Principles of tax policy - Treasury Contents


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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