Regulation  

MPs disappointed as govt rejects tax strategy proposal

“As Budget 2021 acknowledged, VAT makes a significant contribution towards the public finances and the government intends VAT to remain a broad-based tax on consumption where the standard rate of 20 per cent applies to most goods and services.”

VAT is an important source of revenue for the Exchequer, raising approximately £130bn in 2019/2020. 

The committee had proposed a number of priorities for reform and recommended setting out strategies for things like stamp duty land tax and pensions tax relief.

Pensions tax relief, which was the second most expensive tax relief, costing £20.4bn in 2018-19, was "regressive" since most of its benefits accrued to those in the top earnings decile and as a result, it said, it should be "urgently" reformed.

It said reducing this cost could make a significant contribution to public finances, achievable by replacing the lifetime allowance with a lower annual allowance as well as the introduction of a flat rate of relief.

The MPs also said in the report that stamp duty was "economically inefficient" and damaged the economy by affecting how and when people bought homes. They said its reform should be prioritised.

Another area where the report called for reform was the taxation of the self-employed, saying a restructuring was "long overdue", as the current system was "unfair and unsustainable".

In its response, the government said: "The Budget has set out the chancellor’s medium-term plan for how the tax system will support tax the government’s broad economic objectives for the next five years.

"The government keeps all taxes under review and the chancellor will outline tax reforms as part of future fiscal events."

It said the government "fully agrees" with the importance of public engagement in tax policy making and would continue to engage with parliament, tax policy professions and the general public on tax strategy through fiscal events and the wider tax policy making process, and "will look to improve this level of engagement where possible".

In the financial secretary to the Treasury’s covering letter, he also said that the balance of the recommendations “leans away from measures that would help to repair the public finances in the coming years”. 

However the committee said it “disputes this” and was “disappointed with the observation”.

sonia.rach@ft.com

What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know