Building a better tax system: reforming UK tax policymaking

The diagnosis: a system trapped by politics

Before examining how to fix the UK tax system, we must first acknowledge that it needs fixing at all. Outside the tax policy community, there is remarkably little recognition that the UK tax system could be significantly better. Without broad understanding that change is both possible and necessary, politicians face the full political cost of creating identifiable "losers" from reform, while the long-term gains remain invisible to most voters. This makes meaningful reform nearly impossible within electoral constraints.

Decades of incremental, reactive changes have created one of the world's longest and most complex tax codes. This complexity impedes economic growth, imposing significant compliance costs on businesses, creating uncertainty that chills investment and undermines voluntary compliance by making the system opaque and difficult to navigate. Businesses must often maintain parallel systems because tax rules diverge from accounting standards, adding layers of unnecessary complexity.

Tax policy is frequently driven by short-term political pressures, with major changes announced and rushed through following fiscal statements. The Health and Social Care Levy illustrates this perfectly – announced in September 2021, implemented in April 2022, then reversed in November 2022. Including the primary threshold alignment in July 2022, this required businesses to update payroll systems three times in 12 months at significant cost. New rules are rarely designed with automation in mind, and software developers who must ultimately make these rules work are excluded from the design process, leading to unworkable or inefficient requirements.

Making isolated, piecemeal changes to individual taxes leads to ever greater complexity and unpredictability. Taxes such as stamp duty land tax, business rates and council tax are widely regarded as inefficient, unfair and distortive; yet the structural reforms needed to address them – including moves towards more proportional property taxation – remain politically contentious. It is widely accepted that we could objectively improve the system by integrating income tax and national insurance, by removing the unintentionally high marginal tax rates created by benefit and allowance withdrawals, and by moving towards a simpler, more broad-based VAT.

Yet these common-sense reforms never happen. Consider VAT: removing zero and reduced rates on food, children's clothing and other currently relieved goods might create significant hardship and political backlash in isolation. But the same reform, implemented alongside a reduction in employers' national insurance contributions and targeted household support, could be both economically beneficial and politically viable. One problem is that the government lacks the robust data infrastructure needed to design and evaluate such integrated packages with confidence. This is compounded by policymakers routinely using tax to pursue non-fiscal goals when other policy tools would be more efficient and effective, adding further layers of complexity to an already unwieldy system.

On paper, the UK does have a tax policymaking framework. In practice, however, it is applied inconsistently at best. Recent updates to the Tax Policy Making Principles signal a concerning shift towards "agility" – a euphemism that risks meaning less consultation, or consultation with a narrower group of stakeholders. The informal early engagement with professional advisers that once allowed implementation problems to be identified before legislation was drafted has been progressively curtailed, with no systematic replacement. The result is policy that enters the legislative pipeline with avoidable flaws already baked in.

This cycle of constant adjustment actively undermines UK competitiveness, creates unnecessary costs for taxpayers and erodes public trust in the fairness of the system.

The solution: a coherent system for tax policy

To break this political deadlock requires a fundamental reform built on a simple principle: separate long-term strategy, technical implementation and political decision-making. Each function needs its own institutional home, working in sequence to guide tax policy from strategic vision to practical reality.

1. The Commission on Tax: setting the destination

Some structural questions are beyond the reach of normal politics because the electoral cycle gives no government the time horizon or the political cover to confront them. There is already broad expert agreement on the principles of good tax design and the relative efficiency of different tax bases. What has never happened is a sustained, structured debate about what acting on that analysis would mean: the balance between property, consumption and income taxes, who would bear the cost of any rebalancing, and how individual taxes should interact with one another and with the wider policy toolkit. 

Commissioned by parliament with an 18-24-month remit, the Commission would have balanced membership including tax professionals, economists, software developers, parliamentarians and business leaders. It would explicitly consider what data infrastructure is needed to support evidence-based policymaking, how to ensure new tax rules can be efficiently automated, and how to better align tax rules with financial reporting where appropriate.

The geographic scope of the Commission and its relationship with devolved tax authorities would need careful definition. Business rates and council tax are central to devolved and local government finance, and Scotland and Wales already operate different approaches. The framework would need to accommodate devolution while maintaining UK-wide coherence where appropriate.

The Commission's output would be a framework for national taxation – a clear end goal for the UK tax system. Parliament would then need to formally adopt this framework, creating a democratically endorsed national objective that guides all future reforms. The framework could be refreshed every ten years, ensuring it remains responsive to changing economic, social and other policy needs.

This approach has international precedent – and the precedent is as instructive in its disappointments as in its achievements. Australia's Henry review, New Zealand's Cullen review and Ireland's Commission on Taxation and Welfare were all independent, time-limited bodies that produced rigorous, comprehensive blueprints for reform. Yet in each case the most ambitious structural recommendations went largely unimplemented, and several of the weaknesses they identified remain substantially unaddressed. The reason is telling: the shortfall lay not in the quality of the analysis but in the absence of any mechanism to carry it forward once the report was delivered – no means of converting a respected document into sustained political action. The result has too often been a frustrated awareness of what should be done without the institutional means to do it. That is the gap this model is designed to close. Requiring Parliament to formally adopt the Commission's framework gives the analysis a standing that a report alone has never commanded – not a guarantee that every difficult reform will follow, but a durable, democratically endorsed direction of travel that survives beyond the parliament that creates it, and a permanent Office for Tax to hold subsequent governments to it.

2. The Office for Tax: managing the journey

With the destination established, an ongoing function of independent oversight and technical support is required. The Office for Tax would be established as a statutory body with multi-year funding and a duty to report directly to Parliament. Board members would be appointed through an independent public appointments process, with the Chair subject to pre-appointment scrutiny by the Treasury Select Committee. 

The Office would complement existing oversight bodies: the Office for Budget Responsibility (OBR) would continue to provide independent fiscal forecasting and, building on its existing forecast-evaluation work, would lead the assessment of whether implemented measures delivered their forecast fiscal and behavioural outcomes. The National Audit Office (NAO) would provide audit delivery, and the Treasury Select Committee would provide parliamentary scrutiny. The Office's distinct mandate would focus on tax policy coherence, technical quality and simplification.

This permanent presence creates institutional memory, maintains coherence across the tax code as individual changes accumulate, and ensures that hard-won insights are not lost between parliaments.

A reformed legislative process

For any significant tax legislation, a new process would ensure technical excellence, operational readiness and democratic legitimacy:

For major structural reforms – such as merging income tax and national insurance or replacing council tax and business rates with a proportional property tax – a citizens' assembly could review proposals before parliamentary debate. There is growing evidence that citizens' assemblies, through careful deliberation, are often more willing to support difficult but necessary change than either the general public or elected politicians. This process can help build broader consensus for reforms that might otherwise be considered politically impossible.

The benefits: more control, not less

This system delivers stability, legitimacy and, paradoxically, more effective government control. By establishing a durable, cross-party framework, it provides the certainty businesses need for long-term investment – a prerequisite for sustainable growth.

The process enhances democratic control through transparency, expert input and public deliberation. It helps build consensus for significant, long-term reforms that are currently impossible. By making the case for reform more visible and credible, the system begins to close the acknowledgement gap.

A simpler, more stable tax system is far easier to forecast. Better data, clearer rules and systematic evaluation mean that policy adjustments achieve their intended effects with greater precision. Government trades the chaotic freedom to constantly tinker with little knowledge of the precise outcome for the genuine power to steer the economy with confidence and accuracy.

By embedding automation considerations, software developer input and operational readiness checks into the design process, far fewer measures would reach implementation with practical problems unresolved.  Better data enables more effective targeting of policy interventions. A permanent institution focused on simplification creates systematic pressure against complexity creep.

The choice ahead

Meaningful change requires more than adjusting the existing process; it demands a new system. The model proposed here – a time-limited Commission to set the destination, an independent Office for Tax to provide technical support and maintain system coherence, and democratically accountable government at the controls – provides a credible path to break the political deadlock that prevents sensible reform.

First, however, we must close the acknowledgement gap. The tax system can be better. It should be better. And with the right institutional architecture, it will be better. The choice is clear: continue with the perpetual, damaging instability of the current system, or commit to building a durable tax policy framework for national prosperity.