ICAEW CEO Michael Izza writes to the Chancellor of the Exchequer ahead of the 2016 Autumn Statement, outlining key areas for consideration including the implementation of digital tax collection and the UK government's approach to public sector finances.
12 October 2016
Rt Hon Philip Hammond MP
Chancellor of the Exchequer
1 Horse Guards Road
This Autumn Statement is an opportunity to implement a credible plan for the public finances. It is important the government does not lose sight of progress made over the last six years in tackling the debt and deficit. Strong public finances will play a crucial role in moderating any negative economic consequences of leaving the EU. And strong public finances are essential to deliver the investment and infrastructure for a country that works for everyone.
Growing the top line
Over the past six years, while public spending has received a lot of attention, not enough attention has been given to how revenue can play just as important a role in tackling the £1.6 trillion public debt. Just like a business, government must now focus on growing its revenues, as well as keeping costs under control. Yes, government is different – but there are things it could do better if it takes a more commercial approach.
Generating returns on investment
Wavering on major projects, such as airport expansion, has meant we are not getting the economic benefits or tax revenues that smart investment can bring. At the same time there is much more that government can do to benefit from the assets at its disposal. A business would make a systematic inventory of its assets and exploit or dispose of them accordingly.
Now is the time for investment decisions to be taken: In light of low interest rates, Brexit and a change in the government fiscal rules on borrowing, now is the time to invest wisely. Priority should be given to infrastructure which has the potential to generate growth and a positive return to the taxpayer. It must also be fit for a future, where broadband is as essential as roads, and roads more important than railways.
Using government assets to generate income: Now is the time for a review of Government assets and a ‘sweating of those assets’. Government has made progress with some of its assets but a more comprehensive approach is needed. Real estate, moveable property, licenses or intellectual property rights, assets can be identified and valued in a way that could significantly increase business. Government should treat capital spending not simply as a cost but as an investment that delivers a public service and revenue.
A growth environment
Government must support the UK to become the best place in the world to start, grow and continue to scale up a business. This requires an economy that is agile and internationally facing to spur business investment and encourage entrepreneurialism. Support for new ways of working and technological innovation will help increase competition, productivity and government revenue.
An industrial strategy with productivity targets: Play to the UK’s strengths by identifying successful sectors to be supported and developed, particularly through advice. However measuring this success is essential if we are to spend tax-payers money wisely. Decisions for support must be based on regularly evaluated performance and productivity targets for each sector.
Company structures for an agile 21st century economy: More businesses are being created today than ever before, but company structures have their roots in the industrial revolution. They are unnecessarily cumbersome and restrictive for a modern flexible economy. Alternatives should be investigated, such as allowing individuals wider scope to limit their personal liability meaning more fluid and dynamic businesses that would promote enterprise and engage consumers.
Tax collection in a digital age
The UK needs a modern tax system fit for the 21st century and ICAEW supports HMRC’s digital ambitions. Technology has the potential to transform how businesses operate and also how they record their activity and results. If implemented appropriately, this will make it simpler to meet their reporting obligations and could give government access to real time information on revenues. But more work is needed to ensure the implementation of the new system does not stifle innovation and growth.
Digital yes, compulsion no: Mandating businesses to maintain their records digitally will require a fundamental overhaul of accounting systems by many businesses. This will affect all businesses from the smallest one person business to the largest multinational corporation. We want to work with HMRC to build a digital tax system that businesses want to use, rather than being a costly system they are forced to use. Building a robust, reliable, cost effective and user friendly system will encourage businesses to adopt digital filing because it makes good business sense rather than because they have to.
Innovative thinking for a modern economy: A tax system that is fit for purpose will also need to take account of the changing nature of the UK economy. The sharing economy is a cultural and environmental phenomenon that is growing so quickly that many taxpayers may not fully appreciate their tax responsibilities. Tax education is essential to help the public comply with their obligations and contributions from HMRC and sharing economy platforms would help to achieve this.
Growing the top line for Government revenue is no longer a nice to do but a necessity. Revenue maximisation, through targeted investment and streamlining our tax system is an essential goal if we are to deliver the investment and infrastructure that is needed for a country that works for everyone.
I look forward to the opportunity to discuss this in more detail