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KEY POINTS
- Can the Green Cross Code be applied to tax policy?
- Stop and check whether a policy make sense.
- Look at the wider repercussions of the policy.
- Listen to advice on the tax proposals before implementation.
- Proceed with care.
The country’s new Chancellor of the Exchequer is the first to be young enough to have been brought up with the ‘Green Cross Code’, the UK government campaign that was introduced in the early 1970s to encourage road safety among children.
As a member of an incoming Government, particularly one that has been in opposition for so long, it is inevitable that Mr Osborne will have plenty of ideas that he would wish to introduce in order to pursue his Government’s ambitions for the country.
However, the simple message of the Green Cross Code applies as much to tax as it does to crossing the road.
Stop!
Before making any major policy announcements, the new Chancellor should pause and check that what initially seems like a good idea actually makes sense to the outside world.
There will be very few in the country who would wish to discourage the new Government from taking decisive action; after all, the country’s finances are not particularly healthy, and tough and potentially unpopular decisions will have to be made.
Furthermore, it will be easier from a political perspective to make those decisions early in a Parliament before the backbenchers start to get cold feet.
However, as the maxim goes: ‘Act in haste; repent at leisure’.
Furthermore, recent history will demonstrate that Finance Acts made in haste have given rise to the need for plenty of penitence.
For example, the previous administration thought it would be a good idea to introduce 10% starting rates for both income tax and corporation tax.
The latter was even more foolishly changed to a 0% starting rate – despite loud warnings about the likely consequences from across the business community.
However, both schemes were eventually withdrawn, at some considerable political cost to the Government.
Look!
Having stopped, the Chancellor’s team should then consider what the wider repercussions will be of any proposed new policy.
As Richard Mannion’s article ‘Stop the leaks!’ (see Taxation, 13 May 2001, page 7) reminds readers, the previous Government’s own capital gains tax baby (the taper relief legislation) was thrown out with the bathwater a couple of years ago when the Government wanted to be seen to be responding to the effective 10% rate of tax being paid by private equity investors.
However, the hasty introduction of a flat-rate tax meant that thousands of owners of small businesses were going to see an 80% increase in the tax cost on their proposed retirements.
The months of uncertainty that followed, before the confirmation that what became entrepreneurs’ relief would be introduced, did no-one any good.
However, it was an inevitable consequence of a Government rushing into one policy in order to soothe one particular segment of public opinion without considering the wider picture.
Listen!
No-one can realistically expect the Chancellor and his colleagues to know all the answers.
Furthermore, it is precisely when a new administration comes into power, that the British constitution’s politically independent civil service should come into its own and provide the incoming Government with the advice and wisdom that it requires.
It has been suggested in some quarters that the previous Government actively discouraged civil servants from challenging ministers and merely wanted its civil service to implement the policies that had been decided upon.
Whether or not that is true, it is to be hoped that the new ministerial team at the Treasury will see its civil servants as advisers as well as using them as administrators.
However, with the savage cuts made to the civil service in recent years, the Treasury and Revenue departments have lost some of their most experienced civil servants, particularly those with an understanding of a wide range of tax issues.
Fortunately, the Government has other sources of advice that it can (and, I would say, should) take advantage of when formulating tax policy.
The Tax Faculty, together with the CIOT, ICAS, the ACCA, etc, has an obligation to act in the public interest.
These representative bodies are all active in responding to Government initiatives, on many occasions behind closed doors and in confidence. And, through their members and associated initiatives (such as the Low Incomes Tax Reform Group), these organisations have access to the full range of businesses and other taxpayers who will be affected by any changes in Government policy.
In recent years, these organisations have acted tirelessly in trying to mitigate the rough edges of many policies that have been announced without full thought being given to their impact.
One major example was the sudden change in the taxation of trusts announced on Budget Day 2006 with immediate effect, which led to months of uncertainty as amendments to the Finance Bill were being drafted long after the new rules had come into effect.
Another more recent example was last year’s Budget announcement that the rules on equitable liability were to be withdrawn.
In that instance, it would not have been sufficient for the policy to have been blunted; the only sensible outcome was for the rules to be retained (possibly, with express statutory backing).
Consequently, the Government was faced with an onslaught from various sectors of the tax profession seeking to put the horse back into the stable, long after it had bolted.
The campaign was successful and the former Government should be congratulated for having accepted that it had acted in haste.
However, from the perspective of all (whether it is voter, politician or representative body), it would have been far better for there to have been no announcement at all rather than a premature one followed by the intense lobbying that was required to have it withdrawn.
The mini-Budget
The new Government promised a mini-Budget within the first few weeks of its term and this will be on Tuesday, 22 June 2010. That occasion will inevitably make some announcements concerning the rates of the major taxes.
However, it is also possible that the Chancellor will want to propose some more radical shifts in tax policy.
I suspect that some proposals will be broadly welcomed but others – however well-intentioned they might be – will be less sensible, or will, at least, require some further consideration.
So my advice to the Chancellor is, before the mini-Budget, ‘Stop, Look and Listen’.
Take soundings from across the business community before committing yourself to a particular initiative.
Listening to others is not a sign of weakness and indecision, but the hallmark of a mature politician.
It will also pay dividends politically because any subsequent announcement is less likely to be met with criticism from the professional bodies.
If Mr Osborne is to make one radical proposal next month, I would recommend that it is to propose the end of ill-conceived tax policy and a promise to consult widely before committing himself and his Government to something that just won’t work.
Having looked at the consequences and listened to the advice, the Chancellor will then know whether or not it is safe to proceed.
Keith M Gordon MA (OXON) FCA CTA (Fellow) is a barrister, chartered accountant and tax adviser and won the Chartered Tax Adviser of the Year category at the 2009 LexisNexis Taxation awards.
He can be contacted by e-mail.
