Sam Mitha CBE, former head of HMRC’s Central Tax Policy Group.
How did your experience of working in the Cabinet Office compare with leading tax policy in HMRC?
My roles in the Cabinet Office gave me the opportunity to work with ministers and officials across Whitehall, and an insight into the way that they approach policy-making and relationships with their stakeholders. It was exciting to be at the heart of government when New Labour came to power in 1997 with grand plans to create a ‘Napoleonic centre’ in No. 10 and the Cabinet Office. Tax policy is grounded in annual legislative changes (other government departments have to compete for space in the legislative programme) and involves detailed consideration of legal, financial, economic and cross-distributional impacts, compliance, and operational delivery through complex mechanisms like the PAYE system.
What did you think of the last Budget?
The furore over the chancellor’s principled attempt to correct a long-standing NICs anomaly obscured the merits of the other announcements in the Budget, the most welcome of which was extra time for small businesses and landlords to prepare for ‘making tax digital’ and consultation on design aspects of its tax administration. The reversal of the NICs measure highlights the fact that Budget decisions are ultimately political in nature.
What are the wider consequences of the government’s self-imposed straitjacket on increases in taxation?
A policy of constraining the ability to alter tax rates and ring-fencing spending on vast areas of public spending (NHS, pensioner benefits, etc.) and the political difficulty of cutting expenditure on social security and education panders to the pushmi-pullyu propensities of an electorate that desires increased public spending and lower taxes. It will result in increased borrowing (transferring the liability to our children), new taxes, and more legislative and operational measures to increase the yield from compliance.
What are the other non-Brexit risks to the UK tax system?
The IFS reported earlier this year that almost half of Britons (23m people) pay no income tax and that the richest 1% of taxpayers (300,000 people) pays 27.5% of all income tax. These statistics reflect a series of policy measures that have eroded the personal tax base. The growing number of self-employed taxpayers and self-incorporation in the ‘gig economy’ is eroding the personal tax base. The exchequer would lose a considerable proportion of income tax receipts if, for example, a significant number of the top 1% taxpayers decamped as a result of the changes to the rules on non-dom taxation or Brexit. US corporate tax reform would also pose potential risks if President Trump decides to support proposals from Republican members of Congress for ‘border adjustments’ and the abolition of deductibility of interest; it would hurt UK exports and make BEPS redundant.
What can the government do to make the public realise that increasing expenditure on public services requires increased taxes for everyone?
The absence of a direct linkage between public expenditure and taxation could be remedied by greater use of hypothecated taxes. In 2002, the Labour government announced an increase in NICs to pay the UK’s biggest ever increase in health spending. It was accused of breaking a manifesto pledge not to increase income tax, but the measure appeared to enjoy public support and the Labour party went on to win the next election. Hypothecated taxation promotes transparency. It could be used to provide additional funding for increased spending on the NHS and care for the elderly.
How do you think Brexit might affect the tax system?
Some people hope that the Brexit pressures on the parliamentary programme will result in shorter finance bills! The economic risks for the UK’s future growth and prosperity have been more exhaustively documented than the fiscal risks. The Treasury and HMRC have undoubtedly developed detailed plans to mitigate the potential fiscal risks, and begun equipping themselves for the challenges ahead, the greatest one being prolonged uncertainty about the detailed shape of Britain’s future relationship with the EU.
What are the fiscal risks from Brexit?
I’ll provide a few examples. The UK has an ageing population, and the end of free movement of pre-dominantly relatively youthful labour will slow the growth of personal taxpayers and increase the UK’s pension dependency ratio (number of working population relative to the number of non-working population). People will need to work longer and save more for their retirement. The prime minister’s announcement that the UK will leave the Customs union after Brexit means that goods leaving and arriving here will be subject to customs declarations. It will result in a five-fold increase in the annual declarations that have to be processed by HMRC’s customs declaration service computer system. HMRC is undertaking a major upgrade of the system (which is being investigated by the Treasury Select Committee) and planning new IT systems in everything from VAT, to alcohol and tobacco warehousing, to databases on trader registers. Post Brexit, ministers are likely to come under pressure to extend the list of goods and services eligible for reduced rate and 0% rates of VAT. Once the current state aids rules cease to apply, the government will face pressure for subsidies for particular industries; it could choose to offer special grants rather than tax reliefs.
You are obviously still active in tax since leaving HMRC
Very much so! I lecture and write on tax policy and administration, and Brexit. I am seeking support for a proposed history of HMRC and its predecessor departments (the last histories of the predecessor departments were published in the 1960s). I contribute to academic studies e.g. UCL’s paper Devolution and the state of the union. I am a trustee of Tax Help for Older People and a member of LITRG. Tax Help and TaxAid provide tax advice to vulnerable people who desperately need it. Please support their work: www.bridge-the-gap.org.
Sam Mitha CBE, former head of HMRC’s Central Tax Policy Group.
How did your experience of working in the Cabinet Office compare with leading tax policy in HMRC?
My roles in the Cabinet Office gave me the opportunity to work with ministers and officials across Whitehall, and an insight into the way that they approach policy-making and relationships with their stakeholders. It was exciting to be at the heart of government when New Labour came to power in 1997 with grand plans to create a ‘Napoleonic centre’ in No. 10 and the Cabinet Office. Tax policy is grounded in annual legislative changes (other government departments have to compete for space in the legislative programme) and involves detailed consideration of legal, financial, economic and cross-distributional impacts, compliance, and operational delivery through complex mechanisms like the PAYE system.
What did you think of the last Budget?
The furore over the chancellor’s principled attempt to correct a long-standing NICs anomaly obscured the merits of the other announcements in the Budget, the most welcome of which was extra time for small businesses and landlords to prepare for ‘making tax digital’ and consultation on design aspects of its tax administration. The reversal of the NICs measure highlights the fact that Budget decisions are ultimately political in nature.
What are the wider consequences of the government’s self-imposed straitjacket on increases in taxation?
A policy of constraining the ability to alter tax rates and ring-fencing spending on vast areas of public spending (NHS, pensioner benefits, etc.) and the political difficulty of cutting expenditure on social security and education panders to the pushmi-pullyu propensities of an electorate that desires increased public spending and lower taxes. It will result in increased borrowing (transferring the liability to our children), new taxes, and more legislative and operational measures to increase the yield from compliance.
What are the other non-Brexit risks to the UK tax system?
The IFS reported earlier this year that almost half of Britons (23m people) pay no income tax and that the richest 1% of taxpayers (300,000 people) pays 27.5% of all income tax. These statistics reflect a series of policy measures that have eroded the personal tax base. The growing number of self-employed taxpayers and self-incorporation in the ‘gig economy’ is eroding the personal tax base. The exchequer would lose a considerable proportion of income tax receipts if, for example, a significant number of the top 1% taxpayers decamped as a result of the changes to the rules on non-dom taxation or Brexit. US corporate tax reform would also pose potential risks if President Trump decides to support proposals from Republican members of Congress for ‘border adjustments’ and the abolition of deductibility of interest; it would hurt UK exports and make BEPS redundant.
What can the government do to make the public realise that increasing expenditure on public services requires increased taxes for everyone?
The absence of a direct linkage between public expenditure and taxation could be remedied by greater use of hypothecated taxes. In 2002, the Labour government announced an increase in NICs to pay the UK’s biggest ever increase in health spending. It was accused of breaking a manifesto pledge not to increase income tax, but the measure appeared to enjoy public support and the Labour party went on to win the next election. Hypothecated taxation promotes transparency. It could be used to provide additional funding for increased spending on the NHS and care for the elderly.
How do you think Brexit might affect the tax system?
Some people hope that the Brexit pressures on the parliamentary programme will result in shorter finance bills! The economic risks for the UK’s future growth and prosperity have been more exhaustively documented than the fiscal risks. The Treasury and HMRC have undoubtedly developed detailed plans to mitigate the potential fiscal risks, and begun equipping themselves for the challenges ahead, the greatest one being prolonged uncertainty about the detailed shape of Britain’s future relationship with the EU.
What are the fiscal risks from Brexit?
I’ll provide a few examples. The UK has an ageing population, and the end of free movement of pre-dominantly relatively youthful labour will slow the growth of personal taxpayers and increase the UK’s pension dependency ratio (number of working population relative to the number of non-working population). People will need to work longer and save more for their retirement. The prime minister’s announcement that the UK will leave the Customs union after Brexit means that goods leaving and arriving here will be subject to customs declarations. It will result in a five-fold increase in the annual declarations that have to be processed by HMRC’s customs declaration service computer system. HMRC is undertaking a major upgrade of the system (which is being investigated by the Treasury Select Committee) and planning new IT systems in everything from VAT, to alcohol and tobacco warehousing, to databases on trader registers. Post Brexit, ministers are likely to come under pressure to extend the list of goods and services eligible for reduced rate and 0% rates of VAT. Once the current state aids rules cease to apply, the government will face pressure for subsidies for particular industries; it could choose to offer special grants rather than tax reliefs.
You are obviously still active in tax since leaving HMRC
Very much so! I lecture and write on tax policy and administration, and Brexit. I am seeking support for a proposed history of HMRC and its predecessor departments (the last histories of the predecessor departments were published in the 1960s). I contribute to academic studies e.g. UCL’s paper Devolution and the state of the union. I am a trustee of Tax Help for Older People and a member of LITRG. Tax Help and TaxAid provide tax advice to vulnerable people who desperately need it. Please support their work: www.bridge-the-gap.org.
