The Government’s response to the Committee was published on 2 June and focuses on those things which it has done whilst deferring the key recommendations which underpinned the original report.
Those things which the Committee suggested, and which have been implemented are those which, unsurprisingly, contribute to the short to medium term aims of supporting business as we continue through the coronavirus crisis:
- Introducing a temporary three-year loss carry back for trading losses of both incorporated and unincorporated businesses to help previously profitable businesses.
- Extending the Annual Investment Allowance to encourage businesses to invest in new equipment – the Government also introduced the new ‘super deduction’ and a 50% rate for special rate assets.
- Announcing a moderate increase in corporation tax, albeit not until 2023.
- Setting out medium-term plans for the tax system in the Budget and on ‘Tax Day’ in April.
However, the bigger proposals have been dismissed, with no suggestion of when or if they might be reconsidered.
Those proposals, and the Government’s response, include:
- Prioritising the reform of stamp duty land tax – it was reformed in 2014 and the ‘holiday’ for first-time buyers has been extended. Unconsidered change could impact Exchequer receipts and the housing market.
- Urgently reform pension tax relief – previous consultation indicated no clear consensus for reform and radical changes would require careful consideration.
- Remove the distortions caused by the differences between income tax and national insurance – the system is complicated and radical change would be challenging.
- Report annually on the taxation of digital services – the Government did not consider it appropriate to report to the Committee, particularly as some global negotiations are confidential.
- Set out a strategy for UK VAT – there have been some changes. VAT will remain a broad-based tax on consumption
- Develop a tax strategy to meet net zero – the Government is committed to end its net contribution to climate change by 2050 – it will set out its overall strategy ahead of the climate change conference in November 2021.
- Draw up a draft tax strategy identifying high-level objectives – there are some medium-term plans and consultations on specific issues. Pre-announcing some changes could change taxpayer behaviour.
The Committee recognised the difficulties but expressed disappointment that the Government rejected the recommendations, particularly around tax strategy, when it was felt evidence was overwhelmingly in favour.