budget damages certainty

The Chartered Institute is concerned that the 2006 Budget has damaged certainty and consultation. Reflecting on the Budget, the CIOT notes that the Chancellor of the Exchequer was educated at Kirkcaldy and Edinburgh, the birthplace of another famous Scottish economist, Adam Smith who once said “The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person”.

Examples include:

• Whilst it could be argued that everyone has been warned by HM Paymaster General that retrospective legislation was a future possibility, revisiting motives retrospectively is difficult.
• Organising a business to assist a government-encouraged initiative, e.g. the Home Computers Initiative, runs the risk of being too successful and being subsequently cancelled.
• The new declaration to be signed by those seeking a special method for VAT recovery requires them to plead not guilty to an, as yet undetermined and arbitrarily defined offence.

The Chartered Institute of Taxation has long argued that proper consultation is the only valid way to make effective changes to our tax system and welcomes the establishment of a body whose responsibility would be to advise on UK tax competitiveness. Stephen Coleclough comments,“Are we seeing the death of the consultation process, or is that only used when HMRC wish? In the areas of Trusts, computers at home and Tax Return filing dates, there has been no consultation on what amounts to a major reversal of government policy. On the Trusts reform, after two and a half years of consultation, it would now appear that that consultation has proceeded on an entirely false premise”.

Whilst recognising Parliament’s powers to change the law as they wish, there are good ways of doing so and, as this Budget has shown, also bad ways.