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29th Mar 2024
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Tories promise to rebalance tax regime

by The Editor at 13:02 19/10/06 (News)
The Tax Reform Commission has made 40 recommendations to streamline and simplify the UK tax system, as part of a review by the Conservative Party.
Shadow Chancellor George Osborne has responded to the report saying that an incoming Conservative Government will re-balance the tax system with green taxes on pollution to pay for reductions in tax on families. He also promised to embark on a major simplification of business taxes, designed to pay for a significant reduction in business tax rates.

Welcoming the findings of the report, the Shadow Chancellor re-iterated his central commitment to sound money - stressing again that economic stability come before promises of tax cuts. He made it clear that the report is not a blueprint for the Party's next election manifesto.

Business tax reform
However, he said he shared the Commission's central conclusion that if Britain is to remain a prosperous nation enjoying high living stands, then tax reform is urgently required.. Mr Osborne said he was 'particularly impressed' with proposal on business tax reform, and declared that 'there is a strong case for a major simplification of business taxes that would pay for a significant reduction in our business tax rates'.

Fifteen of the 40 recommendations focused on reforming business taxation. They are (with intial revenue effect in £m in parenthesis):

  • Reduce main rate of corporation tax to 25 per cent and over time introduce a single rate of 20 per cent (-8,000*)
  • The main corporation tax rate should apply to all profits above £300,000 (-200)
  • Introduce participation exemption for all income from qualifying foreign shareholdings (-700)
  • Embark upon a programme of fiscal deregulation within HMRC (0)
  • Replace the schedular system with a system based on accounts (+4,000)
  • Further detailed study should be commissioned into how these adjustments and the necessary transitional rules would operate in practice (0)
  • With the end of the income/capital divide the indexation allowance should also be abolished (+500)
  • Permit full pooling of losses in the future so that a company’s tax position reflects its commercial position (expect to be minimal)
  • Replace current rules for group relief with a consolidated tax regime for UK companies within a group (expect to be minimal)
  • Give relief for depreciation on an accounts basis (included in schedular system proposal)
  • Abolish R&D tax credits and film tax credits (+1,200)
  • Introduce a general pre-clearance system and routinely publish findings (0)
  • Introduce safe harbour rules (0)
  • Review anti-avoidance legislation to ascertain if it is still required in the light of other reforms (0)
  • Review introduction of a general anti-avoidance rule (GAAR) once substantial simplification has been achieved (0)
    *Does not include reduction to 20 per cent over time

The Shadow Chancellor announced that accountancy firm PriceWaterhouseCoopers is to conduct a detailed study of how to implement a simpler business tax regime, while former Conservative Chancellor Lord Howe is to head up a small group which will study potential reforms in the way tax law is made, to ensure proper scrutiny and consultation in advance of change.

He said: "I also agree with the Commission that we need a more intelligent analysis of the effects of tax cuts and tax increases on our economy, and I will look to establish a dynamic model of the economy within a Conservative Treasury, running alongside the existing static model. We will never risk the public finances on an untested model, but we will examine how the model performs in government and if it proves to be a success then it will help inform our future tax policy."

Personal taxes
Mr Osborne also welcomed the Report's conclusions on the need to reduce personal taxes on families. He said: "I believe lower and simpler taxes encourage aspiration and opportunity, and help people take more responsibility for their own lives. That is why I want to share the proceeds of growth between spending on public services and lower taxes. So I will give serious consideration to the proposals to reduce and simplify personal and capital taxes."

But he stressed: "These options almost all come with a price tag. I have already made it clear that for this party Sound Money means that economic stability comes first. And the Report itself says that "economic and fiscal conditions" must be taken into account. We are not going to commit to £21 billion of unfunded tax cuts now or in the future.

"However, we will rebalance our tax system and shift the burden from taxing families and jobs to taxing pollution and carbon emissions. I want to tax the bad not the good.

"Britain's tax system is too complicated. This is damaging Britain's ability to compete in the world. I set up the Tax Reform Commission to get, for the first time ever, independent expert advice on how we can change that. I commend its work and I welcome its Report. The Commission have given us a menu of options that merit serious consideration. Some we will accept, some we will modify and others we may reject. But the framework of our tax policy is now set."

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Susie Hughes © Hardhatter 2006
The Editor

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