At the launch last week of a report by thinktank Reform, entitled, Reality Check: Fixing the UK’s Tax System, Hoban said the UK needs to move towards a territorial tax system, a regime which would not seek to tax profits earned overseas.
He said: “We need to acknowledge that the current tax system is based on a rather imperial concept – that companies based in the UK should have their profits taxed wherever they are by the UK Treasury, with exceptions and so the principle is that everything is taxed here, with exceptions.
“In a modern global economy in the 21st century, we need to move away from that so we are really focusing on taxing profits that are made here in the UK and that is one of the concepts we need to expand and discuss in the course of the next few months.
“It is a complex process moving from the current system to a territorial system of taxation but it is the right direction and one we need to work very closely on in collaboration with the industry and tax advisers to get the transition right.”
Hoban said it is vital that corporate Britain knows the direction in which the UK tax system is heading as uncertainty hinders economic efficiency.
He said: “Uncertainty means it is hard for businesses to plan for the long term. It creates economic inefficiency, people hang back because they are not sure what is going to happen next. We have proposed some fundamental reforms to the making and scrutiny of tax policy to tackle some of the issues over certainty, predictability and stability.”
VAT’s the way to raise £15bn
The Reform thinktank has put forward a set of tax policy recommendations which it estimates would raise £16.7bn in the next three years.
Its report, Reality Check: Fixing the UK’s Tax System, calls for a broadening of the VAT base to raise additional revenue of £15bn.
It proposes increasing cash benefits by 7.5 per cent to compensate the poorest three decile groups of households for this change. It says: “All zero and reduced rates should be scrapped. Increasing revenue from VAT is preferable to increasing the burden of income tax and one uniform rate is more efficient and less distortionary.”
It says, on average, only households on incomes above £17,000 would face a hike in their VAT bill.
Reform also recommends scrapping the 50p income tax rate and reversing the restrictions on pension tax relief, reducing National Insurance contributions and replacing personal allowances with a zero-rate threshold.
It argues against recognising marriage in the tax system, saying it is inconsistent with the direction of tax systems across the world which take a more neutral approach. It says: “This will not achieve the objective of halting the decline in marriage in the UK so will not be money well spent. The transferrable tax allow ance has been costed at between £600m and £3.2bn, depending on the design.”