UK: Chancellor pledges to simplify tax system

Financial Times ^ | 7/25/2007 | Chris Giles

[bruinbirdman]

Alistair Darling on Wednesday used his first economic speech as chancellor to send a message to business that he wants to be judged on how far he can simplify the tax system.

Mr Darling pledged to ensure Britain’s “business tax rates and regime remain competitive”, adding that to achieve this “we must continue to simplify the tax system further wherever we can”.

Mr Darling’s comments – aimed not only at the corporate sector but at his own Treasury officials and HM Revenue & Customs – signify a big strategic shift from the more interventionist tax policies of Gordon Brown, the prime minister and former chancellor.

The Treasury declined to say exactly what would constitute simplification but indicated it could include more of the measures to cut tax rates and broaden tax bases it introduced in the March Budget. Other areas where the philosophy might be applied included small but important reductions in the compliance burden imposed by the UK tax system and less use of the tax system as a weapon to influence social behaviour.

The public finances are not healthy enough to put straightforward tax cuts on the agenda.

Mr Darling has taken to heart worries from business that it struggles to keep up with tax legislation that doubled in volume over the past 10 years. He regards a simplification drive as a critical missing piece of the structure necessary to ensure Britain remains competitive.

The emphasis on simplification is in marked contrast to the former chancellor’s activist views. They were outlined in his first Budget when he said: “The tax system sends critical signals about the economic activities a society wishes to promote and deter.”

Mr Darling will receive support from business if he can realise his ambitions. The Chartered Institute of Taxation wrote to the chancellor this month urging him to push tax simplification as a long-term goal.

In other areas, Mr Darling emphasised continuity with the policies of the past decade, pledging to support the Bank of England in the decisions it takes to meet the 2 per cent inflation target and insisting public sector pay settlements must be consistent with that target.

Confirming the pre-Budget Report and the Comprehensive Spending Review would be held simultaneously in October, he said: “I will ensure fiscal policy continues to support monetary policy”. But he made no comment on whether that meant sticking to the government’s existing fiscal rules.

Responding to questions after the speech, Mr Darling amplified remarks, foreshadowed in Wednesday’s Financial Times, that he would not attempt to block inward investment from sovereign wealth funds, such as China’s proposed purchase of shares in Barclays Bank.

“It would be wrong for any government to step in and say ‘no you can’t do this,’” he said.