On 21 January 2021, members of the Lords will take part in the following question for short debate, tabled by the Lord Bishop of St Albans:
To ask Her Majesty’s Government what assessment they have made of the reports by Church Action for Tax Justice (1) Tax for the Common Good, published in February 2019, and (2) Fair Tax Now, published on 4 January 2021.
Church Action for Tax Justice is a group campaigning for taxation reform. In its 2019 report, Tax for the Common Good, Church Action for Tax Justice said the current tax system was not being used to its full potential as a tool to improve fairness in society. It also argued tax should be perceived as a public benefit rather than as a burden on taxpayers, saying that:
Growing levels of inequality and the threat of climate change are among the greatest challenges faced by today’s world, while the UK still lives with austerity measures which have seen living standards plummet and undermined trust in our economic system. Responding to these crises requires public spending; it demands an end to the concentration of wealth in ever-fewer hands; and it requires that we rethink our use of natural resources.
Yet in rich and poor countries alike, it is still too easy for large companies and wealthy individuals to avoid paying their fair share of tax. And too often, tax is seen as negative: a burden to be minimised. We can tell a different story about tax: that it allows us to contribute to services and infrastructure shared by all, and that paying it is not just a duty but a privilege.
The report proposed several reforms of the tax system, including:
- Increasing taxes on wealth, including through reforms to inheritance tax. The report also argued the Government should consider replacing council tax and business rates, based on the value of a property, with a new tax based on the value of the land the property is built on.
- Changing the way businesses are taxed through increasing corporation tax, creating a financial transaction tax and creating a new tax targeted at the providers of digital services such as Amazon.
- Using taxation as a means of addressing climate change, such as through new taxes targeting carbon consumption. The report also suggested the introduction of taxes on other resources such as plastic used in packaging.
The report also recommended the UK should cooperate with other countries on the issue of tax avoidance, including through establishing:
- An automatic information exchange to enable tax authorities in different countries to better share information on income-generating assets held by foreign citizens or companies within their jurisdiction.
- Public country-by-country reporting of financial information, requiring companies to state where their economic activity occurs.
- Public registers of beneficial ownership for all jurisdictions, including the UK’s Crown Dependencies. The report argued this would ensure ultimate owners of shell companies were identified and required to pay the right amount of tax.
- That the United Nations should set global tax rules, so that all nations are involved in decisions.
Church Action for Tax Justice’s 2021 report, Fair Tax Now, repeated the calls for taxation reform made in its 2019 report. It also included further proposals, including combining income tax, national insurance and capital gains tax into a single tax with a single allowance. It also called for HM Revenue and Customs and Companies House to be given increased resources to enable them to better tackle tax evasion.
Tax policy: wider debate
Reforming the UK tax system has also been advocated by a number of other organisations including the Institute for Public Policy Research (IPPR). In its 2019 report, Just tax: Reforming the taxation of income from wealth and work, the IPPR said the UK tax system needed to be reformed to ensure “that those with the greatest ability to pay contribute the most”. It recommended measures including increasing the capital gains tax rate and making sure all sources of income were included in the income tax system, including earnings, dividends and savings.
However, the Institute for Economic Affairs (IEA) is among those who have argued that so-called ‘wealth taxes’ are counter-productive, contending that they risk the “flight of brains and money” from the UK and are difficult to administer. The IEA has also argued measures to increase taxes paid by corporations based in offshore financial centres were inefficient and risked undermining the sovereignty of countries to set their own tax policy.
Government tax policy
The Conservative Party’s manifesto for the 2019 general election included a commitment to create a “high-wage, high-skill, low-tax” economy in the UK. It said the Conservative government would not raise rates of income tax, national insurance or value added tax (VAT).
The Government has not issued responses to the Church Action for Tax Justice’s reports. However, some policies included in the Church Action for Tax Justice’s 2019 report have been subsequently introduced by the Government. For example, in November 2020 the Government introduced a new tax on plastic packaging produced in, or imported into, the UK. (Packaging that contains at least 30 percent recycled plastic is exempt.)
The 2019 Conservative manifesto also included a commitment to introduce measures to tackle tax avoidance. In July 2020, the Government subsequently published draft measures intended to combat the promotion of tax avoidance schemes. Jesse Norman, the Financial Secretary to the Treasury, said the Government will hold a consultation on further proposals in 2021. However, the Shadow Financial Secretary to the Treasury, James Murray, has argued the government has been slow to introduce measures to combat tax avoidance and accused the Government of “dragging its feet” on this issue.
Tax policy and the impact of Covid-19
The debate on the Church Action for Tax Justice reports takes place in the context of the Covid-19 pandemic. The National Audit Office (NAO) estimates measures already announced by the Government on or before 7 August 2020 in response to the coronavirus pandemic will cost a total of £210 billion. In September 2020, the Institute for Government reported the amount of public borrowing was £317.4 billion greater than planned during the 2020/21 financial year, even before the latest round of restrictions and expenditure. The Institute for Government said the majority of this spending (£192.3 billion) was the result of policy decisions intended to protect households and businesses from the worst of the effects of the pandemic. Further spending announcements were made during autumn 2020. The NAO has said it will publish estimates of the total cost of more recent spending commitments in early 2021.
In his 2020 spring budget, the Chancellor of the Exchequer, Rishi Sunak, announced a series of tax policy measures intended to increase tax revenue. They included cancelling a planned cut in corporation tax, restricting entrepreneurs’ relief, and increasing the primary threshold for paying national insurance. The Office for Budget Responsibility has said these changes would increase receipts by £5.5 billion per year on average. In September 2020, the Chancellor announced further measures to support the economy, including a new Jobs Support Scheme.
On 8 September 2020, the House of Commons Treasury Committee published a report entitled Economic impact of coronavirus: The challenges of recovery. The committee argued the economic consequences of Covid-19 would require the Chancellor to make further changes to the tax system. It recommended these changes should be introduced cautiously, saying:
The Chancellor should, at the next fiscal event, set out an initial roadmap of how he intends to place Government finances on a sustainable footing. The milestones on that roadmap will need to be flexible—tax increases imposed too early are likely to stifle economic recovery.
Subsequently, the Treasury announced the Autumn 2020 budget would be delayed because of the pandemic. The most recent economic update was made on 11 January 2021. In this statement, the Chancellor said the pandemic had caused significant harm to the UK economy and warned that the country “should expect the economy to get worse before it gets better”.
The Treasury Committee is currently conducting an inquiry into the impact of Covid-19 on the tax system. During an evidence session on 1 September 2020 as part of this inquiry, Paul Johnson, the director of the Institute for Fiscal Studies, argued it was likely that the Government would need to consider raising taxes substantially in order to combat a reduction in tax revenue and address the increased pressure on public services.
- Church Action for Tax Justice, Tax for the Common Good, February 2019
- Church Action for Tax Justice, Fair Tax Now, January 2021
- Churches Together in Britain and Ireland, ‘Church leaders call for fair tax system’, 27 April 2020
- House of Lords Library, Spring Budget 2020, 13 March 2020
- HM Treasury and HM Revenue and Customs, ‘Building a trusted, modern tax administration system’, 21 July 2020
- Institute for Fiscal Studies, ‘The effect of taxes and benefits on UK inequality’, 27 May 2019
Cover image by Images Money on Flickr.