Chapter 6: The New Approach To Tax
Policy-Making Since 2011
191. This chapter begins by setting out the five-stage
consultation approach to tax policy-making adopted by the Government
in 2011 and the main conclusions and recommendations of this Committee's
inquiry[170] into this
new approach. It then goes on to assess the process of developing
tax legislation since 2011, including the current partnership
tax proposals, against the benchmark set by the new approach and
the recommendations in our 2011 Report.
The Tax Consultation Framework
192. The Government's new approach to tax policymaking
is intended to help bring about a clearer, more stable and predictable
tax system with better tax legislation and more effective scrutiny
of proposed tax changes. It consists of a formal commitment to
full and open consultation, except in exceptional circumstances,
at every stage in the development and implementation of a new
tax policy proposal.
193. The approach the Government intended to
follow in developing future tax changes was outlined in June 2010
and finalised on Budget Day 2011 in the Tax Consultation Framework.[171]
This sets out five stages in the policy-making cycle at each of
which full and open consultation should take place as a matter
of course:
(1) setting out policy objectives and identifying
options;
(2) determining the best option and developing
a framework for implementation, including detailed policy design;
(3) drafting legislation to effect the proposed
change;
(4) implementing and monitoring the change; and
(5) reviewing and evaluating the change after
its implementation.
194. The main exceptions to this process, apart
from changes to tax rates, allowances and thresholds, are measures
to protect tax revenues or where there is a significant risk of
forestalling. By way of clarification, the Government published
a protocol[172] in
March 2011 outlining the conventions it would seek to abide by
in announcing tax changes outside the Budget.
195. The new approach means that, in practice,
most tax legislation should be published in draft for consultation
at least three months before the relevant Finance Bill is laid
before Parliament, with consultation on the first two stages of
the process having taken place in the preceding months.
196. The Framework also established a 'Tax Professionals
Forum' (TPF) to consider and report on the Government's performance
against these principles, including the protocol, and to identify
and prioritise improvements to the way in which tax policy is
made. The TPF's role also includes monitoring progress towards
the goal of simplifying the UK's tax code.
Report on Finance Bill 2011:
Recommendations on New Approach
197. This Committee's inquiry into the 2011 Finance
Bill found widespread support for the new framework which was
seen as building on the good practices of previous governments
and promising better tax legislation if implemented consistently.
The Report commended the Government on its adoption of this new
approach and welcomed the establishment of the TPF. And it concluded
that, with a couple of notable exceptions, "most of the measures
in Finance Bill 2011 were developed in accordance with the principles
of the new approach to tax policy making."[173]
198. The Report recommended that "the Government
observe the five-stage process for progressing from policy objective
to final evaluation, with consultation at each stage, in all but
the most exceptional cases, and that the reasons for any such
exceptions be explained fully after the announcement."[174]
It emphasised the need for the principles of the new approach
to be firmly embedded in the day-to-day practice of tax policy-making
and made a number of recommendations, the main ones being that
the Government should:
(a) publish the findings of an internal review
of the policy partnership between HMT and HMRC and undertake "a
comprehensive audit of the tax skills and experience of HMT and
HMRC staff working on developing tax policy and legislation"[175]
and of the incentives to recruit and retain the best talents to
this work;
(b) seek to consult with a wider range of smaller
businesses and "develop and publish a comprehensive strategy
for consulting non-business stakeholders on tax proposals likely
to affect them";[176]
(c) consult taxpayers potentially affected by
proposed changes from the outset when drawing up initial Tax Impact
and Information Notes (TIINs);[177]
(d) "add to the new framework a formal requirement
for all significant tax reforms to be evaluated against their
stated objectives once they have bedded in",[178]
and that "such evaluations should be carried out with the
support of independent experts and that their results should be
published;[179] and
(e) outline its strategic objectives for different
parts of the tax system, even where it has no immediate plans
for change, so as to reinforce the certainty, predictability and
stability the new approach aims to achieve.[180]
199. The Report also noted that all the private
sector organisations submitting evidence to the inquiry suggested
that the new approach should also lead to consequential changes
in the way Parliament scrutinised tax legislation.[181]
As a result, in 2012, the House of Lords revised the terms of
reference of the Finance Bill Sub-Committee (FBSC) so that it
could start its work earlier in the year and examine the provisions
which appear in the draft Finance Bill. Its first such inquiry
was carried out in 2013.
Previous Assessments of Performance
Against New Framework
200. The TPF's membership is drawn from the accountancy,
tax and legal professions and it meets bi-annually under the chairmanship
of the Exchequer Secretary. It has so far published two reports,
the first in December 2011 and the second in March 2013.
201. The first covered broadly the first year
of operation of the new model and concluded that "the approach
adopted for most of the measures in the Finance Act 2011 complied
with that outlined in the New Approach to Policy Making. In particular
the corporate tax reform package and the measures relating to
tax relief on pensions were excellent illustrations of best practice
in the conduct of the policy process."[182]
This echoed the conclusion of this Committee's Report earlier
in 2011, as did its reservations about the disguised remuneration
provisions and the oil and gas supplementary charge in that year's
Bill.
202. The second Report,[183]
covering the period from 6 December 2011 to 30 November 2012,
also came to mixed, though predominantly positive, conclusions.
While it reported "a number of good examples where the five
stages have been or are being followed, in particular the consultations
on the changes to the CFC rules, the Statutory Residence test,
the reform of the taxation of non-domiciliaries",[184]
there were other cases that year where the consultations had started
part way through the process, or "without a clear articulation
of the policy involved" or "without any discussion of
the policy".[185]
203. It also concluded that
"more thought needs to be given to the timetable
for the legislative process. Even where there is a full and valuable
consultation where government and taxpayer understand the intended
policy, the legislation implementing that policy can be overlong,
over complex and very occasionally not reflect the intended policy
if instructions have to be given to Parliamentary Counsel on a
timeframe which starts before part of the consultation process
has ended."[186]
204. The TPF has not yet published its conclusions
on the 2013 Finance Act. This Committee, when it looked the draft
2013 Bill last year, commended "HM Treasury, HMRC and all
those involved in the development of the GAAR on an exemplary
tax policy-making process",[187]
but went on to recommend that the two departments "examine
closely why the new policy-making process worked well in developing
the GAAR and less well in developing the ARPT [now the Annual
Tax on Enveloped Dwellings] package and the cap on reliefs. Whatever
steps are necessary to achieve a uniformly good outcome should
then be taken."[188]
The Partnerships Package and
the New Approach
205. Turning to the package of measures affecting
partnerships, the Government chose to roll together the
first two stages of the process recommended in the Tax Policy
Framework before beginning consultations.[189]
206. Nonetheless, Baker Tilly, thought the May
consultation document met the requirements of the new approach
in that it outlined "a coherent view of why change was necessary:
it set out the policy objective; it set out the circumstances
where that objective was not being met; it proposed solutions;
and it set out a test of whether or not the outcome would be successful."[190]
And they went on to say that there had been "an extensive
consultation process with a high level of engagement between HMRC
and interested parties".[191]
In contrast, the LSEW, complained that "neither the proposals
in the May 2013 consultation nor those in the December 2013 technical
note were preceded by any consultation",[192]
as did Grant Thornton.[193]
207. Most witnesses were content with the way
the consultation had been run from May until August 2013 when
it closed. Mr Baker thought that "the consultation got
off to quite a good start in the summer, with the document that
was published."[194]
Similarly, Mr Hale, talking of his discussions around the
impact of the AIFMD, said: "In the period from early June
to the end of September, we had, I think, three substantial meetings
of two hours or more with a considerable team of HMRC, HMT and
FCA representatives."[195]
208. However, the same does not apply to the
later stages of the policy development process. Our witnesses
maintained that, although the draft clauses were available for
consultation from 10 December, the change to the proposals on
salaried members was so radical that the Government should have
allowed time to go back and debate again stages I and II of the
new approach instead of, in effect, skipping straight to stage
III of the process with consultation only on the technical detail
of the legislation.
209. Mr Haskew saw the process as moving
"from a consultation that was going down one track to suddenly
something completely different, with no obvious linkage as to
how they really got there, and I do not think that is very satisfactory."[196]
And the CLLS commented that "The consultation process has
also been managed in a regrettable manner. It is extremely unusual,
as was the case here, for the second iteration of proposals to
be more aggressive to taxpayers than the first
This does
not promote trust and confidence in the consultation process."[197]
210. As for the consequences of the late change
of direction, Mazars claimed that it would create uncertainty
and provisions that are not properly road-tested, "thus seriously
undermining the consultation process."[198]
Deloitte "query whether a full impact assessment has been
undertaken given the late change from proposals designed to address
tax-avoidance to proposals with more fundamental impact across
the professions."[199]
211. As discussed extensively in Chapters 3 and
4, Ms Knott considered that, to the extent that the approach to
the legislation had changed between May and December 2013, that
was as a result of the representations received about the use
of the case law tests (as set out in the Employment Status Manuals)
to determine whether a member of a LLP was a partner or an employee.
In spite of the changes, she did not accept the case for delaying
their introduction in order to hold a more comprehensive consultation,
not least because the yield from the measure had been estimated
on the premise that the change would be in place from 6 April
2014. Notwithstanding the evidence submitted on the later policy-development
stages, both Ms Knott and Ms Morgan thought there had been a lot
of praise for the consultation process: "it has been a very
well run consultation."[200]
212. The evidence we have heard leads us to
conclude that, although it would have been preferable not to have
compressed the first two stages of the process, the partnership
consultation carried out between May and August 2013 was well-conducted,
open and responsive. We commend HMRC and HMT for that and particularly
for their interaction with representatives of the AIFM sector.
213. That has, however, not been the case
since December when the draft Finance Bill proposals concerning
salaried members turned out to be significantly different from
the ones discussed in the summer. We have already concluded that
insufficient time has been allowed for proper consultation on
the new proposals if the April start date is to be maintained.
This constitutes practice that is not compatible with the new
policy-making process.
Developing Tax Legislation 2011-2014
214. The Sub-Committee's main recommendation
in its 2011 Report was that the Government should abide by the
full five-stage process for progressing from policy objectives
to final evaluation of outcomes in all but the most exceptional
cases. We therefore took evidence on how consistently the new
approach had been applied to the development of tax policy since
2011.
CONSISTENT APPLICATION OF THE NEW
APPROACH
215. The evidence we received was very positive
about the effects of the new five-stage process: where it is applied
comprehensively, the result is good consultation and good legislation.
Mr Sanger commented that
"there is much more formality around how
we go forward with tax policy. That provides a real opportunity
for many more people to be engaged in the debate, and that is
absolutely to the good
We are moving to a world where good
policy-making and good communication of that policy are becoming
the norm, and that is a good result."[201]
The British Bankers Association (BBA) noted that
"In the main, the consultation process is working in a constructive
manner, resulting in better final legislation for the benefit
of both the Exchequer and business."[202]
Others thought likewise, including Mr Whiting who cited a
variety of examples of good tax policy-making.[203]
216. Mr Whiting also compared the UK favourably
with other jurisdictions: "Comparing notes with opposite
numbers in other countries, we can see that many of them are immensely
jealous of the process that we go through and think it is a much
better process."[204]
Mr Król agreed, commenting that "the UK Government's
consultation procedure is incredibly open and is much more thorough
than what we experience in other jurisdictions."[205]
This view is very much in line with the findings of a recent Oxford
University Centre for Business Taxation (OUCBT) report which,
comparing consultative arrangements, concludes that "the
UK has among the strongest processes. There is a clear, ministerial
commitment to consultation; formally documented and articulated
in a series of government publications."[206]
217. We commend the Government, HMRC and HMT
on the quality of the consultations conducted and the tax legislation
produced since 2011 in those areas (the large majority) where
the new approach to tax policy-making has been applied comprehensively.
218. However, each year there seem to be a minority
of cases where that high standard fails to be achieved because
the new approach has not been observed, or it has only been nominally
adhered to, or time pressures around the third stage (drafting
legislation) have curtailed consultation and prevented the resulting
legislation from being as considered as it might otherwise have
been. Cases of this sort led the ACCA to conclude that "The
overall process of consultation on tax legislation has shown some
signs of improvement, but is still very much a curate's egg."[207]
219. The main areas of concern where the policy-making
framework was not fully adhered to were covered earlier in this
chapter. More recent examples are the current partnership measures,
also discussed above, and the frequently cited consultation on
tax and public procurement where, according to the CBI, "Not
only was the policy unexpected, it also came with a very short
consultation period and the implementation schedule did not follow
the recommended practice".[208]
220. There was also some concern that, although
the requirement to consult is met, the Government's commitment
to consultation is not always wholehearted. The ICAEW wrote "we
are not convinced that the Government is always listening to the
responses and ensuring that the proposals are amended to take
account of legitimate concerns. There is a danger that the process
is still seen more as an end in itself rather than a means to
an end".[209]
ICAS commented in similar vein.[210]
221. On time pressures curtailing consultation
on draft Finance Bill clauses, KPMG wrote that "In many cases,
the consultation seems to progress in a satisfactory manner but
at the end there is a rush to get legislation drafted in time
for the Finance Bill. This often results in badly drafted legislation
which then has to be 'corrected' in guidance notes".[211]
The TPF's second report picked up a similar point, noting that
the new approach exacerbated the risk "because draft legislation
has necessarily to be produced at an earlier stage
before
all responses have been fully evaluated. It may then become difficult
to alter or recast the legislation sufficiently prior to enactment."[212]
222. As we recommended in past reports, we
urge the Government to examine why the new policy-making process
worked less well in a minority of cases, and take the necessary
steps to ensure a uniformly good result in all cases. In particular,
we recommend that, where the approach decided on after the closure
of a Stage II consultation differs radically from that consulted
on, the policy development timetable should be amended. This would
allow for further consultation on the revised proposals, building
on the outcome of the earlier stages, before proceeding to publish
clauses in a draft Finance Bill.
The Tax Policy Partnership
223. A policy partnership between HMT and HMRC
that works well is a critical factor in applying the new approach
consistently and developing good tax legislation. Our 2011 inquiry
uncovered some disquiet among witnesses about the effectiveness
of the policy partnership. Officials responded by assuring us
that a joint review by senior officials had led to a 'reinvigorated'
partnership.[213]
224. This year there was not the same groundswell
of criticism, but the current state of the policy partnership
between the Treasury and HMRC was far from clear. There was some
evidence that it was working more effectively. Mr Whiting
argued that the partnership worked "pretty well" and
was "going in the right direction", but, on the other
hand, he still had "some concerns, such as whether the Treasury
people have the tax experience, and indeed the commercial experience,
that they would have ideally. They tend to move on very quickly.
I still have concerns as to whether policy work in HMRC has the
status that it might".[214]
225. Asked about the findings of the 2010-11
review into the policy partnership, Ms Morgan said that she "was
not sure that they [Mr Hartnett and Mr Troup] referred
to a formal internal review".[215]
She offered to give further detail, but was asked for a note.
The note from HMRC did not contain any information about the 2010-11
review, but assured us that "HM Treasury and HMRC keep the
Policy Partnership continually under review and seek improvements
in the working relationship between the departments."[216]
Among the improvements listed in the note, the main ones were
the establishment of The Policy Partnership Oversight Group, chaired
by senior HMT and HMRC officials and charged with monitoring "effective
allocation of resources and the skills in both parts of the partnership"
and of The Budget Policy Oversight Panel, whose role is to "scrutinise
tax policy development to provide high-level stress testing and
challenge for emerging tax measures".[217]
226. Other witnesses were concerned about the
range and depth of knowledge and expertise in the two departments.
Professor Freedman commented that although there was a lot
of consultation she was not always sure that
"HMRC and the Treasury know quite what to
do with it. Unless you go out consulting with some clear background
knowledge so that you can evaluate what is coming back, there
is a danger that you lose your way
and sometimes the people
working on the consultations, who are all very, very bright, have
just not had long enough in the area to know about that detail
and so mistakes are made that way."[218]
Mr Murphy agreed that "the people who might
be involved in creating some of this draft legislation and the
processes inside the Treasury do not have the experience for what
happens inside the commercial world",[219]adding
that there was a particular lack of understanding of what happened
in small businesses.
227. As will be clear from earlier in the report,
there was also some criticism of HMRC's lack of understanding
of how partnership structures are used. Mr Roy-Chowdhury
made the point that "Whoever thought up these tests does
not seem to understand how partnerships, say accountancy practices
across different jurisdictions, across different countries, come
together
They do not seem to properly understand commercial
reality and how businesses operate in partnerships."[220]
228. Ms Knott felt that there was
"a considerable amount of expertise in HMRC
on partnerships in terms of our operationsthe large business
service has a partnerships unit
But it is fair to say that
it was when we went to consultation that we realised the extent
[to which mixed partnerships are used in the AIFM sector]. We
certainly learnt a lot from the consultation."[221]
And Mr Quelch added that the department had
"an ever growing understanding of the UK
business population
through ever more sophisticated exploitation
of our significant data sets
and
extensive research
into the business population
In addition, we are always
happy to engage with external experts to help us identify where
the market is changing, commercial trends being what they are."[222]
229. Policy initiatives come from a number of
different sources, including, most importantly, from Ministers
themselves. Our witnesses focused on the detailed development
of policy initiatives and expressed concerns about the apparent
lack of internal challenge which some attributed to the current
division of policy responsibilities between HMRC and HMT. Mr Sanger
and others argued that
"if HMRC's role was to 'own' the policies,
ensuring that any proposals are rigorously evaluated by both the
policy lead and those with practical experience of the operation
of the tax system, then a number of the concerns of detail might
be identified and addressed up front. HM Treasury would then have
a clearer 'scrutiny' role, which would provide the 'challenge
function' to the policies being developed."[223]
230. We were heartened to hear that the tax
policy partnership between HMT and HMRC was working more effectively
and of the measures taken to strengthen it. We recommend that
the interdepartmental Policy Partnership Oversight Group and Budget
Policy Oversight Panel build on these achievements by taking further
steps to encourage officials in both departments to improve their
tax skills and their knowledge of evolving commercial practice,
and to subject proposals to more rigorous challenge.
231. We were disappointed, however, to be
told that a formal review into the policy partnership was not
carried out in 2011. We recommend that such a review should now
be undertaken into the effectiveness of the current division of
policy responsibilities between HMT and HMRC, including the scope
for re-balancing those responsibilities.
Scope and Reach of Consultations
232. We also considered evidence on whether there
had been significant progress in extending the scope and reach
of HMRC and HMT's consultations. Two aspects of this issue were
covered by the recommendations in our 2011 Report: consulting,
albeit informally, with those likely to be affected by a proposal
when drawing up its initial impact assessment at stage I; and
widening the range of small business and non-business stakeholders
consulted throughout the policy development process.
CONSULTING EARLY ON POTENTIAL IMPACTS
233. On the first aspect, the ICAEW assert that
"impact assessments used to underpin policy changes are not
based on robust and realistic costings"[224]
and that officials need to consult "with business and professional
advisers at an early stage to identify in detail what needs to
be done and by whom so that such processes can be built into any
costings."[225]
And the Federation for Small Business (FSB) go further and recommend
that "all tax impact assessments should be subjected to independent
scrutiny at both consultation and final stage".[226]
234. We have commented in chapter 5 on the
estimated additional yield from the proposed measures on the taxation
of partnerships that became evident only during the consultation
period. That showed that the draft impact assessment that had
been published as part of the May consultation paper was a long
way wide of the mark. We regret the apparent absence of consultation
in the earliest parts of this process. Building on the conclusions
of the Committee's 2011 report, we recommend that, whenever possible,
officials consult fully and openly with those affected when drawing
up Tax Impact and Information Notes (TIINs) and costing tax proposals.
CONSULTING MORE WIDELY
235. On the second aspect, the reach of the consultation
process, Mr Murphy argued that "there is a relatively
widespread understanding of what happens in big business and big
partnerships, because they are the people who are being consulted
and they are even on the board of HMRC" but that there were
very few consultation responses from small businesses "because
they do not have the resources or the funding to do it".[227]
Ms McCormick thought that the most efficient way for small businesses
to feed views into consultations is "through trade associations
and the like, because a small business just does not have the
capacity. They are too busy running their business to get involved
in all of this."[228]
236. Both Mr Murphy and Mr Brooks denied
seeing any improvement in HMRC's record of consulting smaller
businesses and non-business stakeholders.[229]
In contrast, representatives of the largest accountancy firms
argued that the breadth of views reflected in consultations was
much greater than suggested, both because the firms involved in
consultations took account of the views and interests of their
clients, and because the membership of the various institutes
covered a wide range of experience.[230]
Mr Dodwell also pointed to the role of "the Low Incomes
Tax Reform Group, which is part of the CIOT, to help provide that
unrepresented input."[231]
237. Mr Quelch rebutted criticism of HMRC's
contacts with small business by explaining how the department
engaged with its customers by way of "formal interactions
through standing consultative groups, informal interactions and
extensive consultations on particular proposals."[232]
Mr Quelch went on to elaborate on the measures HMRC had taken
to simplify procedures and guidance for small business and the
extensive consultation that informed those changes.
238. Mr Murphy suggested that the consultation
process was a closed shop because the people who had real influence
were those who were invited to "face-to-face meetings in
the Treasury, and very few smaller firms will be invited in to
do that, I suspect."[233]
Mr Brooks thought that officials were unwilling to engage
with individuals or organisations outside the mainstream.[234]
A similar theme emerged from the OUCBT report which concluded
that, in all tax jurisdictions, "tax policy is made and influenced
by a very small group of people
The narrowness of the process
has the potential to create unbalanced outcomes in the absence
of other safeguards."[235]
239. Asked about the difficulties individuals,
academics and non-mainstream organisations might face in accessing
HMRC and Treasury officials, Mr Quelch maintained that HMRC's
consultation processes were very open and transparent and that
he could see nothing "preventing any individuals who have
an interest in UK tax legislation providing that response in that
way through a consultation exercise."[236]
240. We recognise the progress made by the
Government in formalising and extending the scope and quality
of consultation processes on tax policy-making. We also understand
how difficult it is to engage with small businesses and with individual
taxpayers, but we consider that more needs to be done to devise
innovative ways of reaching out to these groups. We therefore
recommend, as did our predecessor Committee in 2011, that HMRC
and HMT urgently develop and publish comprehensive strategies
for consulting smaller businesses, non-business stakeholders and
other groups.
Post-implementation Reviews
241. A strong theme in our 2011 inquiry was the
need for post-implementation reviews of tax changes, essentially
extending and formalising the final stage of the policy development
process. Much of the evidence we received this year concerned
the absence of any information on whether, and with what result,
stage V (reviewing and evaluating the change after its implementation)
of the new approach had been carried out. Most witnesses called
for independent post-implementation reviews of all significant
changes in line with the recommendation in this Committee's 2011
Report.
242. Mr Murphy argued that in many cases
it was not clear what the Government's objectives were and that
made it difficult to evaluate policies: "How, as a consequence,
can anybody undertake a review of outcome against objectives when
it was not clear what government policy was in this area?"[237]
Deloitte's view was that they had "not yet seen a good example
of this being carried out."[238]
243. Mr Gammie assumed that reviews took
place within departments but said he "would suspect that
they come at a lot of these issues with a rather more limited
eye than I certainly would think desirable in trying to tackle
some of the ongoing problems of the tax system."[239]
Mr Sanger agreed that there was "little evidence to
the outside world of those reviews being undertaken. They may
be happening inside the Treasury and HMRC, but it would be good
for the outcome of that to be far more visible."[240]
Mr Nicholson thought that "post-implementation is good
business."[241]
244. Responding to these criticisms Ms Morgan
said that
"The Treasury and HMRC undertake a really
wide range of work both internally and externally to improve the
evidence base on the impact of previously implemented policies
and to inform policy development going forward. If you look on
HMRC's website, there are more than 300 research reports, some
of which are evaluative in nature, that are a really core part
of our evidence base to inform policy-making. There is a joint
Treasury-HMRC steering group, which oversees the evaluation programme
and ensures that our resources are being prioritised correctly
in that area."[242]
She added that "All formal evaluations are published
on HMRC's website" and that HMRC co-funds "the Tax Administration
Research Centre, which often carries out independent research
and adds to the evidence base".[243]
245. While we recognise the large volume and
variety of research carried out and published by HMRC, very few
of the 300 items referred to appear to constitute post-implementation
reviews of significant tax changes.
246. Asked about plans for evaluating the partnership
measures, Ms Morgan said that HMRC would
"monitor the receipts from this sector as
the change comes into effect and look at the behavioural responses
that we see in the sector, to test that against the assumptions
that we made when we proposed the measure. However, it is too
early at this stage to commit to a more formal evaluation, or
to what form that evaluation may take, because it will need to
be looked at in the round against other competing pressures on
that resource once the measure is in effect."[244]
This last comment suggests that there may be a long
way to go before post-implementation reviews become a normal last
stage of the policy-making process.
247. We regret the lack of progress in carrying
out and publishing formal evaluations of tax changes implemented
so far. We reaffirm the recommendation of 2011 that the Government
should commit to undertaking post-implementation reviews of all
significant tax reforms, preferably with the support of independent
experts, and that their results should be published.
Strategic Context
248. There were two strands to the evidence submitted
on the strategic context of tax policy changes: that individual
tax proposals should be looked at in a much wider (non-tax) context
and that, within the tax system, proposals need to be seen against
the background of the Government's longer term strategy for that
part of the tax system.
CHANGES IN A BROADER CONTEXT
249. On the first strand Professor Freedman
argued that
"we are also still not very good at looking
at these tax policy changes in a wider context and in a holistic
context. We are not looking at benefits legislation at the same
time as we are looking at tax. We are not looking at employment
law and we are not looking at partnership law when we are changing
partnership taxation. There is not enough joined-up government
here, so that can cause problems."[245]
250. Baker Tilly thought that, on the partnership
measures, "there should have been a consultation across Government
about clause 4(4) of the LLP Act in order to correct the defect
and agree a set of rules to govern the circumstances in which
a person who is a member of an LLP is treated for all purposes
as an employee."[246]
251. Ms Knott responded that the partnership
consultation "was looking at the taxation consequences to
make sure that the tax consequences were fair and consistent.
It has focused on that rather than looking at employment law.
That would be a very different undertaking and not something that
we could have done from the Treasury and Revenue and Customs."[247]
252. Some felt that the Government should have
waited for the OTS's final report, or held a much wider consultation
on partnerships, including the implications for employment rights
of any proposed changes in tax treatment. The LSEW wrote
"the consultation considers just two aspects
of the tax rules relating to partnerships. Such a piecemeal approach
is not conducive to making better tax law. In our view, it would
be better to delay the introduction of the present proposals until
the Office of Tax Simplification has completed its review of all
aspects of the taxation of partnerships."[248]
253. In response, Ms Morgan explained that "It
would not have been appropriate, given the revenue that was at
risk
for the Government to await the outcome of the OTS
work before proceeding with those changes."[249]
254. We accept the Government's reasons for
not awaiting the conclusions of the Office of Tax Simplification's
reports on partnership taxation, particularly where it was seeking
to counter tax loss. But we have sympathy with the view that the
proposals might have been developed more coherently against the
background of a clearer statement of the Government's objectives
for the overall tax treatment of partnerships.
CHANGES AND ROAD MAPS
255. On the second strand, the need for the Government
to outline its overall plans for different parts of the tax system,
Mr Sanger pointed to the
"ongoing benefit to providing taxpayers
with a clear strategy as to the tax policies that the Government
will look to adopt, both in this parliament and beyond. Whilst
some of these will necessarily be political in nature, there could
be a considerable amount of common ground where clarity would
benefit the UK."[250]
256. On expressing the Government's strategy
in the form of a 'road map', the ICAEW wrote "In November
2010, the Government published a Roadmap for Corporation Tax which
has been welcomed by business. We would now like a similar document
to be published for personal tax. Certainty about the taxes individuals
must pay on their income and chargeable gains is a contributory
factor to a business's decision to base itself in the UK."[251]
Mr Dixon argued for a long-term vision of the tax system.[252]
257. Mr Sanger suggested that such maps
should focus "on the different types of taxpayer/stakeholder,
rather than the technical form of the tax
to allow the
taxpayer to understand the overall strategy".[253]
The ICAS wrote in similar terms and wanted to level "the
inconsistencies between employment and self-employment."[254]
258. Ms Morgan replied to the call for further
road maps by saying that
"The road map that was published for corporation
tax has been very popular and widely endorsed by many stakeholders.
We receive regular calls for similar road maps to be published
on a wide range of aspects of the UK tax system. Ultimately, a
decision to do that has to be one for Ministers, but as far as
possible we try to signal what the Government's approach might
be towards a particular area of taxation."[255]
259. We recognise the political dimension
to tax reform and the fact that the Government cannot bind the
hands of its successors. However, we agree that the Government
should, as far as possible, avoid making piecemeal, reactive changes
to the tax system. We continue to believe that tax policy would
be developed more coherently if, at the beginning of every government,
clear statements were to be published, similar to the 2010 company
tax road map. These would give details of the government's overall
strategic aims for different parts of the tax system. We recommend
this for the future.
170 Select Committee on Economic Affairs, The Finance
Bill 2011 (4th Report, Session 2010-12, HL Paper 158). Back
171
The Government's Tax Consultation Framework: Summary of Responses
and finalised Framework, HMT and HMRC, March 2011. Back
172
Tackling tax avoidance, HMT and HMRC, March 2011, Chapter
4: Protocol on unscheduled announcements of changes to tax law. Back
173
Select Committee on Economic Affairs, The Finance Bill 2011
(4th Report, Session 2010-12, HL Paper 158),paragraph 52. Back
174
Ibid., paragraph 56. Back
175
Ibid., paragraph 76. Back
176
Ibid., paragraph 90. Back
177
Ibid., paragraph 95. Back
178
Ibid., paragraph 102. Back
179
Ibid., paragraph102. Back
180
Select Committee on Economic Affairs, The Finance Bill 2011
(4th Report, Session 2010-12, HL Paper 158),.paragraphs 107,
108. Back
181
Ibid., paragraphs 121-123. Back
182
Tax Professionals Forum, Independent Annual Report, 6 December
2011, page 10 section 3. Back
183
Tax Professionals Forum, Second Independent Annual Report,
27 March 2013. Back
184
Ibid., page 5, section 4. Back
185
Ibid., page 6, section 4. Back
186
Tax Professionals Forum, Second Independent Annual Report,
27 March 2013, page 12, section 8. Back
187
Select Committee on Economic Affairs, The Finance Bill 2013
(1st Report, Session 2012-13, HL Paper 139), paragraph 171. Back
188
Ibid., paragraph 244. Back
189
Partnerships: A review of two aspects of the tax rules, Consultation
document, HMRC, 20 May 2013, Annex A. Back
190
Baker Tilly, paragraph 8. Back
191
Ibid., paragraph 9. Back
192
LSEW, paragraph 20. Back
193
Grant Thornton, paragraph 4.2. Back
194
Q 93. Back
195
Q 61. Back
196
Q 52. Back
197
CLLS, paragraph 24. Back
198
Mazars, paragraph 10.4. Back
199
Deloitte, paragraph 4.3. Back
200
Q 133. Back
201
Q 28. Back
202
BBA, page 1. Back
203
Q 12. Back
204
Q 12. Back
205
Q 64. Back
206
Structures, processes and governance in tax policy-making:
an initial report, C J Wales and C P Wales, OUCBT, December
2012, page 120. Back
207
ACCA, paragraph 18. Back
208
CBI, paragraph 8. Back
209
ICAEW, paragraph 39.2. Back
210
ICAS, paragraph 28. Back
211
KPMG, paragraph 2. Back
212
Tax Professionals Forum, Second Independent Annual Report,
27 March 2013, page 12, section 8. Back
213
Select Committee on Economic Affairs, The Finance Bill 2011
(4th Report, Session 2010-12, HL Paper 158), paragraphs 72-74. Back
214
Q 13. Back
215
Q 138. Back
216
HMRC and HMT, further evidence, page 1. Back
217
Ibid., page 1. Back
218
Q 28. Back
219
Q 39. Back
220
Q 45. Back
221
Q 129. Back
222
Q 131. Back
223
Chris Sanger, supplementary evidence, page 2. Back
224
ICAEW, paragraph 39.1. Back
225
ICAEW, paragraph 40. Back
226
FSB, paragraph 6. Back
227
Q 39. Back
228
Q 112. Back
229
Q 40. Back
230
Q 112. Back
231
Q 112. Back
232
Q 133 Back
233
Q 39. Back
234
Q 40. Back
235
Structures, processes and governance in tax policy-making:
an initial report, C J Wales and C P Wales, OUCBT, December
2012, page 7 (Executive Summary). Back
236
Q 134. Back
237
Q 41. Back
238
Deloitte, page 6. Back
239
Q 30. Back
240
Q 30. Back
241
Q 116. Back
242
Q 136. Back
243
Q 136. Back
244
Q 136. Back
245
Q 28. Back
246
Baker Tilly, paragraph 30. Back
247
Q 135. Back
248
LSEW, paragraph 20. Back
249
Q 135. Back
250
Chris Sanger, supplementary evidence, page 1. Back
251
ICAEW paragraph 43. Back
252
Q 111. Back
253
Chris Sanger, supplementary evidence, page 1. Back
254
ICAS, paragraph 20. Back
255
Q 135. Back
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