Tax after coronavirus: Treasury Committee inquiry

The Treasury Committee of the UK Parliament has launched an inquiry called Tax after coronavirus. The inquiry joins a growing body of calls for a focus on tax systems and the role they might play in a post-COVID 19 recovery. Sir Gus O’Donnell, former head of the Civil Service, recently called for the Government to look at the introduction of a wealth tax in the UK, whilst a group of 83 millionaires from seven countries, calling themselves the Millionaires for Humanity, released an open letter to governments calling for a permanent tax increase on the very wealthiest to help pay for the global recovery from the COVID-19 crisis. The EU Commission has also recently released its Tax Action Plan looking at ways in which the EU may use the tax system to support a recovery.

The Committee, which is appointed by the House of Commons to examine the expenditure, administration and policy of public bodies including HM Treasury, HMRC and the Bank of England, notes that the coronavirus pandemic has had a major effect on the UK economy and public finances, and when the economy recovers from the crisis, debt levels will be significantly higher than they were before. As a result, the UK will need a strong tax base to maintain the level of public services at sustainable rates of borrowing. The crisis has also raised questions such as whether the Government’s economic response to the pandemic should be reflected in changes to taxation. As a result, the reconstruction of the economy after the unprecedented economic fallout of the coronavirus crisis is seen by the Committee as an opportunity to examine the tax system in a fundamental way.

The Committee will look at what the major long-term pressures on the UK tax system are, what more the UK can do to protect its tax base from globalisation and technological change, and whether such pressures should be met with tax reform. In particular, the Committee notes that demographic shifts are changing the tax base and demands for public services, and the growth of online- and data-driven employment and business models are already eroding traditional sources of taxation and raising questions about the future of the tax system.

The Committee will also seek evidence on what overall level of taxation the economy can bear, the role of tax reliefs in rebuilding the economy, and whether there is a role for windfall taxes in the post-coronavirus world.

The list of issues that the Committee is seeking evidence on include:

• What are the major long-term pressures on the tax system in the UK,
  including those arising from changes in working practices,
  demographics, the environment and other factors? How are these
  affecting the efficiency of the tax base and the overall level of
  demand for public services?

• What more can the UK do to protect its tax base from erosion as a
  result of globalisation and technological change, and what further
  impacts will the coronavirus pandemic have on our tax base?

• Do these pressures need to be met with tax reform, and if so, is this
  the right time for reform?

• What overall level of taxation can the economy bear without
  undesirable or counterproductive harm to economic growth?

• Which areas of the tax system are most in need of reform, and which
  are best left alone?

• What reforms should be considered in response to the pressures on the
  tax system?

• What is the role of tax reliefs in rebuilding the economy and
  promoting economic growth and efficiency? Does the current regime of
  tax reliefs perform this role well?

• What are the areas for simplification?

• Is there a role for windfall taxes in the post coronavirus world?

• What is the right balance between taxation of work, savings/pensions
  and wealth?

• What is the best way to tackle tax reform, including what changes
  might be needed at HMRC to support implementation, and how should the
  Government consult with stakeholders and parliament?

The call for evidence is open for responses until Friday 28 August 2020.

Comment

There is a sense that, at this unprecedented time, there is an opportunity to introduce fundamental and far-reaching reforms to the tax system that would be difficult to achieve at other times. Recognition of the public cost of supporting the economy through the pandemic and that action will need to be taken to shore up public finances may have eroded a general reticence to raise the tax burden and made such measures more politically acceptable, in the short term at least.

Whether the general mood for reform will continue once the pandemic abates and individual proposals emerge remains to be seen. But, for the time being, controversial issues such as wealth taxes, taxation of the self-employed and increasing the tax burden generally all appear to be on the table.