Fix a broken tax system? It's good advice but George Osborne won't take it


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The Independent Online

The Treasury Select Committee chairman Andrew Tyrie hasn’t wasted any time making life difficult for the Chancellor. He’s demanding to know when George Osborne plans to make a decision on who is going to head the independent Office for Budgetary Responsibility.

It’s easy to see why Mr Tyrie is feeling testy. It is a rather high-profile job and the current term of the incumbent, Robert Chote, finishes in less than three months. The committee has to approve any replacement and yet there has been a deafening silence from the Treasury on who that might be if it’s not Mr Chote. 

Could it be that Mr Osborne is considering saving a few quid by outsourcing the OBR’s work to Mr Chote’s old shop, the Institute for Fiscal Studies?

The problem with that is that the IFS has a habit of saying some very unhelpful things – such as accusing the Chancellor of “incoherence” in setting tax policy. To be fair, the criticism also applies to his predecessors. But the manifesto pledges that the IFS trashes in its report “Time for tax reform” are entirely the work of Mr Osborne and his advisers – including his foolish decision to promise legislation to stop himself raising headline rates of income tax, national insurance or VAT, described as donning a set of “self-imposed political handcuffs”.

Then there is the pledge to offer additional inheritance tax (IHT) relief for homeowners. The IFS fears that this may further damage and distort “an already broken system of housing taxation” and do even more to lock older homeowners into “possibly inappropriate properties”.

The IFS says the system of setting tax policy is broken and it’s hard to disagree. Ditto its contention that constant tinkering by successive chancellors has simply layered incoherence on top of Britain’s tax complexity.

There are plenty of examples provided. Take the IHT and capital gains tax allowances that allow the wealthy and well advised to pay less than middle-income earners. Or the fact that someone on a million-pound salary pays a lower marginal rate of tax than someone on £100,000.

Of course, the IFS doesn’t have the burden of trying to get elected. It is regrettable when politicians put silly promises in manifestos, but that’s the “least worst” system of democracy for you.

The institute’s calls to make things simpler, outline a clear direction of travel, and be honest about levies such as national insurance – by bolting them together with income tax so people know what they’re really playing – all sound very sensible in principle. But following its advice would be, as Sir Humphrey Appleby might say, courageous. So it is highly unlikely that the Chancellor will do so.

About the best we can hope for, then, is an announcement about the future of  Mr Chote.