1.The coronavirus crisis has generated one of the greatest shocks to the UK’s economy in the past 300 years. It has accelerated the UK’s public debt at the fastest rate ever seen in peacetime. After the crisis has passed, it will have exacerbated the long-term pressures on the public finances that are projected to see revenues and spending diverge indefinitely if no action is taken.
2.In July 2020, we announced an inquiry into Tax After Coronavirus. Our overall aim has been to form a view of how the tax system should respond to ensure long-term fiscal stability. Specifically, we set out to examine, amongst other issues:
3.We have been selective in our approach to these questions. A full and detailed survey of the UK tax system would be beyond the scope of a report such as this: the tax code is complex and runs to thousands of pages. We have chosen to focus on elements of the tax system which are in clear need of reform.
4.Chapter 2 provides an analysis of the scale of the long-term public finance challenge, the extent of the fiscal legacy of the pandemic, and the taxable capacity of the UK economy.
5.In Chapter 3, we make recommendations on immediate action to assist business recovery in the short term. We have considered elsewhere, in a series of reports on the economic impact of coronavirus, other forms of support which could or should be offered to support businesses and employees who have suffered during the crisis.
6.The majority of this report, however, considers options for change over the medium to long term. Some of these options relate to new taxes: Chapter 4 considers new taxes on wealth and business. Other chapters look at the scope for reform of existing taxes. Chapter 5 assesses options around the three taxes that contribute most revenue: income tax, VAT, and national insurance contributions. Chapter 6 examines a range of other taxes which are widely seen as in need of reform. We include in this chapter the taxation of work, pensions and digital services, capital taxes, and local taxes.
7.The final chapter—Chapter 7—takes a broad overview of the tax system and sets out the case for a new approach to both policymaking and implementation. It considers the merits of a high-level tax strategy and the efforts that have been made for simplification.
8.The virus, along with other factors such as growing demographic pressures, has resulted in an increased requirement to look at taxation to raise revenues. However, alongside revenue raising there is also a strong case for reform. Taxes can have distortionary and damaging effects including, for example, the way in which the differing tax arrangements for the employed, the self-employed and those working through their own limited company are steadily eroding the tax base. Other factors that need to be considered include the phasing out of petrol and diesel cars, the decline in the high street and the rise of online shopping, which could in turn result in reduced tax yields.
9.In some ways the pressures on the public finances and on tax yields present the Government with an increased opportunity for substantial and structural reform of the tax system. Making this point, Paul Johnson, Director of the Institute of Fiscal Studies (IFS), told us: “If you are in the business of raising taxes and putting in big reforms in the scale of the tax system, you have an opportunity to make changes to the structure as well”.
10.We hope that this Report can make a useful contribution to the debate on tax reform. It is informed by written submissions from a wide range of individuals, businesses and third sector organisations, most of whom highlighted concerns with the present tax system. 25 witnesses, including the Financial Secretary to the Treasury, gave evidence over the course of seven oral evidence sessions. We thank all the witnesses for their time and expert comment, and we are grateful to everyone who submitted written evidence. Both the oral evidence and the published written evidence is available on the Committee’s webpages.
1 See Chapter 2 below
2 Full terms of reference are at
4 Office for Budget Responsibility, Fiscal Risks Report, , July 2019, p78, para 4.19