTS as permanent and defines its functions in statute), the government should review the consultation framework and set out the various roles that the OTS can play in the consultation process. These may differ depending on the policy, so it will also be important to identify which option applies to each policy proposal on a case by case basis. None of this would undermine the independence of the OTS, but would address risks of policy fatigue or lack of engagement with the OTS.

4. Consult before, not after, international agreements

It will have escaped no one’s attention that a key area of policy reform has been the international tax architecture, whether at the OECD/G20 level on base erosion and profit shifting (BEPS) or at the European Commission level. However, despite the vast discussions being undertaken in Paris and Brussels, there has been very little consultation in advance of agreeing any framework.

There is a concern that a large part of tax policy is now being developed through intergovernmental discussions, with minimal domestic consultation. The UK is now consulting on its response to the BEPS actions, but the government should have consulted prior to the finalisation of the international framework. With the exception of the December 2014 consultation on hybrid mismatch arrangements, many other matters addressed in the BEPS project have not had such consultation.

Of course, the OECD has held public consultations and received substantial amounts of comments on the proposals, but this does not replace the need for consultation at the national level, as the structure of and response to the OECD consultations differed significantly from UK domestic legislation consultations. The OECD consultations do not follow the same five stage approach adopted for the development of UK domestic tax policy, nor do they preclude domestic consultation.

There is a mismatch between the government’s commitment to consult on the development of tax policy where this relates to domestic tax changes and where this relates to international tax changes, as there is no equivalent consultation process regularly applied where tax policy is developed internationally, in cooperation with other governments.

If consultation improves the quality of, and buy-in to, tax policy changes, then that is equally the case where the policy is developed together with other countries.

Retrospection

Another aspect of the Forum’s role is to hold the minister to account over the use of retrospective and unscheduled announcements; and, in particular, to comment on whether any such change was within the restrictive protocol that the government has imposed upon itself. This year’s report notes only one announcement with immediate effect and this was within the protocol.

Conclusion

The government has since responded to the points, and the Forum hopes that the lessons identified in this year’s ‘crop’ will be embedded into the policy making process. In the meantime, if any readers have concerns on the Summer Budget 2015 and the Finance Act, or indeed as we go through the next Budget and Finance Act, please do reach out to the Forum members. Delivering the new approach to policy making requires active engagement.

The above views are personal and not necessarily those of the author’s employer.

Issue: 1294
Categories: Analysis , Tax policy & administration , HM Treasury , impact of policy decisions , Office of Tax Simplification , OTS , tax policy , Tax Professionals Forum