Office of Tax Simplification

Liam Byrne Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on the structure and approach of the Office of Tax Simplification.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I am grateful for the opportunity to update the House on the establishment of the Office of Tax Simplification, further to the written ministerial statement that I laid before the House this morning.

The need for simplification in the UK tax system is clear. The quality of our tax law is a major determinant of our economic competitiveness. A complex tax system creates uncertainty and instability, which sends the wrong signal to international businesses looking to invest in the UK and so damages our economic growth. A complex tax system also means that businesses end up spending more time dealing with their tax affairs and less time on their core business. That can be particularly burdensome for smaller businesses.

We set out our proposed approach for reforming the tax policy-making process in a discussion document that was published alongside the Budget last month, but as well as reforming the way in which we develop new tax law, there is also significant work to be done to correct the mistakes of the past by reducing the complexity in the British tax system. That is where the Office of Tax Simplification comes into play.

In his Budget statement of 22 June, my right hon. Friend the Chancellor confirmed our plans to establish the Office of Tax Simplification. Today, we have done so. The OTS will advise Treasury Ministers on delivering a simpler tax system, drawing together expertise from throughout the tax and legal professions as well as from business and other interested parties, to provide advice on options for addressing existing complexity in the tax system. Its objective will be to reduce the burden of compliance for both businesses and individuals. The OTS will do that by advising the Government on where, in its expert view, the tax system is too complex and could be simplified, and by conducting inquiries into complex areas of the tax system, gathering evidence and suggesting options for reform.

The office will publish a report on each of its inquiries, detailing the evidence that it has collected, the views of interested parties, its analysis of potential reform options and proposals for simplifications. Either the Chancellor or I will discuss the findings of each report with members of the OTS board. The first such inquiry will be a review of all reliefs in the tax system. The OTS will review the full list of reliefs and identify those that should be repealed or simplified to create a simpler tax system. The second review will focus on simplifying the tax system for small businesses and the specific question of finding a simpler alternative to IR35.

The OTS will be led by an externally appointed and unpaid chairman and tax director, who will be supported in undertaking their duties by a secretariat of civil servants and private sector secondees. The chairman and the tax director will have complete control over forming the OTS’s judgments and will be accountable to Parliament for their advice. Michael Jack will be the interim chairman, and John Whiting has agreed to be the interim tax director. Together they will lead the establishment of the OTS and the reviews that it conducts in its first year. Over the summer, John Whiting will lead the appointment of the permanent secretariat, so that the first reviews can begin by early September. He will also establish committees over the summer to steer the OTS’s work and ensure close consultation with all interested parties. The committees will include experts from the tax and legal professions, the business community and other interested parties.

Making the right reforms to the tax system will help to pave the way for bringing more international business to the UK, which will give our economy the boost that it so urgently needs in the years ahead. We commend the creation of this body.

[Mr Byrne]

I am grateful to the hon. Gentleman for his statement. He will hear this afternoon that there is wide-ranging interest in the questions that he has raised, which is why it was all the more unacceptable that the statement was delivered at a press conference before it was made to Members. That, I am afraid, is becoming a pattern of behaviour. First, £6 billion of spending cuts were announced in the Treasury courtyard rather than in the Palace of Westminster. Then the approach to the spending review was announced in a press conference, not in this Chamber. Then reforms to the institutional arrangements for bank regulation were briefed to newspapers before the House was told. Then plans for a bank levy were outlined in a speech in the City, not from the Treasury Bench. If we wanted a timely reminder of the importance of the first debate to be held on business nominated by the Backbench Business Committee—on information relating to statements—the hon. Gentleman has just given us one.

Let me turn to the substance of the hon. Gentleman’s announcement. From all parts of the House this afternoon he will hear an endorsement of the principles of a simpler tax system that allows people to focus on their business affairs and profitability. He will see, too, an endorsement of the use of outside experts; that is nothing novel. But will he confirm the answers to a couple of questions about the office’s scope? If he is all for simplification, will the Office of Tax Simplification be advising him on his proposals to complicate the tax system by introducing a marriage tax allowance, all for the sake of sending an ineffective £3-a-week signal about his party’s views on what a family should look like? Will the office be advising the Chancellor either to advance or to drop those plans, and if so, on what timetable?

Can the hon. Gentleman tell us whether the Office of Tax Simplification will be advising him on dropping the measures announced in the Budget to increase the number of people facing marginal deduction rates of more than 90%? And if he is all for simplicity, why is the Treasury briefing that it wants a more complicated stamp duty system in connection with energy conservation in housing?

Secondly, there are a series of questions to be asked about the nature of the new beast that the hon. Gentleman has told us about this afternoon. We have heard a lot of talk in recent weeks about the Chancellor’s push for a bonfire of the quangos. Can the Minister tell us how much the new office will cost? Can he promise us that this is the last quango that the Treasury will announce this year? Can he tell the House how Mr Jack was appointed, and whether his appointment is fully in line with Nolan principles? What reassurances can the hon. Gentleman give the House this afternoon that, unlike the Office for Budget Responsibility, the Chancellor’s last independent creation, this office will not release its reports to help the Prime Minister get through a sticky Prime Minister’s Question Time?

Simplification is a good thing, and I am sure that the whole House will welcome the thrust of the hon. Gentleman’s proposals. But I am afraid that today’s announcement sounds rather more like an attempt to grab headlines than like real evidence of a push to improve legislation—legislation that is the responsibility of this House.

[Mr Gauke]

I do not know whether the right hon. Gentleman requested an urgent question because he had prepared a speech and had forgotten that this development was announced in the Budget on 22 June. The creation of this organisation was not only in the Conservative party manifesto and the coalition agreement; it was also announced to the House on 22 June by my right hon. Friend the Chancellor. Today we have announced the appointment of two distinguished individuals to perform the task that we have already set out. The misplaced outrage from the right hon. Gentleman is extraordinary, particularly given the record of the previous Government in this regard.

I am pleased that the right hon. Gentleman recognises, at last, the need for a simpler tax system and for outside experts to be involved in the tax system. We think that an important point; we have to make use of the expertise in the tax and legal professions, and the OTS is but one example of how we will do that, along with the creation of a business forum and a tax professional forum. All that will add to the sense of co-operation that exists in our tax system and the sense that the system can become an asset, not a liability—as, sadly, it had become under our predecessors.

The purpose of the OTS is to look at the stock of tax law—the thousands of pages of tax law in this country, which has the longest tax code in the world. It is an attempt to examine the existing tax code to make recommendations for simplification. All decisions will be made by Ministers accountable to the House. Parliament will continue to make tax law, but clearly the use of independent experts and publication of their recommendations and analyses will be a useful addition to our tax system.

The right hon. Gentleman asked about the appointment process. These are interim appointments; we believed that it was important to establish the OTS quickly. The appointments will be there for 12 months, at which point we will go through the usual process of appointment for permanent appointees. In that 12-month period Mr Whiting and Mr Jack will add a great deal to our tax system, will establish the OTS—[Interruption.] In spite of that attack on the appointees, John Whiting, for example, has advised Opposition parties, including the Labour party in the past few weeks. These are well-established individuals. Michael Jack was a distinguished Minister in this area, who established the tax law rewrite project, and we think that that is useful experience.

As for the cost, I know that the view of the Labour party in government is that quangos must always cost a great deal of money—but Mr Jack and Mr Whiting are not being paid for this. The cost of the secretariat will be paid out of existing Treasury and Her Majesty’s Revenue and Customs budgets. This is good value for money, it will be a good contribution to our tax system, and we are very proud to announce it.