LOUIS XIV’S FINANCE minister, Jean-Baptiste Colbert, famously declared that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” When it comes to taxing companies, a modern finance minister might rephrase this as “the largest possible amount of revenue with the smallest possible amount of economic and political damage.”
We have doubled the number of taxes — Reeves must start the cull
There were 43 types of tax in the UK in 1993 and now there are 90. The case for simplification is clear
Britain has 90 taxes. That is more than at any point since the 1830s, when the country was still clearing up after the Napoleonic Wars.
I know, because we counted them all: from the Danegeld paid to buy off the Vikings, to the vaping duty arriving this October. The result is a chart that tells a story of a modern state and tax system created out of desperation, rationalised by the Victorians, mobilised to fund the huge wars and social projects of the 20th century, then slipping back into chaos.
The number of taxes spiked once before, around 1800. A government fighting France and building a modern state grabbed money wherever it could find it. There was one large measure, which, it was promised, would be strictly temporary: income tax. And then a riot of tiny, specific levies on dogs, wigs, hair powder, eggs, clocks and servants, even coats of arms. It was chaos, but understandable chaos, a desperate Treasury throwing everything at the wall.
After the war ended, the hated income tax was swiftly abolished but the nation was still left with all the tiny taxes.
A generation earlier, Adam Smith had set out the principle that taxation should be certain, economical and convenient rather than arbitrary and fragmented. That call was now taken up by a small band of reformers, most of whom have been forgotten. Perhaps the most influential of them, William Huskisson, president of the Board of Trade, is now relegated to a pub quiz question (he was the first man to be killed by a passenger train, aged 60).
So while there were more than 100 different taxes in 1800, by 1900 there were 50.
Then there were small temporary surges in the number of taxes, brought in to fund the First and Second World Wars, but the tax mayhem and bankruptcy of the 1970s did not lead to an explosion of new taxes. EU membership in 1973 meant that all the older sales taxes were swept up into VAT (a simplification, not a tax increase). Nigel Lawson, as chancellor from 1983 to 1989, famously abolished a tax every year. And so, while there was a vast increase in the size of the state in the 20th century, and the economy became spectacularly more complex and diversified, by 1993 the number of taxes had fallen to 43.
This was not inevitable. Bureaucratic self-interest and inertia could have meant very few taxes were abolished, and permitted many more to be created. We know this because the French have kindly been conducting a 100-year controlled experiment into what happens if you don’t prune your tax system. The result is that they have 348 taxes.
After 1993, the number of British taxes started to climb. Some of the newcomers were defensible: environmental taxes did not exist before the 1990s; devolution created new Scottish and Welsh taxes; levies on plastic bags and sugary drinks do a job. But a lot of it is just political habit. A new tax sounds painless and makes a good headline: multiple overlapping bank taxes, a blizzard of special taxes on the energy sector, an array of different taxes on gambling. Each one came with a speech. None has had a repeal date. The result is that we have 90 taxes.
This was, also, not inevitable. Care and discipline could have been employed so that the tax system did not become increasingly complicated. We know this because the Germans have kindly been conducting a 100-year controlled experiment into what happens if you regularly reform your tax system. The result is that, while the overall level of tax in Germany is much higher than in the UK, they achieve this with only 60 taxes.
By contrast, we doubled the number of taxes in a single generation — without a comparable increase in the overall tax burden. The result looks less like a designed system, and more like a giant game of Jenga, in which every chancellor adds another block to the top and nobody dares touch the relics rotting at the bottom. My favourite relic is “bearer instrument duty”, a tax on a type of shares that no longer exist, which raises no money, and which the government tried and failed to abolish only last year. If we can’t fix that, we can’t fix anything.
Does the clutter matter if the small taxes raise so little? Yes, because every tax is a cost even when it raises nothing. Each one means another set of rules, another HM Revenue & Customs IT system, another adviser, another form, another thing a business must check before it invests or hires. The Tax Foundation, a think tank based in Washington DC, ranks France — with its 348 separate taxes — last in the developed world for tax competitiveness. We are not far above. There are many countries with a far higher tax take than the UK but which are ranked as more competitive: Germany, Sweden, Norway, even Greece. Complexity frightens businesses more than the headline rate.
Of course, complexity is not measured solely by the number of taxes. A single badly designed tax can be more burdensome than ten simple ones. But a proliferating number of taxes is usually a symptom of a system losing discipline.
And here is the good news, which is rare in tax. Clearing out the junk would cost next to nothing. The small taxes raise so little that abolishing them would have little effect on the Exchequer.
Rachel Reeves could take a leaf out of Lawson’s book, abolish a tax a year and barely lose a penny of revenue. It would take courage, because every silly little tax has a defender somewhere. It would also take some work. She would need to look at the complexity within taxes, as well as the individually pointless taxes. But radical simplification is one of the few moves available that is genuinely cheap, pro-growth and popular. We did it after Waterloo. We can do it again.
Dan Neidle is a tax lawyer and the founder of Tax Policy Associates, a think tank
