There is one fundamental of tax policy. When seeking out further revenue, as the UK needs to do post-pandemic, we need to remember that when people say they like the idea of people paying more tax they really mean other people. There is an age-old US rhyme to remind us: ‘Don’t tax you; don’t tax me; tax that fellow behind that tree’.
You can see this clearly in some figures tucked away in the recent report by the Wealth Tax Commission on the level of enthusiasm for the idea of a wealth tax. It carried out some polling last summer and found that ‘a wealth tax was significantly more popular than other ways of raising revenue’.
It asked what sort of tax rises people would most support. ‘The most preferred option,’ said the polling, ‘was a wealth tax starting at £1m and applying to all assets (41%). This policy had almost twice as much support as increasing council tax on properties over £1m (21%), and many times more support than increasing income tax on all earners (7%) or increasing VAT (4%)’.
Pass the buck
And this idea of someone else paying the tax was popular right across the political spectrum. A wealth tax was still the single most preferred option among those who voted Conservative in 2019 (34%), it found, with 67% of Conservative voters listing it in their top three options (compared with 82% of Labour voters).
So, job done; we have found a tax that will raise billions and be paid by other people. The same is already true of income tax; nearly a third is paid by the top 1% of taxpayers.
The pandemic is perceived to be a catastrophic bolt from the blue, so blue-sky thinking on tax policy may suddenly be acceptable to the public. All manner of tax reform and ideas previously seen as being too difficult may have become easier to implement.
The pandemic is perceived to be a catastrophic bolt from the blue, so blue-sky thinking on tax policy may suddenly seem acceptable
From income to consumption
Long-term trends will help. Globally, tax is moving away from income to consumption. It makes life easier and clearer from the tax authority’s point of view. And again, the targets are other people – the amorphous mass of consumers rather than the specifics of income.
Tax is good at deterring poor environmental behaviours. But it could be that we are still messing about in the foothills
There is also a whole tranche of tax revenue that could arrive in the future. The independent Office of Tax Simplification (OTS) has recently produced an off-the-peg system for reforming capital gains tax. There is a trend away from money-based taxes towards carbon-based taxes.
‘There is a genuine need to tackle climate change and that gives the Chancellor cover for carbon and other taxes’, says George Bull, senior tax partner with RSM. Combine that with the COP26, the United Nations Climate Change conference being hosted by the UK in Glasgow this autumn, and you have all manner of opportunities to burnish the nation’s green credentials.
Tax is good at deterring poor environmental behaviours. But it could be that we are still messing about in the foothills.
Technology as enabler
The really revolutionary changes in the nature of tax and the revenue collected will come from technology, moving the system towards real-time gathering of information, and tax. Tax authorities would have the information on taxpayers’ income as it happened.
As an example, the OTS has just started a consultation on how details of investment information and things like Gift Aid payments could be uploaded by HMRC direct from source. This would dramatically narrow the tax gap between what ought to be raised and what is actually raised.
Gradually, tax gathering becomes a simple digital and almost automatic process. And that all takes us back to the chap behind the tree, that person who is going to pay the tax bill and fill up the nation’s coffers.
