The proliferation of changes in recent years has left the business community wishing tax would become boring again. With the exception of an overhaul of business rates and initiatives to support investment and innovation, the CBI is calling on the Government for a period of stability and certainty in the tax system.
Businesses place great value on a clear vision and process in tax policy. In fact, setting out the strategy and sticking to it can often be more powerful than an unexpected tax giveaway. It gives businesses the confidence that the tax rules won’t change suddenly, and with that the certainty to make long-term investments in the UK.
When a business is considering an investment, it prices up the potential return on investment. If companies know their tax position accurately, they can price it into the transaction cost before they execute it. But if the system is constantly changing, then an element of uncertainty will be priced into the investment, and can mean the project becomes unviable or takes place in another jurisdiction. So, encouraging long-term investment in the UK is rooted in the tax policy-making process just as much as the policies themselves.
The 2010 Corporate Tax Roadmap adopted by the Coalition Government was an innovative way of clearly setting the agenda on corporate tax policy. The roadmap delivered on its promises – with the Government seeing through its planned reduction in corporation tax and a number of other changes that cemented the UK as a key place from which to invest and do business. The CBI welcomed the commitment from the Government to set out a broader Business Tax Roadmap in April 2016, and while it was less forward-looking than its predecessor, it provided timely direction after a general election. So, we welcome the proposal in Better Budgets for more extensive use of roadmaps.
We understand the Government’s need to have some flexibility in tax policymaking, to counter avoidance or to react to major economic shocks, but these should be rare, properly identified, and easy to justify. When there has been a series of reforms, we think the Government should hold back before chasing more changes so that it can assess the impact. Recent examples include successive hikes to insurance premium tax or the double-hit to capital intensive businesses by modernising loss relief rules at the same time as curtailing the amount of corporate interest deductions.
Abolishing the Autumn Statement in favour of just one fiscal event a year, as the report recommends, is a very positive step forward on the road to bringing about more stability and certainty in the tax system. As we approach the Spring Budget, we understand the balancing act required on tax policymaking, to take action where there is an imperative, but we also encourage the Government to be confident when action is not wanted.
A boring Budget is sometimes just what business and the wider economy needs.
This blog represents the views of the author and not the Institute for Government.