The OTS’s mandate expired with the election, but we will be re-established. In five years, we have completed nine major projects and published 33 reports and papers. Some 50% of our recommendations have been accepted, with more to come. We form consultative committees for all our main projects to help guide what we do. Our principles are that the recommendations are balanced, evidence based and carefully tested out in our meetings and research. There is plenty of scope, though, to make changes for an improved OTS mark 2. Ideas are welcome for what the OTS should look at next.
Lovers of Monty Python will
recognise aspects of the title of this article. Presumably the editor of Tax Journal is a fan, as he suggested the theme. Given the amount of engagement we routinely get in our projects, it does seem that the tax community thinks we are getting somewhere. At the same time, some feel we are wasting our time and that our vast budget and palatial offices (a joke on both counts) would be better directed elsewhere.
This article aims to help both sides by summarising what we have done, drawing some lessons and posing some thoughts for the future. The Conservatives’ manifesto included a commitment to ‘establish the OTS on a permanent basis and expand its role and capacity’, so we know that the OTS will continue; but exactly how and in what form remains to be seen. It is an issue in David Gauke’s in-tray as he resumes his role as financial secretary to the Treasury.
In many ways, the OTS has been an experiment to see if simplification is possible and practical. We think we have proved successful and provide value for money (but we would say that…). Much is due to our working methods:
Readers should recall that the OTS was established in July 2010 as a result of the Coalition agreement. It is an independent agency of HM Treasury (HMT) with funding shared by HMT and HMRC. There is a formal but non-statutory framework agreement setting out how the Office operates, under the overall control of a Board. OTS chairman Michael Jack and I are answerable to Parliament for the content of the OTS reports, although in practice this means little more than sending copies of our reports to interested select committees. Those reports are addressed to the chancellor of the exchequer and the financial secretary to the Treasury and are always published.
The staffing of the OTS is a mix of civil servants, drawn from HMRC and HMT, who normally work with the OTS for 12 to 18 months (though Jeremy Sherwood, the head of OTS, has been in position throughout); and part-time private sector staff. The latter are typically with the OTS for six months or so for two days a week: some are seconded to the OTS by their firms; most are hired directly after advertising posts on our website. The total staffing of the OTS is a maximum of six full-time equivalent staff members (FTEs) and more typically is around four FTEs.
The OTS takes on projects to study areas of the tax system with a view to developing recommendations for simplification. We actively seek input on what we should study. In 2013, we had input from a committee to help us draw up a long list of 20-plus possible projects and refine it down to a top six. After sounding out the minister’s views, we have so far focused on four of that list: employee benefits and expenses; partnerships; penalties; and employment status. (Maybe VAT boundary issues and trust taxation will be next?)
We have completed nine simplification reviews:
These reviews are underpinned by a tenth project looking into the causes of tax complexity. We aim to develop ideas for:
The OTS has published 33 reports and papers, all of which can be found on our website. These range from 180-plus pages on employment status and tax reliefs, through to the short report on penalties and updates on other areas. One recent publication was an updated list of tax reliefs (now standing at 1,156); see https://taxsimplificationblog.wordpress.com.
Our first reports were well publicised, but attention then turned elsewhere. The tax community knows reasonably well what we are doing; the wider community, though, (not to mention Parliament) has rather lost sight of us. Mentions in the Budget are of enormous value in redressing the balance, but they only go so far.
To develop our recommendations, we have made a virtue out of the necessity forced upon us by our small size. We have a policy of meeting with as wide a range of interested parties as possible during our projects: taxpayers (business and individual), tax advisers, representative bodies, academics and HMRC front line staff. We cover the whole country; as an example, our initial partnerships report was based on some 50 meetings during which we met with around 1,000 people. We form consultative committees (CCs) for all our main projects to help guide what we do – and they have strong opinions on what we should say. Being independent, especially of HMRC, means that our stakeholders are open with us – we operate in public but keep what is said to us confidential.
We do work closely with HMRC and HMT; they are on the CCs. We get input from them, in the same way that we get input from businesses and advisers. We receive particularly useful input from HMRC’s knowledge, analysis and intelligence (KAI) team, which analyses HMRC and other data for us.
Our reports, though, remain our own and are independent. Our (self-imposed) principles are that the recommendations are balanced, evidence based and carefully tested out in our meetings and research. That has to be our position – we want the recommendations to get wide support, both inside and outside government. The only real constraint is cost; we do not have to formally balance the pounds in what we say, but we clearly must have respect for revenue implications. Abolishing income tax would undoubtedly simplify matters, but it would not be a terribly practical idea!
Immediately before election ‘purdah’, we published a ‘state of play’ on our work (see www.bit.ly/1F9w1dl). This lists all our 402 recommendations to date and the government/HMRC responses. The list is in two sections: ‘big picture’ simplification recommendations; and other formal recommendations made in reports. Trying to translate all the responses to date into a numerical ‘score’ is difficult in view of the various gradations of responses; however, in outline they are set out in the table (below).
The ‘under review’ heading includes those items being considered by HMRC, those being formally consulted on and those recommended in recent reports where we await a response.
We got off to a good start with tidying up a range of sundry tax reliefs. This is an area that we’d like to return to, as we only studied 15% of the then reliefs in depth. Our overriding finding was the need for a system of routine reviews of reliefs, to confirm that they are still working as intended and are value for money. This was picked up and developed by the National Audit Office in its reports for the Public Accounts Committee. In the most recent Finance Act, there are some far reaching reforms to the employee benefits system and recent Acts have featured many changes to share schemes as a result of our recommendations.
I think we have delivered value for money. The running costs of the OTS over our five years amount to £1.7m. We cannot directly prove our value in terms of simplification gain per pound of spend on the OTS. However, we receive a great deal of free (or low cost) input, get a lot of things considered by HMT and HMRC that wouldn’t otherwise register, and generally raise the profile of simplification. Our crude success rate of 50% (so far) of our recommendations being taken forward is pretty impressive compared with any other body. We are never going to achieve 100%, of course – indeed, if we did it might be a sign that we weren’t being challenging enough. But that success gives something of a virtuous circle: people want to talk to us as they can see that we are listened to; and people want to work with us.
Having terms of reference signed off at ministerial level is an important signal that the government has a genuine interest in what we are looking at, increasing the chances of our ideas being taken up. That, in turn, has led to a lot of senior people wanting to join our CCs. We’ve benefited greatly from their input and introductions; we could have done more with them, but their time is precious and we are wary of asking too much.
Our staffing model is economical and has worked well – the mix of civil servants and private sector has been vital. Private sector staff have adapted quickly to working in the civil service. We all use our contacts to generate meetings and input from stakeholders. People who have worked with the OTS have gained a great deal from their time: the civil servants get ‘out and about’ more and learn a lot about practical tax issues; the private sector staff gain real insights into policy work and understand much more about HMT and HMRC. That said, it has been difficult to get the right numbers, especially of civil servants.
A regular complaint is that we haven’t really had an impact. For example, our first report led to the abolition of 40-plus reliefs, but the total number of reliefs available now is well in excess of what it was when we started. One problem we have is that our brief is strictly focused on existing law. We have no mandate over changes being planned or what is in the Finance Bill.
More significantly, we cannot point to a ‘big bang’ simplification. We haven’t managed to abolish a tax; we haven’t managed a combination of income tax and NICs (despite regularly recommending this and setting out how the two levies could be brought together short of a full merger). This is our biggest failing in the eyes of many – we haven’t managed a major change to the tax system that perceptibly delivers simplification to the person in the street (or indeed to their business).
What underlies such criticisms is, perhaps, a lack of appreciation of what we can and cannot do. Firstly, we can’t change the tax system: much as I’d like to, that has to be up to Parliament, which means ministers as advised by HMT and HMRC. More importantly, big changes to the system – such as merging income tax and NICs – are difficult, with far reaching consequences: economic, practical and political. Our aim is to make the case for change, but we accept that it will take a long time to really progress some of the big ideas.
Our reports contain both long and short term recommendations (the latter often termed ‘quick wins’). This can produce immediate results while bigger issues are being considered. Some feel we risk being fobbed off, though, with action only taken on the simple measures. Do we get the right balance between the practical easements and the big structural stuff? We try to, and do not shy away from big issues, but we are never going to redo the Mirrlees Review: that is for others and has been done!
Perhaps our biggest frustration has been our limited influence on the ‘carry through’ of what we have recommended. We lack influential oversight of our recommendations from Parliament in some form. Ideally, a Parliamentary Committee would consider our reports and challenge on why some things have not been progressed.
As noted, we know that the OTS will continue, evolving but probably not into Something Completely Different (now that phrase has a ring to it…). Whatever its imperfections, the OTS has been a modestly costing force for good. Ideally, it should be formally constituted as an independent body (like the Office of Budgetary Responsibility) but with a clear reporting line to Parliament, via a committee.
If that overall decision is taken, we need to have a larger budget. I’m not saying we should have an enormous staff: ten times the resources for the OTS won’t get ten times as much done, as we will always depend on HMRC and HMT both to input to our work and then to take things forward – and their resources are somewhat constrained.
The OTS has been something of an experiment, but it would be good to have it generally accepted that the experiment, including our way of working, has worked and thus that what we do can be relied upon. Perhaps inevitably, HMRC tends to be cautious about what we recommend and challenges our findings, but we have earned the right to be trusted.
We need to get better at publicising what we do (and what we cannot do). Direct input and ideas are always welcome and we should attract more such input. Maybe we should do an annual ‘simplification report’ on how our tax system has fared over the last year?
One thing is clear: we have not finished! We will never get to a simple tax system for the UK – that is surely out of our grasp. But it should not stop us putting effort into getting a simpler tax system, with the potential to benefit all taxpayers, agents and authorities. Therefore, what do you think we should do next? Let us know at ots@ots.gsi.gov.uk.
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