Overcomplicated tax system is holding back UK growth, MPs warn

Britain’s ‘overly complicated and cumbersome’ tax system is holding back growth in the UK, MPs warn.

The system is an ‘obstacle to economic dynamism’, according to a report by the Commons Treasury committee.

It criticized Chancellor Jeremy Hunt’s decision to abolish the Office of Tax Simplification and called on the Treasury to regularly review how it is improving the system.

The report sheds new light on how taxes hinder Britain’s economic progress.

The UK tax burden is already on its way to its highest level since World War II.

Tory MP Harriett Baldwin, the chair of the committee, said: ‘It is widely recognized – including by the Chancellor – that our tax system is overly complex, confusing and inefficient.

The MPs make it clear that the way the system has been set up, in which companies and individuals are dragged into bureaucratic red tape and confusion, is also taking its toll.

She finds that they face 1,180 separate tax credits and numerous ‘cliff edges’, such as income thresholds to be entitled to tax-free childcare and a sales threshold above which companies must register for VAT.

The Byzantine system can all be an obstacle to working or growing a business, the MPs felt.

Tory MP Harriett Baldwin, the chair of the committee, said: ‘It is widely recognized – including by the Chancellor – that our tax system is overly complex, confusing and inefficient.

“It contains numerous abysses that discourage work, business growth and personal development.

“Dissolving the agency created to promote tax simplification risks sending a signal that the government is not serious about the task at hand.

Action must be taken and public scrutiny of government efforts is essential.

“That is why we call on the government to report to our committee each year on the success of the Treasury’s efforts to simplify the tax.”

The report states: ‘The complex tax system hinders economic dynamism. The quagmire of tax credits and exemptions creates compliance burdens and confusion.”

The report comes at a time when millions of workers are being forced to pay higher income taxes because thresholds have been frozen — even as wage increases are not keeping pace with the rising cost of living.

And businesses are being hit by higher corporate taxes, which have risen from 19 percent to 25 percent this year.

The increasing tax burden comes on top of the pain caused by very high inflation and rising interest rates.

The report comes after the closure of the Tax Simplification Office was announced by Kwasi Kwarteng in his disastrous mini budget last fall when he was briefly chancellor.

The body had been founded by George Osborne when he became chancellor in 2010. He intended it to be ‘a permanent force for a simpler tax system’.

The report comes after the closure of the Tax Simplification Office was announced by Kwasi Kwarteng in his disastrous mini budget last fall when he was briefly chancellor.

It was one of the few measures not reversed by his successor, Mr Hunt – who insisted that this did not mean tax simplification was no longer a priority.

The body had been founded by George Osborne when he became chancellor in 2010. He intended it to be ‘a permanent force for a simpler tax system’.

However, MPs found evidence that it was not as effective as hoped.

Bill Dodwell, tax director of the OTS, told the committee that the tax system has not gotten any simpler over the course of its existence, the report said. In fact, the tax law had become longer due to the introduction of new taxes.

But one industry association, the Association of Accounting Technicians, defended her work by saying there would have been far fewer “successful tax simplifications” without her input.

Even the tax authorities have admitted that the system was too complicated.

Jonathan Athow, a director general at HM Revenue and Customs, admitted in committee that ‘most commentators would say the tax system has become more complex over time’.

A survey by the British Chambers of Commerce this year found that nearly one in three businesses (30 per cent) regularly faced tax and administrative burdens.

The study found that 65 percent will raise prices because of cost pressures.

The spokesman for HM Treasury said: ‘Tax simplification remains a priority for this government and is seen as central to our work, as evidenced by the recent abolition of the lifelong benefit for pensions.

“We have embedded tax simplification in government institutions to ensure that the tax system creates the right conditions for businesses to thrive and the economy to grow.”