We Cannot Afford To Ignore Tax And Put It On The Back Burner

If taxation doesn't start modernising with the economy, we'll run into big problems: taxing the wrong things, driving the wrong behaviours, and ultimately not raising enough revenue to cover the nation's costs.
Getty

Many words have been spoken and much ink has been spilled in recent weeks and months over the UK's post-Brexit tax system. New research from the King's Fund shows 66% of people are willing to pay more taxes in order to maintain the level of spending needed. Others, meanwhile, favour a low tax, low regulation economy.

Whether it's about more tax or less, there is a bubbling stream of commentary suggesting UK taxation needs to change. But it's equally clear that tax polarises opinion, making tax reform all but impossible.

We can't afford to put tax on the backburner and continue to kick the can down the road. This isn't just about Brexit - although leaving the EU does force change to the tax system - but also dealing with trends like the gig economy and seismic shifts in our demographics.

Our tax system - the myriad of taxes, their rates, objectives and scope - has evolved over many, many years. The last major period of reform was in the 1980s. Since then the world economy has experienced intense global integration, and become more virtual and intangible. Advances in disruptive technology have played a huge role. Take 3D printing. Should you tax a product where it's printed or used, or where the idea originated? What will it mean for customs duties if we import fewer products as they are 'printed' in situ?

Changing patterns of work, automation and robotics arguably present an even bigger tax challenge, given income tax and national insurance are the taxes that generate the most revenue. And this will be compounded by the economy's increasing reliance on a smaller proportion of younger workers. Even though the state pension age is increasing, there will be fewer people of working age to support a larger population of retired people.

If taxation doesn't start modernising with the economy, we'll run into big problems: taxing the wrong things, driving the wrong behaviours, and ultimately not raising enough revenue to cover the nation's costs.

So what's the answer? While politics and tax are intrinsically linked, tax doesn't have to be about left or right. There are many potential models for a reformed tax system - all have upsides, and downsides. We need to set out and debate the different scenarios, and the trade-offs they entail. Could we become the Tech Kingdom, rivalling Silicon Valley? But would tax breaks for one industry penalise the others? Will a tech orientated economy help or hinder older generations wanting to get back into work?

Is it easier to picture a decentralised UK, whereby different regions back particular sectors with the inevitable tension arising as they compete for talent and investment? Divisive and complicated? Or the key to driving growth nationwide?

Are we coming from the wrong starting point - should we accept that we'll never raise enough tax to cover spending and move to a different economic model entirely; in that case could a universal basic income form the bedrock of the tax system?

To find the answers, we need to need to think big, and open our eyes to the possibilities. There are no doubt scores of potentials scenarios, and the right one for the UK could be a hybrid of many.

PwC's Paying for Tomorrow research on the future of tax indicated an appetite among the public for tax reform. It's now time to start looking at what reform might look like, with clear visions for the future. This debate is important and long overdue.

Close

What's Hot