Written evidence submitted by the NFU
EXECUTIVE SUMMARY
The NFU represents more than 55,000 farming members
in England and Wales. In addition we have 41,000 countryside members
with an interest in farming and the countryside.
The Treasury Committee recently announced that it
had decided to launch its own inquiry into the principles which
should underpin the UK tax system and invited written evidence
on the following questions:
— What
are the key principles which should underlie tax policy?
— How
can tax policy best support growth?
— To
what extent should the tax system be structured to support other
specific policy goals?
— How
much account should be taken of the ease and efficiency with which
a particular tax can be imposed and collected?
— Are
there aspects of the current tax system which are particularly
distorting?
The NFU wishes to contribute to the inquiry and has
set out below points in response to each of the questions posed.
RESPONSE
1. What are the key principles which should
underlie tax policy?
1. (a) The key principles of tax policy are that
it should be fair, progressive, and support the policy objectives
of other Government departments. Tax policy should be supportive
of UK business and encourage and aid their international competitiveness,
resilience and growth.
1. (b) For example, in the case of agriculture,
the Department for Environment, Food and Rural Affairs has produced
a Structural Reform Plan which highlights that the Government's
policy is to support and develop British farming and to increase
domestic food production. The Government states that it will help
to enhance the competitiveness and resilience of the whole food
chain, including farms and the fish industry, to ensure a secure,
environmentally sustainable and healthy supply of food with improved
standards of animal welfare.
1. (c) We would therefore expect tax policy to
reflect these wider Government policy objectives by supporting
businesses during the recovery period and incentivising investment
in food production, environmental and animal welfare improvements.
We would also expect to see further incentives to encourage growth
in the green economy and a removal of any existing barriers preventing
green growth and employment.
2. How can tax policy best support growth?
2. (a) Tax policy should encourage businesses
to invest in improving their competitiveness, resilience and maximising
their potential for growth. The resulting tax system must however
be sufficiently sophisticated to achieve these aims whether the
business is within a service industry or a manufacturing/production
industry and ensure it is equally fit to suit a range of business
scales covering both incorporated and unincorporated businesses.
2. (b) The Government recently announced a review
of Corporation Tax with the aim of encouraging businesses' competitiveness,
investment and growth. However in formulating tax policy which
best supports all businesses to maximise their potential for growth
it is important to recognise that 99% of businesses in the UK
are small and that nearly 75% of businesses in the UK operate
as unincorporated entities. (BIS statistics for 2009).
2. (c) In addition it is important to recognise
that businesses structure, business size and entrepreneurial activity
can also be affected by location. For example a higher proportion
of unincorporated businesses can be found in rural areas than
in urban areas, there are more micro businesses in rural areas
than in urban areas (88% compared to 81%) and yet both the highest
proportion of businesses trading for 10 years or greater can be
found in the most rural areas and total early-stage entrepreneurial
activity is higher in rural areas than in urban areas and similar
to that found in Inner London. It is therefore essential that
all sizes and structures of business are equally encouraged by
tax policy and that tax policy is effectively rural proofed. (Commission
for Rural Communities publication—"State of the countryside
2010")
2. (d) In summary tax policy must be formulated
to meet the needs of all UK business and not just businesses which
operate as incorporated entities.
3. To what extent should the tax system be
structured to support other specific policy goals?
3. (a) As we have indicated in our response to
question 1 above, we believe that in addition to growth tax policy
should support the policy objectives of other Government departments
in areas such as food security, animal welfare and climate change
mitigation.
3. (b) The tax system must recognise and support
those industry sectors which face specific challenges in order
to fully contribute to the Government's wider policy objectives
and which do not necessarily affect the majority of taxpayers.
4. How much account should be taken of the
ease and efficiency with which a particular tax can be imposed
and collected?
4. (a) Clearly it is desirable to design taxes
which work well and are easy to impose and efficient to collect.
However it is also very important that taxpayers are able to easily
identify and pay the correct amount of tax and that mechanisms
are in place to ensure that the collection of taxation is accurate
for all taxpayers.
5. Are there aspects of the current tax system
which are particularly distorting?
5. (a) The speed and frequency of change in tax
legislation over the past 10 years has created great uncertainty
for taxpayers and has we believe impacted on business confidence.
Certain changes have also produced unexpected tax consequences
where business decisions have been taken based on the availability
of tax relief at the time of investment only for subsequent changes
in tax legislation to remove or reduce the tax relief given.
5. (b) An example of this from the agricultural
industry is where investments were made in agricultural buildings
(which generally depreciate in value) prior to 2007. At that time
there was a legitimate expectation that tax relief, in the form
of Agricultural Buildings Allowances, would be given on such investments
over a 25 year period. However in 2007 an announcement was made
that Agricultural Buildings Allowances would be abolished. This
announcement was made without any prior consultation and resulted
in up to 90% of the expenditure already made not receiving tax
relief.
5. (c) It is important that businesses have a
stable tax system if they are to have the confidence to take long
term business investment decisions.
5. (d) In addition we believe that the cost and
administrative burden of employment is currently prohibitive,
particularly for smaller businesses. The level of employers' national
insurance contributions, future compulsory employer pension contributions
and the general administrative burden of the PAYE system all act
as disincentives to employment.
5. (e) We do however welcome the announcement
that changes in tax legislation will be less frequent and that
consultations on proposed tax changes will be held wherever possible.
We also welcome the announcement that draft tax legislation will
be published as early as possible allowing for greater scrutiny.
January 2010
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