“Fairness and simplicity tend to be at odds” – reflections from the outgoing head of the Office of Tax Simplification
After six years at the helm of this tiny Whitehall team, John Whiting is standing down. Here he shares his experiences of trying to simplify Britain’s fiendish tax system – and what he’s learnt in the process
Credit: TaxRebate.org.uk via Flickr
Most people will no doubt agree that the UK has a complex tax system. To an extent that is inevitable – life and business are increasingly complex; the tax system has to reflect that and cope with many constraints and pressures. But complexity can add burdens and costs, so there is a strong case for trying to get to a simpler system – and that is where the Office of Tax Simplification (OTS) comes in.
Some years ago I was invited by David Gauke, then exchequer secretary, with backing from chancellor George Osborne, to set up the OTS as something of an experiment to see if it was worth trying to simplify the tax system. My background was entirely private sector – 25 years a tax partner in PwC – but I’d long been an advocate of trying to simplify the system, particularly through my involvement with the Chartered Institute of Taxation. So David’s challenge was in effect: stop droning on about simplification and have a go.
Six years on, I’m handing over leadership of the OTS. It’s now on a statutory basis and firmly part (albeit still a very small part) of the tax policy system in the UK. So what lessons do I draw?
Firstly, we have proved that putting effort into simplification is indeed worth it. It pays dividends in terms of reduced costs (for taxpayers, advisers and – importantly – HMRC); there is also evidence that a simpler system reduces error, improves compliance and – again importantly – trust in the system.
An early lesson was that simplifying by cutting pages of tax law out (or technical simplification) was OK, but it wasn’t as powerful as administrative simplification (i.e. making the system easier to deal with). We also found that the greatest cause of complexity was…change. The more the system changed, the more complex it became – so our simplification ideas have to be “worth it”.
A recurring theme is fairness. The tax system tries to be fair and that’s hard to argue with – but it comes at a price of complexity through extra rules and allowances (we have close to 1200 reliefs and exemptions in the tax system, for example). Fairness and simplicity tend to pull against each other – though I would observe that an overcomplex system cannot be fair – as people will not manage their way through it.
Developing an OTS way of working and staffing the work was important. The old OTS was tiny – 3-6 full-time equivalent staff; we’re now up to 6-10. We mix HMRC/HMT staff and private sector hires, including occasional secondees from generous firms. That combination has worked well and by being very flexible on working patterns we attracted a wide range of experienced people.
But we were always going to be tiny and that forced us to make a virtue out of necessity. We would never be able to develop our ideas on our own. Nor would that be healthy – we should not be a think tank. So we got out on the road and went out to see businesses, advisers, representative and trade bodies, academics, frontline HMRC staff – everyone with an interest.
My mantra became that nobody could say the OTS wouldn’t talk to them or take their input. It’s good to see that HMRC especially is doing far more getting out and about nowadays. It also meant value for money for HMT’s modest investment: the value we got from all that free input, never mind the cheap labour, was significant. This has been an effective technique which we are now well known for.
Bear in mind that as an independent adviser to government, the OTS does not simplify tax: we highlight areas of complexity and make recommendations for improvement. These are based on widely drawn evidence and must be practical. We may prompt immediate action on some items but in many cases we want to stimulate debate and considered moves.
It has been great working in the OTS – a real privilege. I retired early from PwC so I could do something else in a different field. That field was another tax one but from a very different perspective. I think I’ve contributed a lot but I’ve also learned a lot, and it’s a route I’d recommend to anyone in a similar position. But of course I’m leaving the job uncompleted: tax simplification isn’t finished – it probably never will be. Now if I can just wave my magic wand and make sure simplification considerations are built into all new measures…
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