The Treasury Committee has published a report containing conclusions and recommendations from its enquiry into the Autumn Statement 2013. The conclusions on tax revenues are summarised below.
The Treasury Committee warned in 2012 that the proceeds of the UK-Swiss tax agreement might not meet expectations. The government has reduced its estimate of the expected yield by almost two thirds over the course of a year (from £5.3bn to £1.9bn for the period from 2012 to 2018). The OBR explained the reduction by the fact that the one-off levy (Swiss capital tax) applied to a smaller tax base than expected (in particular, fewer assets held by UK individuals in Swiss banks and the failure of Swiss banks to identify them) and a larger behavioural response than expected (mainly the flight of capital to other jurisdictions).
The Treasury Committee accepts that this reduction should not be a great surprise given the great uncertainty that surrounds the fiscal effects of tax avoidance measures in general. As noted by the OBR, key uncertainties include how much avoidance is currently taking place and the extent to which firms or individuals have opportunities for other avoidance routes. Additionally, little can be learnt from past avoidance measures without the knowledge of the amount of tax that would have been levied in their absence.
The Treasury Committee also notes that the government has announced new measures to close down avoidance and that each of those measures is vulnerable to uncertainties as to yield. The report therefore recommends that the OBR should report on whether yields were attained as originally costed. Where that is not possible, it should limit the extent to which the Government may account for such projected gains.
Finally, the Treasury Committee also comments on a report prepared by the Treasury at the time of the Autumn Statement 2013 on the dynamic effect of the reduction in the corporation tax rate. The report suggested that the cut could lead to a 2.5 to 4.5 % increase in investment, a 0.6 to 0.8% increase in GDP and increased consumption. Although the Treasury Committee points out that the modeling exercise is subject to some uncertainty, it recognizes the merit of the exercise and notes that the OBR took account of the report in its own forecast when ascertaining the effect of the cut on business investment and profit shifting.
The Treasury Committee has published a report containing conclusions and recommendations from its enquiry into the Autumn Statement 2013. The conclusions on tax revenues are summarised below.
The Treasury Committee warned in 2012 that the proceeds of the UK-Swiss tax agreement might not meet expectations. The government has reduced its estimate of the expected yield by almost two thirds over the course of a year (from £5.3bn to £1.9bn for the period from 2012 to 2018). The OBR explained the reduction by the fact that the one-off levy (Swiss capital tax) applied to a smaller tax base than expected (in particular, fewer assets held by UK individuals in Swiss banks and the failure of Swiss banks to identify them) and a larger behavioural response than expected (mainly the flight of capital to other jurisdictions).
The Treasury Committee accepts that this reduction should not be a great surprise given the great uncertainty that surrounds the fiscal effects of tax avoidance measures in general. As noted by the OBR, key uncertainties include how much avoidance is currently taking place and the extent to which firms or individuals have opportunities for other avoidance routes. Additionally, little can be learnt from past avoidance measures without the knowledge of the amount of tax that would have been levied in their absence.
The Treasury Committee also notes that the government has announced new measures to close down avoidance and that each of those measures is vulnerable to uncertainties as to yield. The report therefore recommends that the OBR should report on whether yields were attained as originally costed. Where that is not possible, it should limit the extent to which the Government may account for such projected gains.
Finally, the Treasury Committee also comments on a report prepared by the Treasury at the time of the Autumn Statement 2013 on the dynamic effect of the reduction in the corporation tax rate. The report suggested that the cut could lead to a 2.5 to 4.5 % increase in investment, a 0.6 to 0.8% increase in GDP and increased consumption. Although the Treasury Committee points out that the modeling exercise is subject to some uncertainty, it recognizes the merit of the exercise and notes that the OBR took account of the report in its own forecast when ascertaining the effect of the cut on business investment and profit shifting.
