On March 1, 2021, the committee published a report in which it outlined a series of long-term tax reform recommendations that it said would be needed in the future.
They also made a recommendation that the government draw up a draft tax strategy for consultation, in which it should set out what it wants to achieve from the tax system.
However, the government dismissed the recommendation.
The committee has now urged the government to provide a more detailed explanation of why it has rejected it.
MP Mel Stride said: “Our inquiry was a thorough look at the tax system and an appraisal of how it could be reformed to raise money and improve the economic efficiency of the tax system.
“Whilst the committee does appreciate the difficulty in pre-announcing tax policy, it is disappointing that the government has rejected our recommendations to improve the approach to tax strategy, when the evidence was overwhelmingly in favour.”
The committee had proposed that the strategy should include the role of the tax system in meeting fiscal goals; securing a neutral tax system which treats similar activities in similar ways, including fair taxation of different structures of work; ensuring that taxation is progressive and fair to future generations, meeting climate change goals for net zero; ensuring growth of business and employment and including a new business tax roadmap to provide investment certainty for business; and a five to ten-year strategy for corporation tax rates.
It also said principles should include reducing the tax gap, indirect taxes such as VAT which were previously covered by EU law which no longer applies, and reducing compliance costs, especially through appropriate tax simplification.
The report said: “This should include a framework within which new reliefs can be assessed or existing ones withdrawn.
“The government should ensure that the principles balance revenue raising, economic growth and other objectives, such as improving the quality of the environment and 'levelling up'.”
However, in the government’s response it said it was “already using that freedom” to create a fairer and more robust tax system, which complied with World Trade Organisation rules and other international obligations.
It said it had introduced changes effective from the end of the transition period in respect of goods from overseas suppliers, alongside many other changes that took effect this year.
It said: “As announced at Budget 2020, the government is also currently undertaking a review of alcohol duty, a review of the UK funds regime including the VAT treatment of fund management fees, and establishing an industry working group to review how financial services are treated for VAT purposes.
“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
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