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Here’s what the chancellor should do today
At almost ten million words, the UK tax code is the world’s longest and most incomprehensible. Today, the chancellor has a real opportunity to change that, says Dominic Frisby.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
At ten million words and 21,000 pages, ours is the longest tax code in the world.
Ten million words is such a big number that it's almost meaningless. To put it into some kind of perspective, I drew this barchart for the show I did at the Edinburgh Festival last year, Let's Talk About Tax.
You can see that ten million words is about four times the length of the Chilcot report, which took seven years to compile.
It's about 17 times the length of War and Peace. When I drew that chart I thought War and Peace was the longest novel ever written. Turns out it's actually, according to Guinness World Records, Proust's La Recherche Du Temps Perdu.
Whatever. The UK tax code is still 8.3 times longer.
It's 12.5 times the length of the King James Bible, 12 times the complete works of Shakespeare, and 66 times the length of the Hong Kong tax code, which is generally agreed by international tax lawyers to be the most efficient in the world.
In short, there are more words in our tax code than many people read in their lifetime.
And it's not just that there are so many words, it is that so many of them are incomprehensible. How on earth can anybody hope to administer such a thing? It is impossible. Hence the inconsistencies, the avoidance, the evasion and the mess that is HMRC.
The dangers of compound bureaucracy
We bang on forever on these pages about the powers of compounding. Exploiting compound interest over time is the single most guaranteed road to riches. Just ask Warren Buffett. Unfortunately, when it comes to regulation and legislation, compounding has the same effect with disastrously negative consequences.
Every chancellor since Norman Lamont (1990-93) has added to the tax code. None have taken away. The amount of tax legislation trebled under Gordon Brown. George Osborne came to power promising to simplify it, declaring it was "complex and opaque". He even set up the Office of Tax Simplification. Yet the amount of legislation doubled under his tenure.
You have to go all the way back to Nigel Lawson (1983-89) to find a chancellor whose actions showed any sort of commitment to tax simplification. He made it his stated policy to remove a tax with every Budget, and he did so six times. He also reduced the number of income tax bands to two.
Today Philip Hammond badly needs to do something similar. He won't, though. He is a "steady ship" and a man who has got on by not rocking the boat.
So we can expect more legislation, much of it to prevent the loopholes created by previous legislation. This will just create more loopholes, of course, further down the road, and then somebody will come along and add another layer of rules on top of that.
Some can exploit the complexity, but most can't, and so inequality is the result.
Simplification is hard. The nature of government means it's much easier to add than to take away. But we badly need a chancellor committed to wholesale simplification. We need Lawson on steroids. Is Hammond that man? The signs are not so.
The one extra bureaucrat we could really do with
There is, however, one addition I would make. That is for a new position: that of government minister for HMRC. It's amazing that in this day and age, given that taxes are the fuel on which our system of democracy runs, and without them, for good or bad, society as we know it falls apart, that there is no minister accountable for HMRC.
There is a minister for health, for education, for pensions, so why not one for HMRC? People think it's the chancellor, but, strictly speaking, it isn't. The Treasury is a different department. This is an anomaly, which goes all the way back to the Civil War and 1651. Taxes are the property of the crown, though only parliament may say how they are spent.
We badly need a minister in charge. That minister needs to be obsessed with simplicity and tough as old boots. I nominate Michael Gove.
So that's what I'd like to see. But back in the real world, what can we expect today? I expect further tax rises for the self-employed. Many like me choose to be self-employed because they like the flexibility. It was also tax efficient. But the rise of the gig economy means there is a now a fat cow to be milked. The tax man will come for the cream. He always does. He needs the money.
The outrage over the inconsistencies of the new business rate proposals mean that a watered-down version that panders to various interest groups will be pushed through. But therein lies the problem. It is the tax breaks, the reliefs and so on that make our code so complicated. This will remain so as long as a culture of lobbying remains.
There won't be lower rates of income tax, so workers will continue to be penalised. Asset owners meanwhile will, for the most part, go untaxed. There won't be an introduction of land value tax to replace other taxes. I'm not sure quite what will happen with stamp duty. I imagine it will be "as you were". Alcohol taxes will remain riddled with inconsistencies. Forget flat taxes.
The problem is the state of government finances. They're not quite as bad as they were, but they are still appalling. Debt stands at more than 80% of GDP. The national debt is now closing in on £2trn. Another £70bn or so will be added to it this year, as deficits continue to be run. The solution will be the same as Osborne's a little bit of austerity, a little bit of debasing money via low interest rates and quantitative easing, increased growth (they hope) and more taxes.
It's a shame, because Hammond is in a strong position. This government is likely to be in place for another term at least, thanks to the absence of credible opposition. This is a real opportunity to make major and lasting changes. Tax is one of the few ways by which a politician really can change society.
But we won't see anything meaningful. Instead, we'll get more of the usual tinkering round the edges
PS Next Tuesday, 14 March, we're recording the pilot for a new Radio 4 panel show about finance. It's called More Money Than Sense, it's at the Lost Theatre, in Stockwell, and entry is free. If you fancy coming along, drop an email to mmts@absolutely-uk.com
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