It’s time to scrap fiddly tax reliefs

Britain's tax code is groaning under the weight of so many tax reliefs, says Matthew Lynn. It's time we had a clear out.


Time to ditch the tax break on helmets, Phil
(Image credit: Copyright (c) 2010 Shutterstock. No use without permission.)

The Children's Television Allowance is costing us £5m a year. The zero rate of VAT on cycle helmets is costing £45m. The £10 Christmas bonus for every pensioner is costing £15m. Last week, HMRC published a list of what it calls "minor tax reliefs", fiddly little breaks and bonuses that cost the taxpayer less than £50m. Here are a few others.

You can still claim a relief on life assurance premiums for contracts made before 1984; on the first £70 of interest on an account with the National Savings Bank; for investing in video games development, or for operating a pet cemetery. There are dozens of such reliefs, many costing so little that HMRC ends up putting the cost down as "negligible" because it is less than £5m (which, given total UK tax revenues of £730bn, is hardly worth bothering with).

A system creaking under complexity

But while these costs in cash terms may be negligible, that doesn't mean they don't have any impact, especially when taken together. Collectively, they create a tax system that is now creaking under its own complexity. It is not hard to identify the culprit. Over the past three decades successive chancellors have stacked gimmick upon gimmick in an effort to ingratiate themselves with voters, or appease one special interest group or another. Sure, it sounds good on Budget day to give a tenner to every pensioner, but the result is that the British tax code is now 20,000 pages long, with a total of ten million words.

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The code has tripled in size since 1997 (hardly a coincidence, as that was also the year the worst culprit, Gordon Brown, took up residence in Number 11), and is now one of the longest in the world. (Hong Kong one of the most dynamic global economies gets by with just 276 pages.) We now have more than 1,000 tax breaks and reliefs, far more than any individual can get their head around. And we are still adding more.

In the last Budget, ChancellorPhilip Hammond introduced a fiddly new stamp-duty rate for first-time buyers. We now have multiple rates of duty, depending on whether it's your first or second home, and whether you are moving, or buying an extra property.

The limit on the amount of money you can put into an Enterprise Investment Scheme was doubled, so long as half went into "knowledge-intensive companies", even though probably any business can describe itself as "knowledge intensive" if it wants to scaffolders, after all, need to know quite a bit to remain in work.

More jobs for accountants

For every one of these wheezes, work is created for years to come. Officials have to administer the scheme and make sure it is being used correctly. Inspectors have to make sure that clever accountants aren't turning it into a tax-avoidance scheme, as was often the case to give just one example with tax breaks on films. And every company has to make sure it pays its accountants enough to claim every relief available. After all, it would be a shame to miss out. In all, a huge amount of activity is generated. But none of it adds anything to the world.

It would be far better to scrap virtually all these reliefs. Donald Trump might well be the most personally unappealing US president ever, but he has had at least one good idea. He has insisted that Congress repeals at least three old regulations for every new one imposed on the economy. That is something we could usefully copy in this country.

It is time we had a rule that a tax relief has to be scrapped for every new one introduced even if it does mean getting rid of the 15p luncheon voucher allowance (introduced in 1946), which remains on HMRC's list of minor reliefs, despite the fact that no-one has been allowed to issue any new ones since 2011.

Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.