The Financial Secretary to the Treasury sets out how the government is reforming the tax system.
It gives me great pleasure to be here this morning and to be able to open the batting this morning.
My office accepted the invitation without knowing just how timely today’s event would be – coming, as it does, just a week after a landmark Budget.
A Budget that places even greater expectations on HMRC.
Expectations that can only be delivered through major reform, modernisation and simplification of the tax system.
And that’s what I would like to talk to you about today.
The government’s record
Over the past few years, I’ve enjoyed the opportunity these conferences have given me to talk about the investment the government has made in HMRC, and the additional revenue that investment has generated.
There can be no doubt that taxpayers have got a seriously good return out of this.
Over the lifetime of the last Parliament, HMRC’s compliance activities have generated in excess of £100 billion of compliance yield, while delivering savings of 25 per cent over the last spending review period.
That means more money to cut the deficit; more money to fund our public services; and more money to reduce taxes elsewhere.
Reforming the tax system
That extra investment we have been putting into HMRC enables us to press on with much needed reform of the tax system.
That reform will have two important outcomes:
First, it will enable us to further stamp out tax avoidance, evasion and aggressive tax planning, and shrink the hidden economy.
And second, it will also help the deliver a modern and efficient tax system – one that makes it easier for individuals and businesses to get their taxes right first time.
That system has to incentivise the right behaviour: good compliance, investment, growth and creating rewarding job opportunities.
Everyone benefits. An efficient tax system encourages good behaviour. Good behaviour improves compliance. Improved compliance means greater tax revenues. And greater tax revenues mean we can reform taxes in a way that can make our tax system more efficient.
So my first key point is that the extra investment we are putting into HMRC will address both of these:
- Incentivising the right behaviour, by building compliance into the way HMRC collects taxes, and continuing to stamp out illegal activity and close up loopholes;
- And making tax easier, by cutting out the fuss and the paperwork from managing your tax affairs.
Incentivising the right behaviours and tackling non-compliance
As you will no doubt have already heard, the Chancellor announced a package of measures in the Summer Budget to tackle avoidance and tax planning, evasion and non-compliance and imbalances in the tax system.
An investment of over £800 million – which, together with the policy changes we announced, stands to give us an additional £5 billion of revenue a year.
It will strengthen HMRC’s ability to act across all major segments of the economy – including large businesses, small and medium sized enterprises and wealthy individuals – as well as organised crime.
It means more HMRC staff tackling non-compliance and making sure that everyone pays what they should.
It means more resource to pursue additional criminal prosecutions.
It means more options to recover debt owed to the Exchequer.
And it means a number of new ideas and proposals too, which we’ll consult on, and which include improving tax transparency; giving HMRC new powers to tackle businesses who persistently engage in aggressive tax planning; and enhancing the information wealthy individuals give to HMRC.
I know that many of you here today will want to contribute towards these consultations – and later today there will be a session to work out how you and HMRC can best achieve that.
And I have also written to the Tax Professional Forum asking them to support this work. I said that I’m keen to seek ideas about how we can best work together, to allow you in industry to respond to such a large number of our proposals, over a relatively short period of time.
Today, I am delighted to announce that we are publishing four consultations on a number of new measures to tackle offshore tax evasion.
These documents invite views on the following measures:
- Increased sanctions for individual tax evaders, including the introduction of a penalty based on the value of the assets hidden offshore; and naming company directors who hide their identities behind offshore companies;
- A new criminal offence to apply to corporations who fail to prevent their agents from criminally facilitating tax evasion;
- New penalties for enablers, including a penalty based on the amount of tax they have helped someone to evade; and
- A new simple criminal offence to apply to individuals who hide their money offshore to evade tax.
It’s our duty to tackle these practices, on behalf of the majority of honest individuals and businesses who pay what they owe. And these proposals will ensure that tax evasion is a high-risk activity that will result in serious consequences.
The hidden economy
Of course, the benefit of all the measures we have introduced, and will introduce, cannot be counted simply in terms of the additional tax revenue they bring in – welcome though that will be!
Many of these measures will also be targeted at reducing the size of the hidden economy and the negative impacts associated with it.
HMRC estimate that the hidden economy accounts for 17 per cent of the tax gap, or about £5.9 billion.
So yes, there is a big opportunity to close the gap, and bring in additional tax revenue there.
But the shadows of the hidden economy create the conditions for other forms of non-compliance to flourish – including illegal immigration, illegal working and criminality – which have an enormously detrimental effect on our society.
Successful action to tackle the hidden economy will shine a light on unregistered businesses and undeclared workers, helping to guide other enforcement activity.
HMRC is already using smart data to do this. Using Connect, it identified unregistered Houses of Multiple Occupancy – residences where its data suggested six or more people with three different surnames were living, but the landlord wasn’t paying tax. In one recent example, HMRC shared this data with Home Office Immigration Enforcement, whose raid on a house led to three arrests for immigration offences.
The extra investment we’re targeting at the hidden economy will mean more investigators for HMRC; more powers to find online businesses that try to hide; and more opportunities for those people who want to come forward voluntarily and put their affairs in order.
That will raise revenue, tackle fraudsters who undercut legitimate businesses, and reduce opportunities for criminals to profit from illegal workers.
And it will also help achieve our wider objectives of tackling public concerns on immigration, and protecting some of the most vulnerable people in our society.
Importantly, it will also help HMRC tackle these problems in the most modern way possible – including using technology and data tools to enable closer joint working with other enforcement agencies in the UK and overseas.
Making tax easier
I’d now like to turn to the second, but equally important aspect of reforming the tax system – making tax easier for everyone.
Like many of you here today, I’ve had more than one opportunity to complete a tax return for HMRC. I hope Lin and her team won’t mind me saying this, but I have had more enjoyable afternoons in my life.
The good news, of course, is that we can now all look forward to a time when submitting a tax return in the way we do today will be a thing of the past.
I see no reason why, given the technology we have today, anyone should ever need to complete a paper tax return ever again.
The system we envisage is one where tax returns will be replaced by digital tax accounts for millions of individuals and businesses. These digital accounts will bring together each taxpayer’s details in one place, just like an online bank account.
These accounts will be simple, secure, personalised to the taxpayer — and accessible through a digital device of their choice.
Customers will be able to register for new services, update their information, and understand quickly and easily what they need to pay.
And for small business customers, calculation and payment of tax will become embedded within everyday business systems, promoting good compliance and reducing opportunities for error.
Of course, for those who have difficulty in going online or who need extra help, HMRC will continue to provide extra help and support.
I’m delighted to say that by early next year, 2016, five million small businesses and ten million individuals will have access to their own digital tax account, and by the end of the next Parliament every individual and small business in the UK will have one.
As time goes on, these accounts will offer more and more services, which I know you’ll hear about in more detail shortly.
I often say that although we probably won’t succeed in making people enjoy paying their taxes, we can at least succeed in making the whole process easier! And I have no doubt that this will be a game-changer in customer experience.
By the same token, it should help HMRC’s goal of delivering a consistent level of service to all customers throughout the year.
Because I will be honest with you – I know there have been problems – I know that these are being sorted out and that will be a vital challenge for HMRC over the coming months and years.
The past five years have been transformational – both in our tax system and in the way we administer it.
Our ambition is no less high for the next five years.
On personal taxes, we are moving further towards being a low-tax, low-welfare, high-earning nation.
On business taxes, we are continuing to drive forward this country’s international competitiveness – not least through our landmark cuts to corporation tax.
And, of course, tax will have a vital role to play in getting this country back to a budget surplus. That’s both in terms of tax policy – asking those with the broadest shoulders to bear a little more of the burden – and in the way we administer taxes.
Reform of the tax system which will benefit individuals and businesses, wider society and the country as a whole. And your continued support will be vital to the success of these reforms.
I’m looking forward to continuing to work together as we make the next step of that journey.