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07/10/13 00:01

Fiscal Commission comment on UK tax system

Working group prepare report on opportunity for Scotland.

The Fiscal Commission Working Group is set to present two more papers to the Scottish Government on the opportunities for independence to deliver a stronger tax system and improved financial management compared to the current UK systems.

The reports are set to include significant criticism of the UK’s track record in financial management.

The Working Group is completing papers on a tax system in an independent Scotland and on the establishment of a fiscal commission for an independent Scotland.

Commenting ahead of publication of the report, Chair of the Fiscal Commission Crawford Beveridge said:

“It is undisputed that there is significant room for improvement in the UK tax system that Scotland would inherit. Over many years, the accretion of increasingly complicated provisions has left a system which is complex and lacking a clear set of guiding principles.”

The Working Group report says the UK system faces problems of Complexity, Cost and the size of the tax gap as well as the complex institutional framework.


The UK tax system is complex and costly, and studies have shown there is considerable room for improvement in its design and operation.”

The current UK tax system has evolved over hundreds of years, and is now characterised by:

  • A complex landscape of exemptions, deductions and allowances.
  • It is estimated that there are over 10,000 pages of tax legislation, making it one of the longest in the world
  • The system has been altered around the edges over time in an attempt to adapt to evolving economic and social circumstances and technological advances. However, this has had consequences in terms of complexity.
  • Indeed, reports argue that UK tax legislation is estimated to have doubled in length since 1997 alone.

In the UK, the tax gap is estimated to have been around £32 billion, or 7 per cent of the total due in 2010-11. Nearly 15 per cent of this, £5 billion, is reported to arise through tax avoidance schemes.

Discussing the UK’s response to the problems of its tax system the Working Group state

Considerable issues have been identified in the UK tax system – with comprehensive reviews identifying the need for substantial reforms to establish a clearer and principles based system. However, the response of successive UK Governments has been focused around the margins, such as the establishment of the Office for Tax Simplification reviewing certain tax emptions and allowances and particular areas of the tax system.”

The Working Group’s early findings are supported by previous critiques from the IFS who stated that there is “a fair amount of science suggesting that we could run our tax system better. The policy could be made to operate better. We could, for example, collect as much tax as we do and be as redistributive as we are currently but do it in a more efficient way if we chose to. There are opportunities there as well.”

And the House of Commons Public Accounts Committee whose chair Margaret Hodge stated that “Tax law is now hopelessly complex and outdated.” The Committee’s recent high profile inquiry into corporate tax payments concluded that: “HM Revenue & Customs (HMRC) is hampered by the complexity of existing laws, which leave so much scope for aggressive exploitation of loopholes, but it has not been sufficiently challenging of the manifestly artificial tax arrangements of multinationals”.

Commenting ahead of publication of their report Cabinet Secretary for Finance John Swinney said

“I look forward to studying the proposals from the Working Group on the opportunities to improve the tax system in Scotland. We are already introducing two reformed taxes in Scotland that will be cheaper to collect, more progressive for individuals and tailored to Scotland’s needs and have proposed a General Anti-Avoidance Rule to ensure we crack down on anyone trying to dodge their taxes.

“With independence we have opportunities to use taxation to make Scotland wealthier and fairer and to improve the tax system overall making life easier for people across society and saving resources.”