The House of Commons Treasury Committee has launched an inquiry “Tax After Coronavirus” taking the reconstruction of the economy after the economic fallout of the coronavirus epidemic as an opportunity to examine the tax system.
The Committee is to look at what the main long-term pressures on the UK tax system are, additional measures the UK can introduced to protect its tax base from globalisation and technological change as well as considering whether such pressures should lead to tax reforms.
Evidence will also be sought by the Committee on what overall level of taxation the economy can accept, the future role of tax reliefs and if there is a role for windfall taxes post coronavirus.
Virtual Launch event, 17 July 2020, hosted by The Chartered Institute of Taxation (CIOT)
With eleven cross-party MPs, the Committee is chaired by Mel Stride MP. A virtual launch event was held on 17 July, hosted by The Chartered Institute of Taxation (CIOT).
Speaking at the launch, Mel Stride MP explained that there are three main areas the inquiry will be interested in. these are the changing tax terrain, young people and tax reliefs.
Looking at the changing tax terrain, he explained it will consider the international aspects, (such as the recently brought in digital services tax) to address the recognition that the international tax regime is not fit for purpose.
The erosion of the tax base
The inquiry will also consider the interplay between those that are employed by employers, those who are self-employed, and those who choose to operate through their own business. Mel Stride explained that these tax differentials have not only contributed to the erosion of the tax base, but also mean that IR35 and similar schemes have been necessary.
The second area is too look at young people and the accumulation of wealth. Very high levels of wealth accumulation occurred in the 50s and 60s, before tailing down, but this has recently been growing again. With the concentration of wealth in a dwindling number of older demographics, younger people may need tax breaks going forward.
Reliefs are the third area that will be considered, explaining that if you took the largest five or six areas of tax relief and abolished them, it would add to around 10 per cent of the tax take in the UK.
The Labour approach to tax
Also speaking at the launch, Angela Eagle MP explained that tax reform needs to go beyond the intellectual and be practical, both operationally and politically. She went on to say that the tax system needs to be value-based and need to consider the philosophy of the tax system.
Looking forwards, Angela Eagle explained that the Government has been under collecting tax against a forecast for the whole of this century and the Committee needs to understand why and factor this into the system to be more effective. This would include understanding technological change, the global nature of capital, future taxes to change behaviour, for example, climate change and the countries demographic change. These demographic changes include an ageing population giving rise to increasing retirees and an overall reduction in the number of workers.
She went on to clarify that her aim is to consider what is not working and how it can be improved for the future, stating that there is a need to ensure people are paying their “fair share” and being good citizens.
On this basis, the tax system must be sustainable, both socially and environmentally. The Labour approach is to look for fairness in the tax system and consider distributive issues. These include land taxes, green taxes and digital taxes. A suggestion was also made regarding a solidarity tax to fund Covid-19 spending.
Evidence can be submitted until 28 August 2020
The committee is welcoming submissions with answers to the questions proposed in the call for evidence. Evidence can be submitted until Friday 28 August 2020. Further information on the inquiry and how to submit evidence can be found here.