Tax Prats and Citizen Stakeholders

Abstract

The 2010 UK coalition government set itself four priorities for tax policymaking: to make the UK tax system more competitive, simpler, greener and fairer. This study uses data from tax information and impact notes, a new application of impact assessment methodology, to assess progress towards these goals. Findings show in 2010–2013 a third of tax changes did not contribute to any of the goals, a quarter related to fairness and a fifth to simplification. Whilst competitiveness was poorly served in number of measures, it was significant in terms of tax foregone as a result, and external assessments of UK competitiveness mean it could be argued the objective has been achieved. Green measures were fewer than 7% of any fiscal event and the green objective has been quietly dropped. The article goes on to examine the differing understanding of tax objectives between tax professionals and the wider public and argues that othering non-professionals as ‘tax prats’ should cease in favour of inclusion of ‘citizen stakeholders’.

Keywords

Citizen stakeholders impact assessment simplification tax TIINs

Introduction

If a government fails to do what it says it will, who calls it to account? There is a continuum of reliability in government utterance. At the one end, there are commitments that are firm enough that failure to achieve them might lead to judicial review, and at the other end there are election promises that are, like Samuel Goldwyn’s apocyryphal verbal contract, ‘not worth the paper they’re written on’. In this article, I consider the coalition government’s initial statement of priorities for the tax system and analyse the material it produces which enable us to track its progress towards those priorities, with results showing a gap between promise and achievement. I go on to consider the language used in contemporary discussions of these results and other tax issues and postulate that there are two discussions taking place in parallel. In discourse among tax professionals, there appears to be a common understanding of the meaning of the objectives the government has set itself, whereas outside of this magic circle the ordinary citizen can find themselves excluded from the discussion because they, literally, do not speak the same language. This can lead to the general public’s dissatisfaction with the results of tax policymaking being dismissed by the tax professionals as unfounded – rather than, perhaps, being the result of a different discussion entirely.

The second section of this article outlines the changes to the tax policymaking process introduced by the coalition government, particularly the changes to cost/benefit analysis from regulatory impact assessment (IA) to the new process of publishing ‘tax information and impact notes’ (TIINs). The third section analyses the TIINs from 2010 to 2013 and examines the relative emphasis given in practice to each of the four commitments entered into by the coalition. It finds that the work on ‘competitiveness’ could arguably be said to be concluded, that the commitment to a ‘greener’ and ‘simpler’ tax system is not evidenced and that the apparent consistency of the commitment to ‘fairness’ may be illusory. The fourth section looks at some possible explanations for these tentative findings grounded in the consultation process and in particular at who has a seat at the consultation table. It concludes by questioning whether the tax professional is the only voice to which government should be listening and asking if the ordinary citizen, without an understanding of the technicalities of tax or of tax policymaking, nevertheless needs to be on board with the direction of travel for tax changes. Should the citizen become, in fact, a ‘citizen stakeholder’ in the tax policymaking process.

Tax Policymaking

The Coalition Government’s New Approach

In May 2010, the new coalition government published a number of papers documenting the agreement between the governing Conservative and Liberal Democrat parties. Together these form a kind of post hoc election manifesto, setting out what the two coalition partners agreed they would try to achieve in government. Detailed policy objectives were set out in The Coalition: our programme for government (HM Government, 2010) covering 31 policy areas, alphabetically, from banking to universities.

Section 29 sets out the priorities for tax policy:

The Government believes that the tax system needs to be reformed to make it more competitive, simpler, greener and fairer.

So the four stated priorities of the coalition government for tax policymaking were:

competitiveness;

simplicity;

greenness; and

fairness.

The specific policies laid out in the following paragraphs of the document are best interpreted as a simple ‘tidying up’ of the live issues the coalition had inherited rather than a route map towards achievement of the objectives. They included a ‘green’ commitment, if it is a green commitment to ‘increase the proportion of tax revenue accounted for by environmental taxes’ (HM Government, 2010: 31). There was also to be a review of the taxation of ‘non-doms’ (people claiming that their home country, their ‘domicile’, is outside of the United Kingdom, notwithstanding that they might have extensive personal and business interests here). There was to be a substantial increase in the personal allowance, the amount an individual can earn before income tax is chargeable, and a way was found around the differences between the parties on proposals to reintroduce a married couples allowance. There was to be a resolution of the taxation of holiday lettings, the specifics of which had fallen afoul of European Union treaty obligations, and there was a commitment to moving air travel duty to a per-plane rather than per-passenger methodology.

Overall, the composition of the coalition’s front benches and the distribution of policy ‘prizes’ into actionable commitments seems to have been rigorously fair, at least mathematically (Quinn et al., 2011). However ‘tax’ is not easy to categorize using a straightforward left/right axis, and it is not a simple matter to understand which objective is prioritized by which element of the coalition. Any uncertainty is also compounded by the fact of there being no indication in the coalition documents of what was meant by ‘simplicity’, fairness, ‘greenness’ and ‘competitiveness’ nor how success in achieving them might be measured. It was clear that the new government had agreed on these four overarching objectives for its tax policy but not who had championed which element and how strongly. Nor was it clear whether it was fully understood what the objectives meant, at least outside the coalition actors themselves, for example, that competitiveness meant competing against other fiscs to attract businesses to the United Kingdom by offering them a lower tax rate.

TIIN Publication

As Prabhakar (2015) argues, the financial crisis that preceded the coalition of itself disrupted the previous mechanisms of tax policymaking and might therefore have created space for different arguments to emerge. There was some possibility of this in the framing of the June 2010 Budget as an ‘emergency budget’ and the simultaneous publication of a discussion document called ‘Tax Policy Making: A New Approach’ (HM Treasury, 2010a). This document proved to be the first step in making various changes in methodology, in the way tax policy was made and presented. There was to be a longer policy cycle, a new consultation framework and a new method of impact assessment taxes (HM Treasury, 2010b).

IAs – originally known as Regulatory Impact Assessments – were designed as a cost/benefit analysis to assist in making the decision between various options to achieve a policy goal and were published in order to aid transparency. They have both an internal and an external focus, assisting actors within government to assess whether an action ‘truly contributes to strategic policy goals’ (Jacobs, 2007) and allowing external stakeholders to contribute via consultation and to assess via publication that the costs, benefits and other impacts of a change are fully considered. The change to the IA process was announced in a written ministerial statement (Hansard, 2011) by the exchequer secretary, David Gauke, on 15 March 2011 announcing the replacement of regulatory IA for tax measures. The announcement said there would be a new process, the tax impact assessment (TIA) process ‘used throughout the development of tax and NICs policy’ and that the results would be published in summary in a new product, the TIIN.

The removal of the requirement to produce a traditional regulatory IA in favour of the TIIN also signalled that tax was uncoupled from the coalition commitment on ‘one in, one out’ (now ‘one in, two out’), the commitment not to introduce new regulations without abolishing old regulations. However devoted to tax simplicity, the coalition was not binding itself to abolishing two tax provisions for each new tax provision it introduced!

The tax information and impact note itself combined two earlier processes, namely an IA focusing on cost/benefit analysis of change and a budget note, explaining the rationale for, and effect of, budget changes, previously published by HM Revenue and Customs (HMRC). However, there is a tightly controlled methodology behind IA, captured in the published instructions and validated by external scrutiny. The TIIN instructions, unlike the detailed instructions for carrying out and publishing an IA, were not in the public domain. I therefore obtained them, or at least the version current at the time, via a Freedom of Information Act request, and published them on my blog on 18 May 2012 (Tiintax).

They show that the TIA process works on a model of requiring the policymaker to answer the following seven questions:

What are you doing? The policy objective

Why are you doing it? Which of the Government’s priorities for the tax system does it support?

Why are you doing it this way? Options appraisal

What will it raise? The exchequer and any wider economic effect

What will it cost customers? Not just business and charities but also individuals and households

What will it cost the public sector? Costs/benefits to HMRC or other delivery department

What are the other impacts? Equalities, small firms, competition, carbon emissions etc. (Bradley, 2012)

The TIIN format includes a field called ‘policy objective’ where the answers to the second of these questions are captured. By examining the policy objective field of the TIINs published since 2010 we should therefore be able to assess whether the government’s objectives for the tax system are being achieved, by looking at the distribution of the measures between the four objectives they set themselves.

TIIN Publication

TIINs are published on an ad hoc basis, and the distinction between ‘consultation stage’ and ‘final’ documents is not explicit as it is in an IA. However, there are two fixed points in the tax policymaking cycle, the annual Budget and the autumn statement. According to the ‘new approach’, tax changes should be developed over a year or longer cycle, with an announcement at one spring Budget being followed by consultation over the summer, with draft legislation then published in the autumn for further consultation on the technical accuracy of the drafting, to be followed by legislation in the Finance Bill attached to the following year’s Budget. However, the March 2011 tax consultation framework (HM Treasury, 2011b) allows for several more iterations of consultation where needed, envisaging for example a consultation on principle – is this a problem that needs to be solved? Followed by another on method – which is the best way of solving it? Followed by another on detail – does this work? So at each policy event there can be a mixture of measures that are finalized and measures that are still in flux because they are under one of the levels of consultation.

TIINs are published in two collections in this cycle. At the Budget, there is a document inelegantly called OOTLAR, which means Overview of Tax, Legislation and Rates, where TIINs for the finalized proposals are published, and in the autumn, there is OLD, which means Overview of Legislation in Draft, where TIINs are published for proposals that are finalized but the drafting of the legislation itself is out for consultation.

For this exercise, I ignored ad hoc publication of TIINs attached to consultations or outside of the usual cycle. This is partly for convenience (tracing each proposal though its iterations of consultation and amendment would be complex and time-consuming although not, of course, impossible) but also because publication outside of the two fixed points in the cycle is usually an indication of contingency and that the policy is still under development and the options being developed and tested. I used the six documents that collect together the TIINs published at the three budgets and three autumn statements between the December 2010 OLD and the March 2013 OOTLAR as containing either measures to be legislated immediately after the Budget or measures where the policy decisions were final but there was a final iteration of consultation on the wording of the legislation enacting it. I therefore took these two sets of documents to be the best available proxy for final decisions over the coalition’s first three policy cycles.

Analysis of TIINs

Methodology

I put the title of the measure and the contents of the policy objective field for each into a spreadsheet and categorized the policy objectives as directed towards competitiveness, simplicity, greening, fairness or ‘other’.

On a first pass, I categorized only those measures that plainly set out their objective in language cast in the form found in the TIIN instructions, that is, ‘This measure supports the Government’s objective of a fairer (greener/simpler/more competitive) tax system’. On a second pass, I categorized measures that included the words of each objective such as simplicity or ‘simple’ and so on and their variants. Finally, I did a conceptual pass, looking for a conceptual link between the stated policy objective in the TIIN and one of the four overarching objectives, such as measures that explicitly had environmental objectives but did not include the word green.

Where a measure was explicitly stated to have two objectives (e.g. simplicity and fairness), I counted it as two measures, one against each of the objectives. However, where a measure was stated to have more than one objective but the other objective or objectives would have been categorized under other, I ignored the other and treated it as one measure aimed at, for example, simplicity.

Results

The results are set out in Table 1 below, in number of measures and then as a percentage of the total number of measures.

Table 1.

TIINs analysis.

	Fairer	Greener	Simpler	More competitive	Other	Total measures		Fairer %	Greener %	Simpler %	More competitive %	Other %	Check total
OLD 2010	11	0	5	10	13	39		28.21	0	12.82	25.64	33.33	100
OOTLAR 2011	9	3	6	9	19	46		19.57	6.52	13.04	19.57	41.30	100
OLD 2011	18	4	30	7	21	80	Note 1	22.50	5	37.50	8.75	26.25	100
OOTLAR 2012	15	3	6	5	18	47	Note 2	31.91	6.38	12.77	10.64	38.30	100
OLD 2012	24	3	14	8	40	89	Note 3	26.97	3.37	15.73	8.99	44.94	100
OOTLAR 2013	14	3	4	4	16	41	Note 4	34.15	7.32	9.76	9.76	39.02	100
Total	91	16	65	43	127	342		26.61	4.68	19.01	12.57	37.13	100

Note 1: Includes one measure categorized as ‘simpler and fairer’ – actual number of measures is 79.

Note 2: Includes one ‘fairer and greener’, one ‘fairer and more competitive’, two ‘simpler and fairer’ and one where ‘compete’ means ‘compete for finance’ – actual total 42.

Note 3: Includes two ‘fairer and more competitive’ and two ‘fairer and simpler’ – actual total 85.

Note 4: Includes one ‘fairer and more competitive’ – actual total 40.

If there are four priorities for the system, would we expect the policy effort to be balanced between them and would we expect that balance to be reflected in the number of measures directed towards each change? If so, then fairness is around where we would expect, roughly a quarter of the number of changes. But simplicity seems to be less of a priority, the numbers languishing at the 10% to 15% mark except in one batch in 2011 where fully a third of the measures are badged as directed towards simplification. Competitiveness is around the 25% mark in 2010 but overall comes in at half that over the period examined. The green agenda shows the biggest deviation from what we might expect, never amounting to more than 8% of the number of changes and on one occasion, in 2010, being entirely absent.

This is of course something of a ‘quick and dirty’ analysis, and the results are not particularly robust at this stage and there is further useful work to be done on both the granularity of the data and the robustness of the coding. There is further research to be done, particularly, in looking at value as opposed to number, in comparing the coalition’s results with those of earlier administrations and in tracking changes over time to eliminate any element of double counting.

However, the conclusions we can draw from this preliminary analysis are interesting. Do we now have a fully ‘competitive’ tax system and so should policy effort towards this objective cease? Is simplicity an objective that is being seriously pursued? If there are no measures directed towards greenness, then whatever happened to the green objective? Is fairness genuinely covered by carrying on doing what tax departments have always done in trying to close loopholes as they spot them?

‘More Competitive’

There is an aspiration in IA methodology, captured in the original IA instructions, that governments will only introduce regulation in response to a ‘market failure’ (National Archives), so it might be reasonable to consider that this is what is meant by competitiveness in this context, that is, the aspiration is ‘to level the playing field’ between different taxpaying entities. It could be argued there is some evidence for this. For example, in Table 1 at note 2, one of the measures in the 2012 OOTLAR: Enterprise Investment Scheme and Venture Capital Trusts: Increases to Thresholds (A13) is in fact aimed at levelling the playing field between different companies competing for finance:

The aim of this measure is to help smaller, riskier UK companies, which face barriers in raising external equity finance, to compete for finance, making it easier for these companies to be established and to grow.

The majority of the measures categorized as relating to competitiveness, as well as wider experience of contemporary discussions of tax, show that in general competitiveness in the language of the tax professional seems to mean something more akin to ‘competition between different countries to attract industry, usually by offering a lower tax rate or an easier tax compliance regime’.

As Gribnau (2015) reminds us, that kind of tax competition between states can be counterproductive and produce positively harmful outcomes and is perhaps incompatible with a concept of a simpler tax system, being a major contributor to tax complexity.

The relative competitiveness of different tax regimes is tracked and compared, in publications like the accountancy firm KPMG’s Annual Survey of Tax Competitiveness, which in 2012 found that ‘The UK is now the most attractive tax regime compared to key competitors’ (KPMG) by virtue of the lowering of the corporate tax rate and the changes to controlled foreign company rules.

We can get something of the flavour of this concept of competitiveness by looking at the coalition’s first ‘non-emergency’ budget (OOTLAR, 2011) where there are nine measures aimed at increasing competitiveness. Turning to the table of impact in each of these nine TIINs we can see the figures given for the ‘exchequer effect’, the government’s assessment of the changes that will be made to the tax taken as a result of these measures (Table 2).

Table 2.

Exquequer impact of competitiveness measures.

Overview of legislation and rates: 2011 Budget: Measures coded as ‘competitive’	2011–12	2012–13	2013–14	2014–15	2015–16	Total
Enterprise investment schemes and venture capital trusts	0	−105	−115	−110	−120	−450
Entrepreneurs’ relief: Increase in the lifetime limit	0	−50	−70	−90	−100	−310
Subsistence allowances paid to experts seconded to European Union bodies located in the United Kingdom	Negligible	Negligible	Negligible	Negligible	Negligible	Negligible
Corporation tax main rate	−425	−810	−910	−1000	−1075	−4220
Research & development tax credits for SMEs	−20	−75	−105	−105		−305
UCITS IV: Management Company Passport	Negligible	Negligible	Negligible	Negligible	Negligible	Negligible
Interim CFC reform	−55	−15	−25	−25	−25	−145
Taxation of foreign branches	0	−30	−70	−80	−80	−260
Loan relationship and derivative contracts (disregard) regulations	Negligible	Negligible	Negligible	Negligible	Negligible	Negligible
						−5690

Note: These figures may also be found in table 2.1 of the Treasury’s 2011 Budget document. SME = small- and medium-sized enterprise; CFC = controlled foreign company.

The figures are in £million, and a positive figure is one that increases the tax take and a negative one that decreases it. In essence, therefore, the changes to tax competitiveness made in the 2011 Budget ‘gave away’ £5.69 billion over 5 years. The expectation presumably is that this competitiveness would result in growth that would more than make up for the tax forgone. However, there is little evidence of this being made explicit in the TIIN documents nor is there any attempt to quantify any compensatory growth that would justify the policy direction.

Simpler

In considering simplicity and its opposite, complexity, we need to go back to the TIINs and look at the four priorities not just in terms of number of measures but also of value. Looking back at the seven questions answered in the TIIN, there are three numerical/financial values to be calculated:

What will it raise? The exchequer and any wider economic effect.

What will it cost customers? Not just business and charities but also individuals and households.

What will it cost the public sector? Costs/benefits to HMRC or other delivery department (Tiintax).

These are slightly different from the numerical values contained in a traditional IA. In particular, tax is regarded as a ‘transfer’ in IA terms, as both a cost and a benefit. So, in a traditional cost/benefit analysis, tax should strictly be counted as a cost to the person paying it and a benefit to the wider society that has the benefit of the resulting funds. This might make sense in the wider context of policy decisions across government but makes it almost impossible to assess the relative merits of specific tax changes, as the exchequer impact would almost without exception be the greatest value and mask the comparison between different administrative burden and policy costs. As a non-ministerial department, HMRC is of course part of the machinery of government and subject to all the usual rules about process but the introduction of the distinctive TIA/TIIN process looks like an attempt to devise a method of cost/benefit analysis that is more useful for tax purposes than the regulatory IA, allowing a simpler and clearer presentation of the three numerical values, namely, exchequer impact, administrative burden on affected taxpayers and cost to the administering department. This can be demonstrated by reference to a February 2011 presentation given to the cross-Whitehall Better Regulation network explaining how HMRC (and HM Treasury (HMT), for tax but not other changes) would be using a different system in future. A slide from this presentation shows the three numerical values in a TIIN as connected to HMRC’s ‘customer-centric strategy’, the methodology by which HMRC aims to fulfil its overarching duty of care and responsibility for the tax system. (I should explain that I was, at the time, the official responsible for devising and delivering this presentation.)

As Figure 1 shows, the three numerical values captured in the TIIN are:

Figure 1.

HMRC priorities mapped to TIIN fields. Source: The information was released under FOI by HMRC in 2012 and is being re-used under the Open Government Licence v2.0.

the tax take;

the cost to government of administering the change; and

the cost to the customer of dealing with the tax system, the so-called administrative burden.

Implicitly, there is a balancing act to be performed, where sometimes maximizing the revenue flow means some worsening of the customer experience and sometimes improving the customer experience mitigates against creating cost reductions for HMRC and so on. So what conclusions can we draw by looking a little further into the figures behind the measures aimed at simplicity?

There is an anomalous result for simplicity in OLD 2011, where there are 23 measures that all have identical wording in the policy objective field:

The repeal supports the Government’s objective to simplify the tax system and is part of a package of measures which will repeal reliefs that are no longer necessary, have not achieved their policy rationale or are distortive.

Further examination of the value fields in the TIINs shows that most of these measures have a nil or negligible impact on tax receipts, cost HMRC nothing to save the cost of updating its manuals and instructions and have a small impact on only a tiny number of taxpayers (e.g., on 800 individuals in receipt of mineral royalties; on a handful of Yorkshiremen over 65 who still drink black beer; and on the remaining drinkers of pink gin when it puts £2 on a bottle of angostura bitters).

Is it reasonable to say these measures with little value to the exchequer, little administration saving to the taxpayer and a small cost or benefit to a small number of taxpayers represent a third of the policy effort at that point, or would it be more realistic to code this as one measure with 23 elements? Perhaps we are not looking at a significant ‘simplification’ effort at all?

So whilst a tax professional might understand that there is value to the tax profession in identifying and abolishing 23 reliefs that are ‘no longer necessary, have not achieved their policy rationale or are distortive’, someone outside of this group, a member of the wider public, might find this to be less than a prioritizing of simplicity. Perhaps if the non-professional was included in discussions of tax, treated as a citizen stakeholder, we might find that asking their opinions would lead to a redirection of the policy effort?

Greener

Gribnau (2015) argues that the use of tax to achieve non-fiscal objectives (such as greening) is one of the causes of tax complexity in the first place, so we might expect some tension between the four objectives to manifest around the green objective. In spite of promising to be ‘the greenest government ever’ (Cameron, 2010) and including greener as one of its four objectives for tax policy, the evidence from my analysis is that the government has directed only around 5% of its changes towards ‘greening’ the tax system or encouraging green measures by tax incentives. A plausible case could be made that some of the changes were in fact ‘anti-green’ measures. So the ‘fuel duty escalator’ mechanism that increased oil duties gradually in order to discourage excessive use was replaced by a ‘fair fuel stabilizer’, which effectively reduced fuel duties by a penny a litre unless oil prices fell below a trigger rate. The TIIN shows that ‘This measure will ease the burden on motorists at a time of record pump prices’ (OOTLAR, 2011: A93).

The anti-green effects are captured in the TIIN section on economic impacts:

This policy will reduce the price of fuel compared with that under the fuel duty escalator. As a result of this lower price, fuel consumption and the number of miles driven will increase and the incentive to improve fuel efficiency will be weaker. These effects are included in estimating the Exchequer impact.

Fuel is a major business input for the UK economy. The reduction in duty will reduce costs for business, and as such it is expected that this measure will have a positive impact on GDP. (OOTLAR, 2011a: A96)

and the effect on the green agenda is captured in ‘other impacts’:

Removing the fuel duty escalator and cutting duty by 1ppl could result in a small increase in CO₂ emissions in 2011-12 of 0.4Mt. However, emissions from road transport are forecast to be approximately 1 per cent lower than current levels by 2015-16 owing to underlying trends in vehicle efficiency. (OOTLAR, 2011: A96)

This quietly glosses over the anti-green effects of the change to the fuel tax by bringing in the unconnected forecast that that vehicles will become more fuel efficient in any event. (Incidentally, note the way it is impossible to tell from the TIIN itself whether the ‘0.4 Mt’ increase resulting from the change is more or less than the ‘1 per cent’ decrease forecast to happen anyway.)

So we have a small number of green changes and at least one anti-green measure. In 2010, HMRC’s priorities were revisited in the remit letter from George Osborne to the newly appointed chief executive of HMRC, Lin Homer (2012), where he instructed her:

to identify further policy reforms that support my ambition to have the most competitive tax system in the G20, reduce complexity, improve fairness and reduce the scope for evasion or avoidance.

The change in the fourth priority, from a green objective to an anti-avoidance one, appears to have gone unremarked. The second part of my question is, then, why has the failure to achieve – or, arguably, pursue – the green priority in tax policy not been noticed? After all, tax policymaking is supposedly more transparent than it has ever been, that is, the government has been clear about its agenda and has met its commitment to publish its workings. Why is no one holding it to account?

Fairness

Let us look, finally, at fairness. We all understand what fairness means. A group of children dividing up a packet of sweets understand what fairness means, although as Gribnau (2015) points out, taxpayers are interested in the rules they have to follow, not the principles or ethical thinking which might underlie them. So has the coalition made tax policy ‘fairer’? Prabhakar (2015) argues elsewhere in this volume that fairness might be one of the concepts foregrounded in the disruptive space created by the economic crisis so we might have expected to see some evidence of fairness as a concept whose time had come. The distribution of tax measures evidenced in the TIINs however suggests either that the opportunity has not been taken or that the concept of fairness might mean something different to a tax professional, or perhaps both.

I suggest this is the case because it could be argued that a large number of the measures that are badged as aimed towards fairness are simply anti-avoidance measures, where experience suggests there would be a number of tweaks to the tax system at each legislative cycle, for example:

This measure supports the Government’s objective of making the tax system fairer by closing a VAT avoidance scheme (OLD, 2011c: 132)

and

This measure supports the Government’s priority of a fairer tax system by deterring non-payment of PAYE and NICs. (OLD, 2011c: 135)

Making fairness a ‘priority’ in this case would arguably not have made any difference to the number and nature of these responsive ‘tweaks’, although further analysis (including of previous governments’ tax changes, via regulatory IAs) would be needed to validate this hypothesis.

Would someone outside the circle of tax professionals understand that fairness in tax simply means continuing to close avoidance schemes as they develop and mutate?

Conversely, can we say that fairness has a distinctive meaning to a tax professional?, As Justice Rowlatt famously said in Cape Brandy Syndicate, ‘there is no equity about a tax’ (although this is widely quoted as ‘there is no equity in tax’.) In the language of the tax professional, in other words, there is no question of equity or fairness being part of the tax game at all, and it is simply a matter of who wins or loses, who can call up an obscure rule that wins the game. But do we trust a professional cadre of speakers about tax, who share a common belief that fairness doesn’t actually come into it, to establish fair rules of the game itself?

Explaining Tax Administration Under the Coalition Government

To summarize the findings above, an examination of the TIINs produced in the first 3 years of the coalition show that the objective of having a competitive tax system could be marked as achieved. The green objective appears not to have been pursued via the tax system with any level of seriousness and although the objective of fairness has received some policy attention further research would be needed to establish whether this was a greater degree of attention than in previous years under previous governments or whether the status quo was simply being rebadged as an effort at fairness.

The results for simplicity are perhaps anomalous and require further examination. One possible explanation for the apparent anomaly is that policy effort directed towards simplicy has, to a large degree, been ‘outsourced’ to the new Office of Tax Simplification set-up by the coalition. This Office, consisting of a combination of external experts and internal Treasury and HMRC secondees (Office of Tax Simplification, 2014) is tasked with providing ‘independent advice’ to the chancellor on simplifying the tax system. It has no powers, no statutory backing and no guarantee of continuation beyond the whim of the current chancellor (Freedman, 2013). It would be misleading, however, to think that it is tasked with seeking the kind of simplification a lay person might think was comprised in the phrase ‘tax simplification’. It does not look at macro measures like alignment of taxes, thresholds, definitions or administrations. It does not look at changing the tax system as a whole, nor even at mapping the current system and seeking to identify promising areas for simplification. It is given areas of the existing system – employee benefits and expenses, taxation of partnerships, taxation of small businesses, taxation of pensioners – and considers what measures are possible to simplify the administration of tax in that area, with particular emphasis on the ‘quick wins’, which are achievable without serious legislative effort, within the life of the current parliament and which are revenue neutral. The simplification measures in the 2011 OLD are outputs from the Tax Reliefs Review (Office of Tax Simplification, 2011) and represent a view of simplification which a tax professional would understand but which might seem less persuasive to an outsider.

The language of tax. In the title of this essay I have distinguished between “tax prats” and citizen stakeholders as terms describing the people outside of the magic circle of tax professionals. In blogging on the issue I have found a useful metaphor in the terminology of the Harry Potter fantasy series and referred to “tax muggles” and “tax wizards” but whatever terminology we use it seems to me there are two distinct groups of stakeholders in the discussion of tax. We might call them professionals and non-professionals, tax wizards and tax muggles, tax prats and tax practitioners, or citizen stakeholders and technocrats but there nevertheless seems to me to be a demonstrable divide in the reality of the discourse about tax and tax policymaking. So although content analysis can show us what happened to each of the coalition’s tax objectives it cannot of itself tell us why. However, there is a clue in the makeup of the OTS. The OTS is made up entirely of tax wizards – people who have a knowledge of and experience in how things work. This is not to say that they are all on the same side but they share a set of common understandings about how the tax system is organized and the terms of discussion.

Governments respond differently to different stakeholders. In putting together the annual Budget there is an open call for ‘budget submissions’ or ‘budget suggestions’ so that stakeholders can contribute ideas and expertise. The handling of these suggestions, however, depends on the status of the person or body putting them forwards. If you are a ‘large business rep body’ the Strategy, Planning and Budget team (SPB) within the Treasury will ‘commission advice from policy leads on each issue to feed into a central submission and summary grid that is sent to the Chancellor’. (HM Treasury, 2013, personal communication in response to FoI request). The same handling instructions, however, tell us that if you are a mere individual then SPB will ‘create a table summarising responses which is attached to the submission’ – in other words, that the relevant policy team will not be asked to take the idea into consideration at all. Those in the taken-seriously group have their ideas put to the chancellor for decision. Those in the not-taken-seriously group are quietly sent a ‘thank you for your idea’ acknowledgement but nothing more.

There are complex and interlocking issues behind this reality, for example, the dependency of HMT and HMRC on tax professionals to draft and implement its policies has been much discussed in the professional tax press recently. If tax is considered as a regulatory matter (as well as a matter which is itself regulated), then we might also need to examine it in the light of theories of regulatory capture, that is, is there a ‘revolving door’ (Makkai and Braithwaite, 1992) between those tax professionals inside and outside of the policymaking circle or does the distinction lie more between those who might come in or out of the revolving door and those who barely conscious of the door’s very existence?

Tax Prats and Citizen Stakeholders

These are larger issues than can be fully examined in this article but to understand a little more, I turn to the contemporary professional literature, that is, to the literature of the tax profession. By ‘tax profession’ I mean accountants and tax advisors, tax specialists in the legal profession, in industry and lobby groups, and of course in politics and in policymaking. We need to understand whether people inside and outside of the tax profession are all speaking the same language.

A simple example of what I mean, of tax professionals using different meanings for words from their everyday uses, would be in the use of the word ‘plant’. In the tax context, plant means ‘plant and equipment’ or in other words the machinery, apparatus and equipment used in a business, such as a forklift truck or a mechanical digger. The definition can be important for tax because plant is distinguished both from the cost of sales and from the cost of premises and has special rules about when and under what circumstances its costs are allowable. So the definition of plant for tax purposes comprises a long series of tax cases testing the boundaries and attempts by the tax authorities to redraw those boundaries with firmer lines. The history of tax cases on plant might itself form a useful case summary of the processes Picciotto (2015) describes in this volume as ‘complexity through attempted precision’ and ‘complexity through elaboration’. These cases are usefully summarized in a February 2012 article in Taxation magazine (Chidell, 2012), which goes on to argue that the pictures on the wall of an office should qualify for capital allowances as items of plant. The reasoning is that it is now accepted in tax law that pictures on the wall of a pub count as plant because they contribute to the ‘ambience’, which is one of the things the establishment is selling. Your decision on which pub to spend your money in as a customer, it is argued, might depend on whether it is a sports bar or is decorated with prints of French Impressionist paintings. On the face of it, an argument over whether the artwork on an office wall is qualitatively different from the artwork on the wall of a gastropub is a little like the argument over the angels on the pinhead but my point is that in talking about this distinction at all we are already far past the ordinary person’s understanding of the word plant when they see a ‘heavy plant crossing’ road sign.

Can we be sure, then, that there is a common understanding of what is meant by the words used to describe the four priorities for the tax system, namely, fairness, competitiveness, simplicity and greening? In an editorial in Taxation magazine in February 2013 titled ‘Tax prat of the year’ (Truman, 2012), the editor of the journal, Mike Truman explicitly called the Chair of the Public Accounts Committee a fool when he satirically awarded Margaret Hodge MP the title of Tax Prat of the Year for her chairing of the January 2013 Public Accounts Committee (PAC) hearings (House of Commons, 2013) into tax avoidance:

The personal crusade of Margaret Hodge … against the tax profession as a whole (whether in the leadership of HMRC or in private practice), because it will not fall into line with her idiosyncratic and ill-informed views about tax avoidance, risks marginalising the Public Accounts Committee (PAC) and has already made it a joke to those who understand the subject. (Bradley, 2013: my emphasis)

The discussions around this article seem to me to show a clear distinction being drawn between the tax profession, those who understand the subject, and the ‘ill-informed’ majority. Indeed this seems to be confirmed by the way that Taxation and its editor then ran a campaign seeking to connect readers who were members of the tax profession with members of the Parliament so as to raise the level of debate on tax, at least in the Parliament:

tax advisers should each ‘adopt’ a local MP, explain to them the real facts behind the tax issues that hit the public eye, and generally act as a sanity check on some of the nonsense pumped out about tax. (Truman, 2013)

Tax Prats or Citizen Stakeholders?

The idea that discussions about policy, and in particular tax policy, should be reserved to ‘those who understand the subject’ is something that featured strongly in the reactions to the PAC hearings and it appears that there is some political traction behind the idea. The coalition endorses it elsewhere, notably in the July 2012 changes to consultation process, which can be summarized as introducing ‘a range of timescales rather than defaulting to a 12-week period’ and an expectation consultations should be ‘digital by default’ (Cabinet Office, 2012). These changes – ironically themselves introduced without consultation – caused some concern and led to a call for evidence by the House of Lords (HoL) Secondary Legislation Scrutiny Committee. At an oral hearing on 11 December 2012, Oliver Letwin explained that the government wanted:

a kind of consultation that relates in the right way to what you are consulting about and the people that you are consulting in order to invoke the kind of response which will be useful.

and he further noted that:

Almost everything that government does either is or could be controversial and people have views about it. In a democracy, it is very important that they should have the liberty to have to express these and Parliament is here to reflect that in debates and so on. But I do not think that the main purpose of the formal consultative process should be to collect views – those are going to happen anyway in one way or another. It seems to me that the main purpose, once you have formulated the proposition of going through the process of formal consultation, should be to ensure that where the proposal has, or might have, a specific kind of impact on specific groups of people whose rights or interests are therefore affected, they should have a proper means of telling government about that so that government does not wander into having effects on people that it is not aware of. (HoL transcript, 3)

I take this to signal a shift into consulting quietly with stakeholder groups – so, for tax changes, with tax professionals – before a ‘proposition’ is arrived at, a policy change is formulated. The open, public ‘consultation’ is then not ‘to collect views’ but to check for unintended consequences.

Influencing the direction of policy is thus seen entirely as a question for the professional, and the tax prats outside professional circles can keep their views to themselves. As Piccotto notes elsewhere in this volume, this is both a method of achieving cohesion among professionals and is self-replicating. Technical complexity limits meaningful discussion to those already versed in the technicalities.

The changes to consultation might have been dismissed as a single example or Letwin’s to a maverick opinion but there is a similar change in the IA methodology, where the requirement to conduct a small firms impact test (SFIT) has been radically amended. The original SFIT was predicated on the idea that small firms are most affected by legislative and regulatory change but least likely to be able to engage with policy discussions and formal consultations. So the requirement to ‘think small first’ envisaged departments bearing the time and opportunity cost of consulting small and micro businesses. The requirement to conduct an SFIT was written not only into the IA instructions but into the Statutory Instrument methodology, requiring the inclusion of a comment on the effect on small firms in the explanatory memorandum attached to statutory instruments. Best practice was set as departments proactively seeking out small firms’ proprietors and conducting research with them (a commitment honoured more in the breach than the observance but nevertheless explicitly recommended). In July 2013, however, there was a new iteration of the IA instructions, which has a radically different SFIT requirement, where the requirement is watered down simply to ‘Consult enforcement bodies and business representative groups, to identify how to mitigate disproportionate burdens on smaller businesses’ (BIS, 2013).

Talking to the ordinary citizen about tax brings governments nothing but trouble, in other words. They don’t know what they’re talking about (so you have to spend a long time explaining what ‘plant’ means before you start) and they don’t care about the technicalities anyway, so the government appears to have decided it isn’t worth doing.

Yet the conversation about tax among those of us who are tax prats or, as we might prefer to think of ourselves, citizen stakeholders, continues. The protest group UK Uncut, who staged demonstrations in Starbucks branches (Diaz, 2012), are perhaps the most obvious manifestation. There is a feeling that tax policy somehow is not ‘fair’ – in perhaps nursery language, but nevertheless the feeling behind it is real and has led to direct action. Richard Murphy’s Tax Research UK (2013), other commentators such as Prem Sikka (2011) have all suggested there is something rotten about tax policymaking. I have myself written a satirical response to Mike Truman’s original article, explaining ‘how to handle a tax prat’:

We are all tax professionals here, right? We get it. We understand. There is a continuum that goes from tax planning via tax avoidance to tax evasion, and we are always on the right side of it.

There is something very soothing about being in a civilized discussion with people who speak the same language.

In The Great Tax Robbery, Richard Brooks (2013) identifies

… the institutions that shape the tax system have been captured by the tax industry and corporate interests. Policy is determined through committees and consultation processes in which the tax avoidance industry’s representatives dominate, before being nodded through by parliament without proper debate. This cosy cartel urgently needs dismantling. (p. 257)

A very quick and dirty analysis of the actions of the government on tax since they set out their priorities on formation of the government shows that they have moved away from what they said they would do. Perhaps no one is calling them to account because they are talking to their ‘stakeholders’ without identifying the tax prat who lacks the expertise to engage in the debate as having a stake in the conversation at all. Is it up to the tax prat to assert the right to a seat at the table, to the status of citizen stakeholder?

Conclusions

As we have seen, the coalition’s initial consensus on the direction of tax policy does not seem to be achieving results aligned with the stated priorities. Complexity in the tax system is generated via a complex series of interactions between different actors with different objectives, explicit and implicit, conscious and unconscious, and with varying levels of priority. The outsider, the tax prat, might think there is a simple syllogism, that is, tax is governed by law, laws are made, the people making them have set simplicity as a priority objective, therefore tax law will become simpler via their actions. But the actors with agency in tax policymaking have put greater policy effort behind tax competitiveness, and simplicity has been outsourced to an agency without teeth.

The tax prat appears to be without influence in the policy discussions that shape each successive round of changes, perhaps because they are unable to (or unwilling to) follow a discussion using arcane language where terms (like plant, competitiveness and simplicity), which seem to have commonly understood everyday meanings, are in fact being used in a professional register the tax prat is unable to follow. Is it also possible that with tax we are not talking so much about ‘regulatory capture’ in the economic sense (because of the multiplicity of interest groups/different professions who have practitioners included in the term ‘tax professional’) but a reversion to (or indeed a failure to evolve from?) the kind of ‘club regulation’ Moran and others discuss (Moran, 2003). So the tax wizards may disagree among themselves but they share a common understanding of the terms of the discussion and settle difficulties within their closed circle without alarming the muggles. I would argue that bringing the differences between objective and performance into the light, examining the language of the closed discussion and opening it up to the excluded tax prats is a difficult task but one worthy of the attempt. A small change in the language of the discourse, for example, considering those outside of the tax profession as citizen stakeholders rather than tax prats – might even be a sufficient starting point.

Footnotes

Acknowledgements

I am indebted to my PhD supervisors, Lindsay Stirton and Richard Kirkham, for their patient assistance and to Dominic de Cogan and Professor Sol Picciotto for inviting me to take part in the conference which led to this work. I would also like to thank Damien Lagan for data entry and Eliani Torres for copy-editing on an early version of this article.

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