Tax reform urgently needed to address public finances, says Committee report

Tax reform urgently needed to address public finances, says Committee report

The Treasury Committee has published a unanimously agreed report which forms part of its inquiry into tax after coronavirus (COVID-19). The report concludes that public finances are on an ‘unsustainable long-term trajectory’ exacerbated by coronavirus, and that now is not the time for tax rises or fiscal consolidation, which could undermine economic recovery. The report predicts that significant fiscal measures including revenue raising will be needed in the future and  makes a number of short-term recommendations such as raising additional tax revenue. The Committee ultimately says, however, that in the long-term the whole tax system must be reformed to allow revenue raising in a way that minimises economic damage and effectively supports public services.

The report makes a number of observations and recommendations including:

• windfall and wealth taxes—windfall tax on firms and sectors that have seen a significant increase in turnover from the pandemic would be problematic but not impossible in certain circumstances in the future. The Committee does not recommend introducing an annual wealth tax. There was more support for a one-off wealth tax, although there were still reservations that ‘a tax imposed once can be imposed again’

• ‘tax lock’ manifesto—the Committee believe that the government’s ‘tax lock’ manifesto, which ruled out any increases in income tax, national insurance and VAT rates will ‘come under pressure in the current circumstances’. The Committee advise ‘careful consideration’ should be given to any potential increases including:

○ additional economic distortions

○ making taxes more or less progressive

○ assisting or otherwise with the ‘levelling up’ agenda

○ impact on employment

• corporation tax—a moderate increase could raise revenue without damaging growth, particularly if balanced with fiscal measures such as enhanced loss relief and capital allowances, however a significant increase would be counterproductive

• pensions—the ‘entire approach’ to pension tax relief should be urgently reformed

• different forms of work—the tax treatment of the self-employed and employees is ‘confused, unfair, and unsustainable’ and requires major reform, particularly to eliminate the so-called ‘three person problem’ as far as is possible

• stamp duty land tax—should be a priority for reform, with the government setting tax at a level that optimises revenue and encourages home ownership

• strategy—the government should draw up a draft tax strategy for consultation setting out what it wants to achieve and identifying high level objectives

Read the full report here.

Source: Tax reform needed to address unsustainable public finances, warns Treasury Committee

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