Leading article: Radical tax reform is the route to fairness

Britain's tax system is a tangle of levies and loopholes as arbitrary as it is inefficient


That Her Majesty's Revenue and Customs is cutting secret deals with some of Britain's biggest companies and slicing millions off their tax bills is, of course, unacceptable. That officials may be conniving to hide the details from parliamentary scrutiny, as the Public Accounts Committee is alleging, hints at an even deeper malaise. But to conclude that HMRC is dysfunctional and needs a radical overhaul, while reasonable, is only half of the answer.

The particulars of the only two such deals in the public domain make salutary reading. A "mistake" by HMRC saw Goldman Sachs let off interest payments of anything between £8m and £20m, while Vodafone settled its long-running row with a payment of £1.25bn, a fraction of the £6bn that campaigners claim was owed.

The notion of the taxman doing deals with business would be unedifying at any time; in a climate of fiscal retrenchment, it is doubly objectionable. But more corrosive still is the implication that large companies may get a better deal than everyone else. And worst of all is the assertion from Margaret Hodge, the PAC chairwoman, that the root of the problem is a "far too cosy" relationship between the Revenue and its large corporate clients.

The Revenue has been quick to deny the allegations, dismissing yesterday's report as based on "partial information, inaccurate information and some misunderstandings of the facts". Maybe so. But the allegations raise questions about governance and procedure that cannot pass unanswered. Equally, confidentiality, while a valid principle, cannot be allowed to veil questionable practices in need of reform. The activities of HMRC demand urgent, independent and comprehensive review.

But the matter does not end with changes at the Revenue. There is a far wider issue here. The defence of HMRC deal-making is that the public coffers might otherwise have received no money at all. And it is an argument that deserves to be heard.

Britain has one of the most complex tax systems in the world, a near-incomprehensible tangle of levies, exemptions and loopholes that is as arbitrary as it is inefficient. Big corporations employ specialist lawyers to ensure they get the best possible deal, leaving the state to pursue them in the courts just to establish what is actually owed. The contention that a settlement is at least cash in the Government's hand is not disingenuous. But it does underline the paramount need for a radical simplification of the tax system.

For politicians of all persuasions, pledges to crack down on both tax evasion (illegal) and tax avoidance (legal) are hard to beat, combining easy moral posturing with huge (and unverifiable) potential revenues. Few do much about it. One of the most vociferous of recent crusaders was Gordon Brown, who claimed in 1994 that as Chancellor he would "rewrite the tax rules". In fact, Mr Brown's endless tweaks to the system only made the situation worse, adding yet more layers of complexity and yet more opportunities to be clever.

George Osborne must do better. He, too, has promised to eradicate "morally repugnant" tax evasion. He has found £900m to fund HMRC's enforcement efforts and made moves to close specific loopholes. But neither will be enough. He should take the opportunity to simplify the entire system of individual and corporate taxation, stripping out the distortions of overly convoluted rules on everything from VAT to housing taxes to National Insurance.

In the light of recent revelations, it is clear that HMRC is defective and in need of reform. But the system it administers is at least part of the problem. Mr Osborne has talked tough on tax simplification. With Britain facing economic stagnation and £25bn worth of uncollected taxes, it is time for him to turn talk into action.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Marketing & PR Assistant - NW London

£15 - £17 per hour: Ashdown Group: Marketing & PR Assistant - Kentish Town are...

Senior Network Integration/Test Engineer

£250 - £300 per day: Orgtel: Senior Network Integration/Test Engineer Berkshir...

Software Developer - Newcastle - £30,000 - £37,000 + benefits

£30000 - £37000 per annum + attractive benefits: Ashdown Group: .NET Developer...

Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Read Next

The truth about kids on holiday

Rosie Millard

August catch-up: Waiting on the telephone, tribute to Norm and my Desert Island Discs

John Rentoul
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home