What's the thinking behind tax day?

In his Budget on March 3, chancellor Rishi Sunak did not usher in an overhaul of taxation, despite many commentators predicting at the time he would update inheritance tax and change capital gains tax.

In these particular cases, speculation was rife not least because the Office for Tax Simplification has already conducted significant reviews of these policies. In the event, the chancellor did not think its proposed changes appropriate to fold into the Budget.

Instead, tax day focused on other, less heralded initiatives. A 17-page summary published on March 23 signposted the UK towards more than 30 different updates, consultations and documents published as part of the government's 10-year plan to tidy up the UK tax code.

In his introductory remarks, the financial secretary to the Treasury explained why these were not announced on March 3.

Jesse Norman MP wrote: "By announcing these measures and consultations separately from the Budget, we are seeking to create greater visibility and transparency for Parliamentarians, tax professionals and other stakeholders.

"We hope that increased scrutiny of tax measures will increase the overall quality of tax policy and legislation, on which millions of taxpayers ultimately rely."

Political manoeuvres

But what is behind the reason for creating this specific 'tax day', given it followed hot on the heels of the Budget itself? True to form, politics seems to be the main factor, according to financial commentators.

Andrew Dixon, head of wealth planning for Kleinwort Hambros, commented: "Positioning the UK economy for growth, while reducing the deficit, remains a delicate tightrope for the government to walk.

His prediction was that tax day might prove "an astute political manoeuvre by the chancellor – rather than headline-grabbing hikes or the introduction of a wealth tax, introducing a series of freezes or “stealth” taxes will be used to plug the hole in public funding."

We expect higher taxes in this decade compared to the last.Andrew Dixon

"Stealth taxes are easy to position to the public than an explicit tax rise as the impact isn’t immediate, or for those who are hit immediately, it is generally a small impact which, incrementally and overtime, provides a larger cumulative impact for the Treasury."

In the event, no such revenue-raising opportunities were outlined. But this is not the end of the matter, says Dixon.

“There is no appetite for austerity, and with a different mix of voters I am not sure the government would want to pursue the same policies under the Cameron/Osborne tenure. With this mind, we expect higher taxes in this decade compared to the last."

George Bull, senior tax partner at RSM, comments: "The government decided that only announcements which have fiscal implications that need to be captured in the economic and fiscal outlook published by the Office for Budget Responsibility, and measures which will be legislated in the Finance Bill, would be made on Budget day in the normal way.

He also pointed to "some documents which are announced in the Budget, and which the government would usually have published alongside the Finance Bill.

But Bull agrees that other tax consultations will be published after Tax Day. Bull adds: "2021 will be a busy year for tax professionals".

Neil Jones, tax and estate planning specialist for Canada Life, says it is not so surprising that much of the tax change detail was separated from the Budget this March.

He comments: "The Conservative election manifesto stated a desire to ‘redesign the tax system so that it boosts growth, wages and investment and limits arbitrary tax advantages for the wealthiest in society’.

"This was followed up by the announcement recently of designing a tax system fit for the 21st century. These consultations could make proposals to help achieve these goals."

He believes the consultations will take months rather than weeks and could lead to announcements in the next Budget, scheduled for the autumn, with any changes becoming effective from the start of the next tax year in April 2022.

So the move is purely political - or is there more to it?

Shadow of Covid

Rachael Griffin, tax and financial planning expert at Quilter, agrees this Budget day was heralding a "different event" than the ghosts of Budgets past. 

She states: "It was clear the chancellor didn’t want to get into the granular details of CGT and IHT changes. Instead he did the headline announcements about personal allowance thresholds and then spent the rest of the time on Covid support and the Green future.

"This was deliberate. With the country still in lockdown and morale only starting to build back up thanks to the vaccines and roadmap now was not the time for headlines about the future of taxes."

Because dealing with coronavirus remains the number one priority for the country, Jones believes it was inevitable that Covid dominated all other matters n the March 3 Budget. 

He says: "Given the Budget speech focused a great deal on dealing with the pandemic, announcing consultations on top of this could have made the speech lengthy and therefore reduce the impact of the Covid-related announcements."

Griffin's views are similar to those of Kleinwort's Dixon. She says: "Ironically, the government has said tax day is designed to give greater visibility to certain aspects of tax policy, but moving the announcements away from the Budget may actually be designed to do the opposite.

"The dent that Covid has caused in government finances is not something the chancellor is willing to avoid for long.

"He has made it clear that he feels it’s his duty to start the work to start to recoup some of the money spent on support during the period and taxes are clearly on the agenda."

She believes all these consultations are a "clear compass to the future of tax policy" and could highlight what may well be put on the table for the Autumn Budget, which she feels will "undoubtedly be a somewhat sombre affair".

Other considerations

Covid aside, Griffin notes changes to tax have been put on the back burner for the past year as the focus has been rightly elsewhere.

But she cautions: "There remain inefficiencies, over-complication and outdated parts of the tax system that are long overdue attention.

"For instance, IHT was reviewed by the OTS [two years ago]. The OTS then offered numerous recommendations, none of which have come to fruition."

Despite predictions that March 23 might mark a series of big changes, Jones thinks it is, paradoxically, a gradualist approach that led to the creation of a separate day of announcements.

Jones also points out the consultative approach to any changes to the tax legislation, which are not necessarily best tucked into a Budget Day pile of documents.

He says: "In the current era, tax changes are not usually made until there has been a period of consultation, which usually follows any announcements.

"There is often consequences to changes that need to be thought through. By asking those who are affected, for their comments and concerns, is a good way for HMRC to fully understand the impact. It can also be an opportunity to gauge reaction.

​​​​"Announcements and subsequent consequences usually follow a Budget, however in this instance they have separated them – this is nothing unusual as there are consultations on various topics and changes throughout a year anyway."

Rinse and repeat?

Will March 23 continue to be a date on which future tax changes are delineated? Commentators are not yet certain what the Treasury's long-term plans are, but say it is important to keep an eye out.

Griffin comments: "It will be interesting to see if the chancellor continues with this format for the remainder of his stint or whether this will be a one-time only affair."

Nimesh Shah, chief executive at Blick Rothenberg, thinks this is not the last time we will see such policy announcements.

He says: "The so-called ‘tax day’ will see the Treasury unveil a number of consultations. [But] the reality is that it will always be challenging to get [major initiatives] off the ground when short-term politics dictates tax policy.”

Shah would prefer to see things start from scratch, rather than try and implement a 10-year tax strategy that he feels will not work. 

He adds: “The government would have more success [if it were to] rip apart the existing tax law and start all over in order to have a system which is fit for the modern world.”

simoney.kyriakou@ft.com