When is avoidance not avoidance? When it’s propping up the Big Society – and a cornerstone of the culture secretary’s strategy to save the arts from the impact of the spending cuts.
That is the problem confronting the chancellor and the prime minister as they contemplate the last week’s furore over the impact of capping tax relief for the rich. What appeared to be a reasonable measure to make sure that the Lord Granthams paid tax at a rate somewhere approaching the rate of the Carsons has now turned into a row about the future of charities. Not surprisingly, when surveyed, they all claim they will be hit very badly (a question to which the answer is an almost inevitable yes).
There is a reasonable in principle case to be made for saying that the personal philanthropic choices of individual rich people should not drive where we allocate “tax expenditures” (the other way of looking at tax reliefs). Better for them to pay proper amounts of tax and then let decisions on what charities the taxpayer wants to support be made by accountable politicians. But that is not the argument the chancellor made, and so far only the Guardian in a leader today has dared make it. Instead the Treasury has given the impression of being taken by surprise by the reaction.
Just as it was by the reaction to the attack on pasty tax in the name of levelling the playing field on the VAT borderline on hot takeaway food. And in how pensioners failed to cheer the simplification proffered by the chancellor in the Budget by the removal of their slightly higher personal allowance.
So what is going on?
The chancellor – like so many other chancellors before him – produced proposals which did not need scrutiny by his cabinet colleagues who might have pointed out the inconsistency of his plans with other key threads of government policy. He did not involve any outsiders in the development of his policies. He did not need to produce a White Paper setting out his proposals. All he had to do was get the “quad” to sign up – and they undoubtedly were focussing on the big ticket items of the 50p rate, the threshold and the mansion tax.
As we have argued before tax policy making in the UK violates most of the policy fundamentals we set out in our report, Making Policy Better last year. In particular, our current budget process is spectacularly weak on external engagement and anticipation of likely reaction and far too often tax policy is very poorly designed.
When he came to office, the chancellor promised to make tax policy better. He set up the Office for Budget Responsibility to make fiscal forecasting more independent and transparent and the Office for Tax Simplification. But those have not prevented the current, predictable, problems.
A review of the success or otherwise of the 2004 O’Donnell reforms which gave the Treasury responsibility for tax strategy and diminished the policy role of a merged HMRC is long past its due date. That, combined with a lessons learned exercise on the travails of the 2012 Budget, is now needed to redesign the process to bring it into the 21st century and reduce the potential for future budget clangers.