116.This chapter considers the impact of the Government’s approach to tax policy-making on the balance between HMRC powers and taxpayers’ rights.
117.One of the complaints about HMRC’s new powers was that there had been inadequate consultation. The Government is committed to a consultative approach to tax policy making, and has set out a model Tax Consultation Framework with five stages. The first three are:
118.In chapter 3 we explored two new proposals (extended time limits for offshore matters and removing the need for HMRC to obtain tax tribunal agreement before approaching third parties for information) where, although there was consultation in each case, there were failings in the formulation of the policy.
119.Stage 1 was sidestepped, leaving no compelling case for the changes proposed. There will now normally be a single fiscal event annually—the Autumn Budget. There should be less pressure on legislative timescales and time for full consultation. The Government’s policy document about the new fiscal cycle set out the relevant timetables. There is no justification for the regularity with which consultation exercises skip the vital first stage.
120.When the Government goes through its full consultation cycle, as demonstrated by the penalty regime for Making Tax Digital discussed in our earlier report, they are able to achieve broad support.
121.Consulting on policy objectives before a specific solution has been identified is fundamentally important to the policy making process. This step is too frequently omitted with inadequate justification.
123.A full consultation process can contribute to better targeting of the legislation, so that it more precisely tackles the problem it aims to solve. Our evidence contained constructive ideas about how the proposals in the draft Finance Bill 2018 could have been better targeted. In a more satisfactory consultative exercise there would have been an opportunity for these ideas to be raised at a much earlier stage. We welcome the publication of draft clauses, but the Government has missed opportunities by not consulting effectively in the early stages of policy development.
124.Targeting was also a concern with recent legislation on powers. Malcolm Gammie said:
“One of the criticisms, of course, of some of the recent powers is that they have been drafted extremely widely. One is effectively relying on the way they are operated by the Revenue to provide the appropriate application of powers which could be read as much wider.”
125.The Tax Law Reform Committee’s (TLRC) 2017 report identified a number of problems with legislation which is badly targeted and broader in its effect than necessary. Such legislation may have to be supplemented by guidance or statements from HMRC about how it proposes to apply the legislation in practice. This creates uncertainty. Tax legislation should be clear and definite in its effects. The TLRC was also concerned that where the safeguard for taxpayers is judicial review this can be rendered less effective if legislation is drafted so broadly that it is difficult to challenge.
126.Keith Gordon, a barrister at Temple Tax Chambers, wrote that HMRC has “failed to apply their existing powers effectively”. HMRC should ensure that as part of the consultation process it considers whether its objectives could be met by using existing powers more effectively.
127.Tax legislation should be narrowly targeted at the taxpayer groups it is intended to affect. Broad, badly targeted legislation is unsatisfactory because it can adversely affect compliant taxpayers, leaves too much to the exercise of HMRC discretion or to guidance, and is more difficult to challenge by judicial review.
128.When preparing legislation that is properly targeted and effectively drafted we recommend HMRC should listen more carefully to representations from the expert tax and business representative bodies.
129.The fourth and fifth stages in the Government’s consultation framework are:
130.One of the concerns expressed by our witnesses was that the additional powers for HMRC which have been legislated in recent years have not been properly evaluated. Charlotte Barbour, ICAS, said, “we believe that the powers given to [HMRC] over the years, especially in recent years, should be properly evaluated with post-implementation reviews to see if they are working.”
131.Like Stage 1, Stage 5 is too often missed, or the evaluations not published. Witnesses were concerned that HMRC repeatedly sought new powers but may not always be using those it already has effectively. Keith Gordon said, “As to whether there is a problem with powers, the powers it already has are sufficient; it is just not using the powers it has, or there are not enough resources to allow the Revenue to use them.”
132.The CIOT referred us to the “Better Budgets” report, where a central recommendation was the use of post-implementation reviews in evaluating the effectiveness of policy measures.
133.Evaluating changes to HMRC powers enables review of their effectiveness, addresses unintended consequences, informs future policy developments and ensures the balance between HMRC powers and taxpayers’ rights is maintained. It is important to consider their cumulative impact.
134.We recommend that all powers granted to HMRC since the conclusion of the Powers Review in 2012 should be evaluated, and those evaluations published. All future powers should be evaluated after five years.
120 Written evidence from CIOT ()
121 HM Treasury and HMRC, Tax Policy Making: a new approach (2010): [accessed November 2018]
123 HM Treasury, The New Budget timetable and the tax policy making process 2017: [accessed 28 November]
124 Economic Affairs Committee, (3rd Report, Session 2017–19, HL Paper 229)
125 (Malcolm Gammie QC)
126 Institute for Fiscal Studies, The implications of recent additions to HMRC powers and the shifting balance in the relationship with the taxpayers (November 2017): [accessed November 2018]
127 Written evidence from Keith Gordon ()
128 (Charlotte Barbour)
129 (Keith Gordon)
130 Written evidence from CIOT ()