This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Financial Secretary to the Treasury sets out progress made, and future plans, on creating a modern and efficient tax system.
Good morning – it’s a pleasure to be here today at the Autumn Stakeholder Conference.
Having been an MP for nine and a half years – and having been a Minister for four and a half of those – there are some sentences which you just don’t hear.
“I wish the Minister had spoken for longer.”
Or: “We need to find a way to get lawyers better represented in the Commons.”
Or: “I really enjoy paying tax.”
Well, I’m realistic about this. No matter what we do in government, we’ll never make people enjoy paying tax. But we can make it a less painful experience.
My rule of thumb is that a simpler system is a better system.
So, as Tax Minister, I have made it my priority to create a modern, efficient, competitive, user-friendly tax system in the UK.
Helping us reach the PM’s aim of being one of the top five countries in the world in which to do business within three years.
That means policy which is simpler and more understandable;
That means a clearer framework for developing the policy in the first place;
And that means a more efficient mechanism for dealing with taxpayers.
So today, I’d like to discuss what we’ve achieved …
… As well as talking a little bit about next steps.
Simplifying the tax system doesn’t just make life easier for individuals and businesses. By making the policy easier to understand, you also increase compliance – maximising the benefit to the Exchequer.
So in 2010, one of the first things we did was set up the Office for Tax Simplification (OTS), under the leadership of Michael Jack and John Whiting. We set this organisation the task of providing independent advice to the Chancellor on simplifying the tax system.
I’d like to thank Michael and John, who I am pleased to see here this morning, and the staff of the OTS for the work they have done.
It’s fair to say we have kept them busy. Since 2010, the OTS has published reviews on tax reliefs, small business tax, pensioner taxation, employee share schemes, employee benefits and expenses, and an interim report on partnerships taxation.
And their work has led to some significant reforms:
We’ve abolished over 40 redundant or outdated tax reliefs – a “bonfire”, if you want to be topical;
We’ve introduced the cash basis for calculating tax liabilities, benefiting up to three million small businesses;
We’re providing more information for pensioners on their taxable income – meaning millions of people are better informed;
And just two days ago, we announced that 24 million people would be receiving their first annual tax summary, explaining how their income tax and National Insurance Contributions have been calculated for the 2013 to 2014 tax year, and how their money has been spent by the government.
This is important – people should be engaged with the system and understand how it works…
…And I should add that it’s healthy for governments, too, to be reminded of their responsibility in spending taxpayers’ money wisely!
Overall, the OTS has made over 200 recommendations – and we’ve already taken forward over half of them.
And there is more in the pipeline.
Last December the Chancellor asked the OTS to carry out a review of what the government can do to further improve the competitiveness of the UK tax administration. Next month, at Autumn Statement, we will respond to that report.
Of course, tax simplification is not as easy as it sounds. When you simplify any taxes, there are winners and losers. And the difficult fiscal circumstances we had head to deal with mean that there is limited space to compensate those who lose out.
But cutting red tape is one relatively painless way to make life easier. Our target is to reduce the annual cost to business of tax administration by £250 million by 2015.
I am confident we can get there – but to do it, we need to work together. That means consultation with businesses, with the OTS, with taxpayers and tax professionals. And I am here to listen to the industry.
We continue to ask ourselves the question: what can we do to make ourselves even more competitive? So if something’s not working, or could be made to work better, tell me about it.
Nowhere is dialogue more important than when we are formulating a new policy.
On taking office in 2010, we made a commitment to significantly improve the way tax policy is developed, communicated and legislated.
This reflected a growing recognition that an effective and competitive tax system, which enjoys the confidence of taxpayers, depends not only on the content of tax policy, but also on the way in which tax law is made.
We consulted with over 40 individuals and organisations about how we could improve in this area. And the feedback was consistent. We needed to be clearer as to what we were seeking to achieve; invest more time in getting the legislation right; and improve how we communicate policy changes.
The outcome of this process was a new tax policy making framework, which we announced in December 2010.
I am sure that you’re all very familiar with the framework - but let me just briefly recap the five main elements:
- commitment to set out the rationale for reform ahead of major changes to the tax system
- longer policy cycle, with more time to consult on the majority of tax changes
- draft Finance Bill legislation published for scrutiny at least three months in advance
- a more strategic approach to policies on tackling avoidance;
- more information published in one place on tax policy changes at Budget and Autumn Statement, in particular through Tax Information and Impact Notes
This new approach was broadly welcomed by tax professionals and commentators when it was launched. But of course, a better test of the framework is whether it has delivered real improvements, four years on.
And I think there have also been some real achievements.
The level of consultation on proposed tax changes is greater than ever before.
Since 2010, each summer has seen 30 to 40 substantial tax consultations on measures previously announced in the Budget, in addition to many more informal contacts.
And in many cases, reforms have been developed over several rounds of consultation from the initial policy framework to the detailed legislation – e.g. the Statutory Residence Test, which the Tax Professionals’ Forum highlighted this as an “exemplary” process.
We’ve also met our commitment to publish the majority of Finance Bill clauses for technical consultation.
For example, 300 pages of Finance Bill 14 legislation were published last December, and received over 300 responses – a process which led to a vast improvement in the quality of the final legislation.
And I’m pleased to report that the publication of Tax Information and Impact Notes, Explanatory Notes and technical guidance has led to far greater transparency on the rationale, detail, and likely impact of proposed tax changes.
All of which helps build far greater engagement with what we are doing as a government…
…Provides security and stability for business…
…And, down the line, creates the right conditions for prosperity and employment.
Of course, it’s important to get the broad policy right.
But it’s also vital to deliver good day-to-day service to our customers.
If we are to create an atmosphere where people do the right thing and pay the taxes they owe, then it’s vital that HMRC projects an image of competence and efficiency in its daily customer interactions– the 1.23 billion of them it has every year.
That means working with customers in the way which best suits them. And it means designing services that make it easy for customers to get things right and reducing customer error.
Do you remember taxing your car in the old days – when you had to take umpteen pieces of paperwork with you and stand in a queue at your local Post Office?
And do you remember how straightforward it felt to be able to do it all online in a matter of minutes?
That’s what I want paying tax to be like. Because, quite simply, it’s how you do things in the 21st century.
We took a major step forward at the end of September, when HMRC published its Digital Vision of how it will provide services online.
These will be personalised – essentially, a tax account for every customer in the UK;
It will be smart – for instance, helping customers get things right by pre-populating forms;
And it will be multi-channel – giving customers the ability to contact HMRC in the way that works best for them.
It’s a win-win situation. HMRC’s digital services will give HMRC better data and insight about risks to compliance, so they can focus their compliance activity and expertise on those determined to dodge their responsibilities.
And HMRC will be able to consult its customers on policy proposals and changes – leading to future improvements.
This is part of a wider suite of improvements to the service we offer online – bolstered by £200 million worth of investment to expand HMRC’s digital services over the next three years.
For the first time this year, tax credit customers were able to renew their claim online, and many more than expected did so. Over 408,000 customers renewed using the online service between April and July.
Over the next year, we’ll be expanding digital services such as PAYE for Employees and Your Tax Account – which currently has 304,000 customers. In five months’ time HMRC expect it to have 2 million customers – more than a sixfold increase.
HMRC have converted more than 300 HMRC forms into mobile and tablet-friendly digital iForms since April, and plan to convert all the remaining forms by the end of this year.
And they’re trying to make paper a thing of the past. HMRC’s Digital Mail Service, which converts all post correspondence to a digital image within 48 hours of receipt.
HMRC’s ambition is that from 2018 and beyond, dealing digitally will become the norm where HMRC will be able to help customers get their taxes right and respond to new information in real time through new ways such as social media.
As I said at the start, I don’t think for a moment that this will make people love paying taxes. But equally, neither should they dread an interaction with the taxman!
Of course, there are some of HMRC’s customers who do dread that interaction – because they have been evading or agressivly avoiding paying tax.
My position on this has always been very simple. We will create a competitive regime on tax. We will make it easy for you to do the right thing. But you actually have to pay those taxes.
If you do the right thing, like most people in this country do, nothing angers you more than seeing somebody else doing the wrong thing and getting away with it.
So compliance – domestic and international – has quite rightly been a major focus for us.
Figures published in May show that HMRC secured a record £23.9 billion in additional tax revenue over the last year as a result of increased activity to make sure people pay the taxes they owe. That’s up £3.2 billion on the previous year, up £7 billion on three years ago and nearly £1 billion above the target set at Autumn Statement 2013.
And the strategic reforms we made on avoidance early on led to disclosures of tax avoidance schemes falling by almost 50 per cent between 2011 to 2012 and 2012 to 2013.
That’s good. But we need to do more. And we need to get the message out there loud and clear: aggressive tax avoidance is something we will not tolerate.
Today I am pleased to announce the launch of “10 things a tax avoidance scheme promoter won’t always tell you” – a new HMRC campaign to raise awareness of the risks of entering any tax avoidance scheme.
Tax avoidance is a risky business – you won’t get full information from the promoter on the downsides of entering a scheme. It’s important that taxpayers understand what they’re letting themselves in for.
This builds on legislation introduced in the Finance Act 2014 to tackle the small minority of tax advisers who are persistently uncooperative and are not transparent in their dealings with HMRC.
Our message is clear. Tax avoidance schemes don’t work. They are not legal. And we monitor them closely.
No politician likes playing “bad cop”, believe it or not! But we support the hardworking, honest majority of taxpayers who play by the rules. To do that, you need to crack down on bad behaviour – and you need to make it as easy as possible to do the right thing.
That’s how you get a fair and competitive system.
That’s how you build trust and stability.
And that’s how you create the jobs and long-term growth this country needs.