There's an interesting blog by tax lawyer Jolyon Maugham. In it, he points out that while we pay a huge amount of attention to whether or not we are getting value from taxpayer-funded public spending, we don't pay as much attention to the value we get from the 1,000-odd tax breaks we offer various interest groups.
This is an important point; after all, the value of a tax break to a degree represents tax not collected and so creating and/or cancelling them has much the same effect as raising or cutting spending. We should be as sure that we get value from a break as from public spending.
A shame, then, says Maugham, that, according to the Public Accounts Committee, "HMRC rarely, if ever, assesses whether a tax relief is an economic, efficient and effective way of meeting its policy objectives".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
As an example of a hugely expensive but not much studied relief, Maugham gives entrepreneurs' relief. At the moment, some £3bn a year in tax breaks is given to entrepreneurs who pay capital gains tax at a reduced rate of 10% (rather than 28%) on the first £10m of gains made from selling companies. That's real money.
If we could be sure that letting it go encouraged people to set up companies and that the result was a more dynamic UK economy one that was creating enough extra great jobs and businesses as a result of the relief to offset the cost of the relief that would be just fine. But we don't know that. None of the relevant agencies have the data that might give the answer. At MoneyWeek, we have always wondered about this.
We can see why you might want to give entrepreneurs tax breaks to get going via Enterprise Investment Schemes and the like start-up capital is hard to come by. But why give them a break when they sell up?
Is incentivising them to sell abusiness (paying 10% on capital gains) rather than to keep building it up (paying much more on income and dividends) really a good idea? Surely if we want (as we always say we want) to build up a German-style Mittelstand, this isn't the way to go? And how many entrepreneurs start businesses thinking about their exit? Surely more relevant than their exit is their entrance and their existence. My bet, for what it is worth, is that entrepreneurs would get more out of a little tax simplification than they do out of exit relief.
Finally, on the subject of entrepreneurs' relief, it is worth noting that it is routinely abused. George Osborne has had a go at tightening things up but it has, nonetheless, been perfectly possible to work as a contractor or a freelancer, run all your earnings through a personal services company, take your income as dividends, and then to dissolve the company and claim entrepreneurs' relief on the capital remaining within it. A lovely example of how it is not possible to have a tax relief without a tax dodge, too.
It seems that Osborne might be wrestling with this one too. According to the FT, entrepreneurs' relief is one of the things he might have a go at in the autumn statement.
I have written before that while there is much talk about the well-off not paying their share, they are in fact being hit by a barrage of new taxes all the time. This would be one more to add to the pile.
-
Barclays warns of significant rise in social media investment scamsInvestment scam victims are losing an average £14k, with 61% of those falling for one over social media. Here's how to spot one and keep your money safe
-
Over a thousand savings accounts now offer inflation-busting rates – how long will they stick around?The rate of UK inflation slowed again in March, boosting the opportunity for savers to earn real returns on cash in the bank. But you will need to act fast to secure the best deals.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
