Hours and hours of financial advisers’ time – not to mention that of lawyers, accountants and pension professionals – is spent navigating Britain’s arcane tax system.
It needs a complete overhaul. A truly simple system could raise more revenue, encourage growth, compliance and not least save time for overburdened taxpayers.
Advisers might protest, as did one 20th century judge, 'reform, reform – aren’t things bad enough already?'.
There is an element of truth in that – often mere tinkering at the edges with every change in political hue just brings in new legislation and complexities, sometimes at odds with the previous rules.
Yet, according to PwC, the UK tax code has grown, from 5,000 pages in 1995 to 10,000 in 2010 and more than 20,000 pages now. That would probably take at least a week simply to read it out aloud without any comprehension.
After a probable General Election in 2024, the next government will face tight budgets, limited cash and a low bandwidth for reform. That need not mean low ambition. A proper fiscal framework for the 21st century could be a treasured legacy for a bright new chancellor.
Stealth taxing
Stealth taxation, practised by all the major parties, is to blame for much of the current verbosity and Byzantine mess. Such artfulness goes back centuries.
Indeed, Jean-Baptiste Colbert, King Louis XIV’s finance minister, was a great exponent in the 17th century. He advised plucking “the goose to obtain the largest possible number of feathers with the smallest possible amount of hissing”.
These tactics deceive no one. From pensions to council tax, our archaic tax system is not worthy of a leading economy. What other country bases its local property taxes on a 1991 residential value – more than 30 years ago.
Almost as bad as the notorious windows tax – introduced in the UK in 1696 and not finally repealed until 1850, the year of the Great Exhibition, which deprived people of light and ventilation – is the iniquitous pensions tax.
This convoluted tax does not incentivise the poor to save and demotivates prudent professionals such as doctors to even work; forced out at their prime with penal rates of almost confiscatory level on their hard-earned savings.
People have no confidence, even in little things like the continuation of the much-loved pensions tax-free lump sum. Every Budget there is a panic that this might be axed.
No wonder Barnett Waddingham research reveals that almost half of consumers are using a savings account to save for retirement (45 per cent), and 25 per cent are using a cash Isa.
And millions more just withdraw cash from their pensions to their bank accounts, fearful that the legislation will change and they will be taxed even more or lose existing tax-free perks.
