David Gauke – 2017 Speech at Conservative Party Conference

Below is the text of the speech made by David Gauke, the Secretary of State for Work and Pensions, at the Conservative Party conference held in Manchester on 2 October 2017.

In 2010, our economy faced a crisis.

We were borrowing more than at any time in our peace time history.

Unemployment had risen by nearly 850,000 in the previous two years, we had just under 4 million workless households.

Our welfare system had become much more expensive, increasing in real terms by £82 billion over 13 years. But we still had a dysfunctional benefit system that failed to properly reward work and left too many trapped in a life of dependency.

And where are we today?

Youth unemployment down by over 400,000
Long term unemployment down by 400,000
600,000 more disabled people are in work

Today, do not let anyone forget, there are over 3 million more jobs in this country than seven years ago.

And only a very small minority of those jobs have been filled by George Osborne!

This country’s remarkable jobs story is one of the reasons why it is such a privilege to have been appointed Secretary of State for Work and Pensions, to build on the work of Iain Duncan Smith, Stephen Crabb and Damian Green.

Helping millions into work is not the only way the department supports those in need:

We have established auto enrolled pensions. By the end of August, over 8.5 million people had been automatically enrolled into a workplace pension.

We are giving employers the tools they need to recruit, retain and support disabled people. Almost 5,000 employers have signed up to the Disability Confident scheme so far, and this number is growing rapidly.

And I’d like to thank my excellent ministerial team. Penny Mordaunt, Damian Hinds, Caroline Dinenage, Guy Opperman and Peta Buscombe. I’m fortunate to have such a strong team and I would like to thank them – and all the department’s frontline staff up and down the country – for all that they do.

The work that we do touches on the lives of millions of our fellow citizens.

We know that to improve the living standards of the poorest in society, we need a strong economy and a job creating economy. Without the tax receipts that a strong economy provides, we cannot support those that need it most. And we also know that it is through work that people have a chance to progress and to provide for their own economic security.

As Conservatives we do not believe, we have never believed, that we can turn our backs on those most in need.

As Conservatives we believe in a strong and compassionate welfare state that helps everyone fulfil their potential.

In truth, the strength and compassion of a welfare system should not be measured just by the money you spend, but by the lives you transform.

Among the people that need more support are those with mental health conditions.

Helping them has rightly been a priority for the Prime Minister. The UK is increasingly a world leader in treatment and Jeremy Hunt is doing great work here. We understand more than in the past that mental health conditions are a barrier to work but, if we can help people into employment, for many, work can be part of the solution.

That’s why we have trained 1800 Universal Credit work coaches in how to support claimants with mental health issues. To further support Jobcentre work coaches, we have developed an enhanced mental health training programme. Following testing, I can therefore confirm that by the end of the year, it will be made available to all those work coaches who would benefit from it.

Of course, there are some people who suffer from such severe disabilities that they will never be able to work. Last year, my predecessor, Damian Green, announced that we were looking to exclude those with severe lifetime health conditions from any requirement to be reassessed for out-of-work benefits. After early tests of this approach, it has now been implemented and I can tell you that around twice as many people are expected to benefit from this reform than were originally thought.

It is right that we focus our disability benefits on those that need it most. We will support those who are unable to work, while helping those who can work to maximise their potential.

And this is consistent with our approach to the welfare system. An effective welfare system is about eliminating the barriers to work. And it is working, with an employment rate higher than the US, and an unemployment rate half that of the Eurozone.

Of course, we should acknowledge the importance of the job creators in this country. The entrepreneurs, the businesses that have created opportunities, taken on staff and given people the chance to earn a living, and support themselves and their families.

And we should celebrate the determination of the so many of the British people to get in work and to stay in work, so often showing an ability to adapt and be flexible.

The phrase ‘hard working families’, is sometimes seen as a bit of a politicians’ cliché. (And, frankly, it is.) But it is also a fair description of so many people in this country.

Our job-creating businesses and our hard-working people. They are the real heroes of the British economy. And the Conservative Party will always value them and always be on their side.

But let us not hide our light under a bushel. Even with all the excellent businesses out there and our industrious workforce, the British jobs miracle would not have happened without the measures we have taken in government.

The cuts in income tax that meant the low paid could keep more of what they earnt.

The cuts in corporation tax that have encouraged investment.

And the welfare reforms that have put work at the heart of our system – ensuring better results for claimants, and fairness for the people whose taxes pay for it.

All of this has meant that every day we have been in office, 1114 jobs have been created. A remarkable achievement.

I talk about work a lot. After all, it is in my new title.

But we should all talk about it – we have a great record.

I have given you the statistics, but these are not abstract numbers. These are lives transformed, prospects raised, economic security provided. We should be proud of that.

And let us be very clear. None of that would have happened had Labour been in power. And all of it would be put at risk if Jeremy Corbyn and John McDonnell got their hands on the British economy.

The unreconstructed socialism they offer has failed every time and in every country it has been tried.

Let me tell you who would pay the price if they got the chance to inflict their failed ideology here. It wouldn’t be the super-rich – they’d just up sticks and move abroad. But it would be:

– those struggling to get by
– the hard pressed worker who couldn’t afford higher taxes
– the person who lost their job when a business pulls out of the country
– the young person who can’t even get on the jobs ladder because of higher unemployment.

There is nothing compassionate about destroying the public finances, driving out businesses and passing on huge debts to future generations.

And remember, unemployment always increases under a Labour government. Even when the relatively sensible ones were in charge!

We have achieved much, but there is more to do.

We inherited a welfare system that puts in place barriers to people fulfilling their potential.

The person working part time, worried about working more than 16 hours a week because they will move from one set of benefits to another – and then will have to move back again if there is a fall in their hours.

The worker reluctant to take on more responsibility because they’ll lose almost as much from reduced benefits as they gain in pay.

The person who just wants to do all they can to provide for themselves and their family.

Too many lives have been held back by a complex benefits where progressing in work is seen as a risk not worth taking.

That is why Iain Duncan Smith came forward with Universal Credit, the most radical reform to our benefits system since the Second World War. Scrapping six benefits and replacing them with one and ensuring that work always pays. And, a point that should be appreciated more, we are giving claimants the increased personalised support of work coaches. They are working with claimants to help eliminate their barriers to work.

It is the right vision and I want to pay tribute to Iain for having the courage and determination to pursue this transformative change.

In 101 job centres up and down the country, it is already in operation. The evidence is already clear. It is helping more people into work and it is helping more people in work to progress to better jobs.

Delivering a simpler system that encourages work and supports aspiration.

I understand the concerns that have been raised that, when people first claim, they have to wait six weeks or more before they receive a penny.

It is the case that what you get in Universal Credit depends on what you have earned over the previous month, so payments are made in arrears.

But I am determined to ensure that those who need support earlier in the month will get it. It is already the case that if people need help before the first full benefit payment, they can quickly get an advance to help tide them over.

Increasing numbers of people now claim this – since June, the majority of claimants did so. However, I can announce today that we are refreshing the guidance to DWP staff to ensure that anyone who needs an advance payment will be offered it up-front. Claimants who want an advance payment will not have to wait six weeks. They will receive this advance within 5 working days.

And if someone is in immediate need, then we fast track the payment, meaning they will receive it on the same day.

Universal Credit is working. So I can confirm that the rollout will continue, and to the planned timetable. We’re not going to rush things – it is more important to get this right than to do this quickly, and this won’t be completed until 2022. But across the country, we will continue to transform our welfare system to further support those who aspire to work.

Universal credit is the next step on our journey. A journey to a welfare state that gives people the help that they need but does not trap them in dependency.

A welfare state that believes we have to support the vulnerable but that simply signing a cheque is not enough.

A welfare state that is on the side of all of those who aspire to fulfil their potential.

It is a vision of the welfare state that is compassionate, practical and aspirational. It is, in short, a Conservative vision for a modern welfare state

David Gauke – 2016 Speech on Digital Tax

davidgauke

Below is the text of the speech made by David Gauke, the Financial Secretary to the Treasury, in Carlisle on 18 February 2016.

Good afternoon – it’s very good to be up here in Carlisle with you.

I am very grateful to Karen Thomson for inviting me to this event. Karen has been an influential voice on payroll matters for many years: a real expert, and one who I know is highly respected and widely listened to in the industry and beyond.

I’d also like to thank John Stevenson for hosting me in Carlisle. John has been a highly effective voice for Carlisle, particularly for small businesses, highlighted by the excellent work he has done for the community following the recent floods. And later on today, I’m looking forward to meeting some of Carlisle’s small businesses and residents.

This is now my 6th year as minister responsible for tax. It’s been quite a ride!

I occasionally cast my eye back to 2010 – when the economy really was in a bad way, when the global markets were beginning to doubt us, and when we were spending too much and earning too little.

It’s been a long journey back from the brink. Plenty of tough decisions along the way. And plenty of real achievements too.

Every decision we have made in the Treasury has had one goal: to secure the UK’s long term economic prosperity.

That means finding efficiencies in what we spend; modernising how we run the country; helping the private sector create jobs and deliver economic growth, all over the country; opening ourselves up to the world’s fastest-expanding economies, and making sure that we are as internationally competitive as we can be.

Tax lies at the heart of that.

There are a lot of ways in which the tax system can help support growth – and a lot of ways in which, applied in the wrong way, it can do enormous damage to a nation’s economy.

And I could talk at quite some length about what we have done since 2010 – our cuts to the corporation tax rate, for instance, or our increases to the investment allowance, or the work we’ve put in to make the international tax system fit for the 21st century. I’m of course very happy to answer questions on those topics!

But today, I’d like to focus on an aspect of tax which is perhaps closer to home: about how we are modernising the system by which taxes are paid.

I’m sure that the memory of filling in this January’s tax return will be fresh in your minds. You’ve almost certainly had more pleasurable experiences! Nobody enjoys paying tax; that’s one of the things I don’t think any government can change.

But what we can do is make it easier.

The system now has, quite simply, not kept up with the march of technology.

You have taxpayers taking out 18-month old records, staring at them for a while as they try to figure out what they were doing back then, and then tentatively use them to fill in a lengthy HMRC form.

Or they can go to their accountants, drop a large carrier bag of records on their desks, and get them to work it all out. Then they pay their final tax bill on money made up to 21 months previously.

It’s a system designed for a world of paper, ledgers: book-keeping in a literal sense.

Now compare that to the way we carry out other activities.

Shopping for groceries online … making a GP appointment online … sorting out your road tax from the DVLA website in just minutes … paying your invoices off a smartphone at 4am if you want to!

Business are harnessing the opportunities of the digital age too, fundamentally transforming their operations and the services they provide. It’s the customers that reap the benefits.

That is the context of our reforms to HMRC.

It is only right that the government keeps pace with the world around us. That is why we are seeking to transform HMRC into one of the most digitally advanced tax administrations in the world. Making tax digital is at the heart of these plans.

At the Spending Review, the Chancellor announced a £1.3 billion investment in HMRC to make this vision a reality. This will see the end of the annual tax return, and, in its place, will introduce simple, secure and personalised digital tax accounts for businesses and individuals.

Importantly, these changes deliver what businesses and individuals have told us they need.

In particular, many businesses have said they want more certainty over their tax bill, and don’t want to wait until the end of the year, often longer, to find out how much they have to pay.

Businesses have also said they want tax to be more integrated into the way they run their business, rather than something done separately, and many months later.

The use of digital tools – accounting software or smartphone apps – will, for the first time, create this desired integration.

Importantly, taxpayers would have 24/7 access to digital accounts, as well as having a complete view of all their tax liabilities and entitlements, allowing them to send HMRC information and payments simply and efficiently.

Businesses will be able to see in their digital account what each update means for their tax position as the year goes by.

This will also make it easier for business to understand how much tax they owe, giving them far more certainty over their tax position, helping them budget, invest and grow.

Unnecessarily bureaucratic form-filling will be eradicated – taxpayers will not have to tell HMRC information it already knows.

And unnecessary time delays will also be eliminated, because the tax system will be operating much more closely to ‘real time’. This will keep everyone up to date, removing the risk of missed deadlines, unnecessary penalties, debts arising and errors in the tax system being carried forward from one year to the next.

Beyond helping businesses get their taxes right, making tax digital will also help them improve and develop their business. Targeted guidance and alerts will make them aware of relevant entitlements and reliefs, or wider government services to support business growth.

Apart from the modernisation of business practices, there is another important prize – one we cannot ignore. Each year around £6.5 billion of tax goes unpaid because of mistakes made by small businesses when preparing and filling in their tax returns.

These reforms will improve the quality of record keeping, reducing the likelihood of mistakes and contributing £920 million to the Exchequer in additional revenue by 2020, then £600 million a year thereafter.

This is good news for businesses – and good news for the Exchequer too.

But with big changes come challenges and concerns. So I would like to take this opportunity to address some of these concerns; because I do not underestimate the scale of these changes, and it is important that we get this change right.

First of all, this transformation does not – repeat, not – mean four tax returns a year.

What it means is that by 2020, most businesses will be keeping track of their tax affairs digitally, updating HMRC at least quarterly via their digital tax account.

Importantly, these quarterly updates will not involve the complexity of a full tax return, where the business, or their agent, has to gather together and manually input data onto an electronic or paper form, and then perform various calculations.

Instead, updates will be generated from digital records and in most cases, little or no further entry of information will be needed. It will be much quicker, easier and far less burdensome than the current process. The agony of the annual tax return will be a thing of the past.

Second, I make no apologies for the scale of our digital ambition.

With the government and local authorities investing £1.7 billion to bring superfast broadband to over 95% of the UK by 2017, this is possible.

And the Prime Minister announced at the end of last year that we are looking to implement an updated broadband Universal Service Obligation for those not covered by the superfast plans.

Some have said that it is overly ambitious to rely on digital as the primary channel. The fact is that we are going with the grain of the way small businesses are already moving. The benefits of digitisation are readily accepted by the majority of small- and medium-sized organisations.

And whilst there has been plenty of debate on the challenges – a lot of that online – I am heartened see that many businesses, and their agents, are already forging ahead. Already, 2 million small and medium-sized businesses are using software for their payroll and their VAT.

We’ve also seen the rise of companies providing digital accounting services, using exactly the sort of technology and processes that will be needed when we make tax fully digital.

Just last week, I met FreeAgent, one such company, whose software is already being used by 45,000 customers. And we are working with other innovative firms, such as Intuit and Xero. That is where the market is heading.

HMRC, too, stands ready to deliver the digital agenda.

The HMRC performance figures for this year bear repeating.

This year saw a reduction of almost a quarter in the number of people submitting a paper tax return – that’s over 340,000 fewer people doing things the old way.

Meanwhile, the percentage of people using online filing has increased once more – from 85% to 89%.

More than 825,000 customers accessed their Personal Tax Account as they completed their tax returns.

Over a quarter of a million customers used HMRC’s virtual assistant in the last 3 weeks of January.

Over that period, HMRC staff assisted in more than 114,000 webchats.

And because of these digital advances, the number of phone calls to HMRC in January from people seeking assistance to complete a Self-Assessment return has fallen by over 50% in the last two years.

As our society increasingly looks for new, more convenient, ways of doing things, HMRC is well placed to meet – and to manage – these demands.

Third, I acknowledge the concerns raised about the pace of these reforms. There were similar concerns around online filing and real-time information. However, HMRC’s impressive track record in implementing those changes speaks for itself – working with interested parties we can match this success.

Fourth, I have heard concerns about these reforms being mandatory, rather than on a voluntary basis.

We examined this proposal very carefully at the start of the process.

We concluded that a voluntary approach would cost the same, but deliver only a fraction of the benefits for business and the Exchequer.

In the current fiscal environment, without the additional revenue generated by closing the tax gap, we couldn’t have provided the £1.3 billion investment required to transform services for all taxpayers.

Fifth, there have also been concerns raised about the fact that we risk leaving some customers behind.

So let me be clear. It is vital that support is there for those who need it, and that is what we have committed to do.

For instance, we have already said we will ensure that free software products will be available to businesses with the most straightforward tax affairs.

We accept that some – a very small minority – will be unable to adopt digital tools due to geography, personal disability or other circumstances. In those cases, help will be provided. There is absolutely no question of forcing those who cannot go digital to do so.

We will consult business and representative bodies to fully understand who cannot get online and what support they need; and we will ensure we provide alternatives – over the phone, through face-to-face visits or through partners in the voluntary and community sector.

Implementation will, of course, be vital. It is important we get this right – so that, as well as transforming the way millions of people pay tax, these reforms can provide the maximum benefit for business and the UK.

We are already talking to a wide range of business, agents, software developers and professional bodies.

There will be a wide-ranging consultation exercise starting in the spring, in which I would urge you all to get involved.

We are introducing these reforms gradually – not phasing them in fully until 2020, because we know how important it will be to give taxpayers time to adapt.

We are using volunteers to stress-test new services, so we can be confident these new services work before we roll them out.

Because the benefits – if we get this right – are considerable. We will reduce burdens on business, reduce the tax gap, and bringing tax administration well and truly into the digital age.

These reforms are an important part of our wider tax policy:

Taxes which are internationally competitive, so that our country continues to attract the brightest and the best;

Taxes which are paid in full and on time, helping provide the public services we all depend on;

And taxes which are simple to pay and manage. Because the less time businesses spend working out what to pay, the more time they have to do what it is they do so well:

Innovate … expand … create jobs … create growth … create profits … and contribute to Britain’s economic recovery.

That’s the system that, with your help, we are creating.

Thank you – and I’ll be delighted to take some questions.

David Gauke – 2012 Speech on Tax Avoidance

davidgauke

Below is the text of the speech made by David Gauke, the then Exchequer Secretary to the Treasury, on 23 July 2012.

Good morning. I am delighted to be back again at Policy Exchange to discuss an aspect of tax policy. On this occasion, the important and topical issue of tax avoidance.

At a time of economic difficulty, when tough decisions have to be made on public spending and when the burden of taxation remains high, there is little sympathy for those who do not make their full contribution. For those who work hard and pay their taxes, it is galling to see others shirk their responsibilities on either front.

But for there to be a sensible public debate on this complex issue, it is crucial that we understand the facts and the UK’s position. Tax avoidance is not a recent problem. In the fourth century AD, the Roman Emperor Valens had to make it illegal for individuals to sell themselves into slavery to avoid tax. And while this particular ruse seems to have fallen out of fashion, there will always be some who seek to shirk their civic duty. Just like every country at any time in the history of government, there is still work to do to ensure every pays what they should. But it is important to get a sense of perspective on our position – both in the context of recent history, and internationally.

While there is reason to be more optimistic and more grateful than headlines suggest, we are building on the work we have already done to make life difficult for those who artificially and aggressively reduce their tax bill. Today, I can announce a consultation on proposals to crack down further on those that seek to push abusive tax avoidance schemes and make it easier for taxpayers to identify such schemes when they are on the end of a hard sell by a dodgy promoter.

First, it is important to recognise the scale of the problem. Last year, HMRC collected £474 billion in tax. The tax gap – the difference between what is owed and what is collected – is about £35 billion. Tax avoidance (as opposed to tax evasion, the hidden economy, criminal attacks and other aspects of the tax gap) accounts for just 14 per cent of this gap – around £5 billion or about 1 per cent of total liabilities. While that may be too high – being as it is more than zero – evidence suggests it’s probably one of the lowest in the world. That’s because, contrary to some claims, the vast majority of UK taxpayers do not aggressively avoid tax; and yes, that includes the vast majority of wealthy individuals and multinational corporations, as well as the vast majority of ordinary working people and small businesses.

If anyone is tempted to believe that tax is optional for the wealthy, remember that The top 1 per cent of individuals by income pay 26 per cent of all income tax, and the top 0.1 per cent (just 30,000 individuals) pay around 11 per cent. Large businesses pay around 60 per cent of all taxes in the UK, but account for around only a quarter of the estimated the tax gap.

And where HMRC finds tax avoidance, it takes action – many who have been investigated have been disappointed when the false claims that it is soft on the rich and powerful turn out to be unfounded.

For those not immersed in matters relating to tax, the debate on tax avoidance can be a confusing one, not least because the term ‘tax avoidance’ can be used somewhat loosely.

Legitimate use of reliefs is not tax avoidance:

Claiming capital reliefs on investment is not tax avoidance – when those reliefs were introduced precisely to encourage the investment in question.

Claiming reliefs against double taxation is not tax avoidance – when the alternative would be taxpayers paying tax twice on the same income.

Claiming back tax on legitimate charitable donations is not tax avoidance – any more than ticking the ‘gift aid’ box is.

Not paying tax on your pension contributions is not tax avoidance.

Taking out a tax free ISA is not tax avoidance.

Clearly, the examples I have listed represent perfectly reasonable tax planning – making use of reliefs for the purpose they were intended, and ensuring one pays only what one is liable for.

Now I would hope this would be obvious to anyone who understands the purpose of reliefs. Yet some estimates of the tax gap count use of these reliefs as ‘avoidance’.

That is what avoidance is not. But artificial structures that aggressively exploit reliefs contrary to parliament’s intended purpose through contrived, artificial schemes fall very clearly into the definition of avoidance.

Buying a house for personal use through a corporate entity to avoid SDLT is avoidance.

Channelling money backwards and forwards through complex networks for no commercial reason but to minimise tax is avoidance.

Paying loans in lieu of salaries through shell companies is avoidance.

And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.

These kinds of schemes are where we are focussing our efforts, and they are all, to borrow a phrase from the Chancellor, ‘morally repugnant’.

These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence. And they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of others enjoying a free ride.

Now those who have engaged in tax avoidance have received their share of public scrutiny recently, to say the least. But often it is the firms that market such schemes that are the root of the problem. Some firms will adopt tactics that border on mis-selling – promising large tax savings, and saying the arrangement is unlikely to be challenged. Those who enter into the schemes are often shocked to find that HMRC pursues them relentlessly. Often they lose a lot of money, a lot of time, and their right to confidentiality due to the resulting tax tribunal. Just this month HMRC won a long-running legal challenge against a large avoidance scheme first marketed ten years ago by a ‘big four’ accountancy firm that ultimately gave nothing for the substantial fees that those participating paid for it.

There are those who may argue that “if it doesn’t involve lying to the Revenue, it’s OK” regardless of how artificial or contrived the arrangements may be. But for most people in the tax world, there has always been such a thing as a “smell test”. Where the tax consequences of an arrangement are so clearly contrary to the intentions of Parliament, where the nature of the arrangements so clearly lack a commercial, non-tax rationale and where the result looks “too good to be true”, most reputable advisers would say that the arrangements stink – and stay well clear.

But for the taxpayer, there may be times when it is not clear if an arrangement is legitimate tax planning or contrived avoidance. It is up to us as Government to make clear the features of dodgy schemes so that taxpayers can take ownership of their affairs and know that HMRC will challenge aggressive tax avoidance in all its forms.

Today we consult on ways to improve the information available to the public on avoidance. Publishing warnings for all to see, and making it easier for taxpayers to see if their adviser has promoted failed avoidance schemes in the past.

The tax avoidance landscape is changing, and it is important that we adapt as it does. I am glad to say that the mainstream view within the tax professions is that contrived avoidance schemes are bad and have no place in an honest, reputable firm. I welcome the recent comments from senior figures in the industry that confirm this – Michael Izza’s statement, on behalf of the Institute of Chartered Accountants, that there is no place in the profession for those involved in egregious schemes; the warning from the Solicitors Regulation Authority, that SDLT avoidance can damage a professional reputation; and the denunciation of those who push abusive schemes by Patrick Stevens of the Chartered Institute of Taxation. Through today’s consultation, I hope we can continue to work closely with professional organisations to ensure that together we stamp out practices that harm the reputation of the industry, as well as the pockets of the honest majority of taxpayers.

That is the view of the mainstream. But we face a problem with a minority – the ‘cowboy tax advisers’. Small, niche firms peddling crude schemes that are unlikely to be successful once they are brought to HMRC’s attention. There has been some excellent coverage in the Times of the sort of thing I am talking about; the so called ‘K2’ scheme, for example, in which a shell company gives out payments described as loans in lieu of salaries.

These firms behave differently to the well-established, reputable advisory firms. They change name frequently to avoid detection; they include ‘fighting funds’ in their fees – pre-empting an inevitable clash with the authorities, and often do not comply in full with HMRC’s disclosure rules.

It is these organisations in particular that we need to raise public awareness of. If I find out my builder has changed trade names three times, avoids informing the planning authorities, and includes in his fee a ‘litigation fund’, I might be tempted to find another builder. But all too often there is not the same awareness around tax advisers.

If there is one lesson to be learnt from the cases exposed in recent newspaper reports, if a tax adviser tells you something that sounds too good to be true, it probably is too good to be true.

So one of the major parts of our consultation looks at how we can make people aware where a company has previously peddled schemes that have been successfully challenged – so that they know there is a strong chance that no good will come of it.

And we are also consulting on how we strengthen our disclosure regime, looking at how the descriptions of schemes covered might be reformed to ensure we capture more, and that we can crack down on those who flout the rules. The Disclosure of Tax Avoidance Schemes regime, DOTAS, has assisted HMRC greatly over the years – closing off around twelve and a half billion pounds in avoidance opportunities. But as the avoidance landscape changes, so must it

We have already extended DOTAS to make it stronger and more effective. In 2010 and 2011 we implemented a number of improvements to the system requiring promoters to provide client information. And this year we legislated to allow HMRC to flush out users of certain SDLT avoidance schemes more effectively.

And the major reforms to the system we consult on today can, informed by our responses, place DOTAS once again at the forefront of anti avoidance measures globally. These and other proposals consulted on will:

Strengthen our descriptions to ensure we close the net around the few schemes that are not already captured.

Clarify what needs to be disclosed.

Require higher quality information on how schemes work.

Require a named individual to take responsibility as promoter for the scheme.

Demand better disclosure of those who use suspect arrangements.

Take further steps to inform the public of the genuine dangers of entering into such arrangements.

Ensure taxpayers know it is in their interests not to go near them.

And tighten the screw on those who refuse to co-operate.

I am confident that we can work with those parts of the industry that act with honesty and integrity, and with everyone else with an interest in promoting fairness and transparency in the tax system to bring about the change we need. We welcome views from representative bodies, tax agents, businesses and individuals, and I would encourage all of you with an interest to offer your thoughts.

There are some who might say that consultation documents on tax administration are often an effective cure for insomnia, but this is one consultation that will keep the promoters of aggressive tax avoidance schemes awake at night.

And while we look at how to strengthen the regime, we will continue to tackle aggressive avoidance wherever it occurs.

Reinvesting money to make sure we stay on top of the fight – £917 million in additional resources committed towards tackling evasion and avoidance over the spending review period, which will bring in around £7 billion per year in additional revenue by 2014.

And last month, we issued our consultation on a General Anti-Abuse Rule, aimed at deterring and tackling abusive schemes with a new rule that is effective against the most egregious arrangements.

It will act as a further deterrent to those engaging in abusive schemes, and improve our ability to secure payment of the right amount of tax.

But it’s important to realise that there is no tax avoidance ‘magic bullet’. No single rule can ever wipe out avoidance completely. The benefits of a GAAR will be considerable but its full effects will take time to be realised, and we should remain ever vigilant against wider forms of avoidance that do not fall within its scope.

Through the steps we are taking, we will build on the excellent compliance record that HMRC has:

Moving swiftly to advise ministers to close 7 tax avoidance schemes successfully in the last year alone -schemes that exploit loss reliefs, or claim relief twice for the same expenditure, for example.

Establishing the High Net Worth Unit in HMRC, to manage the affairs of individuals where the most tax is at stake, ensuring that those who can most afford to pay contribute what they should.

Compliance yield doubling in 6 years

And this month’s closing of the ten year-old scheme I mentioned earlier, used by around 200 wealthy individuals, which will mean recovery of around £90 million of tax at risk. This is the latest in a long line of successful challenges – including a scheme closed in April saving £117 million, and one last year involving allowances of around £1.8 billion.

It is this kind of activity that ensures that avoidance does not pay – upholding the wisdom of the vast majority of those – rich or not, who do not engage in it.

As a result, our compliance record is one of the best in the word. The tax gap in the U.S. is around 14 per cent, compared to 8 per cent here.

It is unfortunate that HMRC’s achievements are sometimes not only under-acknowledged, but undermined by ill informed criticism.

There are those who claim that HMRC is soft on big business. But this ignores the facts that:

£29 billion in additional compliance revenue has been collected since 2006-07 through the Large Business Service, excluding some exceptional items.

Over eleven and a half billion pounds of this was saved through the High Risk Corporate Programme in the last six years.

And, as was demonstrated in February when an aggressive debt buyback arrangement was closed down, HMRC takes decisive action when large corporates engage in contrived tax avoidance.

Instead, the press coverage tends to focus on accusations of ‘backroom deals’ which allegedly cost the exchequer billions. One such accusation in a magazine resulted in the formation of UKUncut. There were protests and arrests and increasingly hysterical accusations as others joined the bandwagon.

HMRC’s strict statutory duty of taxpayer confidentiality meant that it was very constrained in what it could say publicly about the affairs of specific taxpayers and had limited ability to defend itself.

But on this occasion, the NAO commissioned a review, led by Sir Andrew Park, of tax settlements with large businesses. Sir Andrew concluded that all the settlements reviewed were reasonable and the overall outcome for the Exchequer was good. The NAO went on to say that ‘the resolution of the issues by HMRC with the companies in question is welcome’. In the case that has attracted most publicity, Sir Andrew suggested that there may have been grounds for the taxpayer not to be liable for £6 billion, as is routinely reported, nor £1.2 billion (as was the amount settled) but nothing. It is a shame that the media coverage of the positive findings of the report has not been as prominently or as widely reported as the discredited claims that a business was let off billions.

Companies must pay tax in accordance with the law, just like individuals. But it must also be accepted that the tax affairs of companies are often more complex than the tax affairs of individuals. Companies – especially large multinational companies – will have profits and pay taxes in many jurisdictions. As a matter of policy decided by Parliament, our tax system contains characteristics, such as capital allowances, R&D tax credits and interest deductibility that will mean that a company will often pay tax at an effective rate lower than the headline or statutory rate. The fact that that happens is not in itself evidence of avoidance on the part of the company, nor incompetence on the part of HMRC. Parliament can change those characteristics, although in doing so it would have significant implications for the UK as a place in which to do business.

Of course, HMRC tailors its responses to different taxpayers, based on their needs and behaviours and the risks they pose. So it’s inevitable that HMRC needs to take a hands-on approach in some cases, and doing so saves the public millions in legal fees and lost revenue. But let me be clear – when they do so, they are nothing but even handed. HMRC’s aim with any taxpayer is to ensure they each pay the tax they owe and receive the reliefs to which they are entitled, minimising compliance costs and uncertainty through early and open dialogue where there are issues to resolve.

This government has led the charge on ensuring that we keep the UK competitive with lower tax rates for everyone who contributes. That purpose, and the debate around it, is often obscured by unsubstantiated claims and wild accusations from the political fringes. Anyone who thinks that we happily pass up the opportunity to raise revenue while increasing our popularity has probably never met a Treasury minister – or perhaps even a politician. And they’ve certainly never met an HMRC tax inspector!

But we are still determined to do more to maintain a level playing field for all taxpayers, and stop those who seek to game the system at the expense of others. The actions we are taking and our consultation today should reaffirm our determination to ensure that everyone pays their fair share, whether companies or individuals. I hope that with the co-operation and input of all who have an interest in seeing a fair and transparent tax system, we can deliver a system that is robust to those few who might exploit it.

Thank you.

David Gauke – 2016 Speech on Economic Security

davidgauke

Below is the text of the speech made by David Gauke, the Financial Secretary to the Treasury, in London on 20 January 2016.

Good evening. It’s a pleasure to be here with you tonight.

In my office in Whitehall there’s a framed cartoon, showing a man leaving the house in the morning to go to work. His son calls after him: “Have a great day at the Treasury, Dad. Be brave. Try not to cry.”

Well, I can assure you that as a lifelong Ipswich supporter I’ve had to build up a fair bit of bravery over the years.

But I think that cartoon is illustrative of two aspects of my job as a Treasury Minister since 2010.

First, that the Treasury is a department which has been … how shall I put this … not always the most loved department, within as well as outside Whitehall.

And second, that the past six years have seen us operating under exceptionally difficult conditions.

The reasons for this are relatively simple. Even in good economic times, it tends to be the Treasury who says “sorry, no, we can’t afford to do this”.

That’s part of the normal tension of government. If you have the power of the purse, then it’s also you who has to exercise restraint in using that purse.

But the situation in May 2010 was anything but good economic times. We were a country living well beyond our means, borrowing one pound for every four we were spending, and lacking a credible plan to turn that situation around.

Because we had not been sensible during the boom years, the 2008 financial crisis caught us unprepared. The tide went out and it turned out that we were the ones who were skinny dipping.

It fell to the Treasury to sort it all out.

Today, I will talk about how we went about that task. But before I do that, I’d also like to talk a little about the philosophy behind our actions.

A defence of the free market economy

When I became an MP in 2005, there was a certain degree of consensus about the right way to run an economy.

We had moved away from the polarised arguments of the 70s and 80s and had, more or less, agreed on certain fundamentals.

For instance, that the big state doesn’t have all the answers.

That in normal times, a country shouldn’t spend more than it earns.

That excessive tax acts as a disincentive.

That it’s businesses who drive national growth.

That more power to the centre doesn’t necessarily mean greater efficiency.

That before distributing wealth, you have to create it.

And that the free market has, by and large, been an overwhelming force for progress.

It seemed, for a while, as if the planned economy versus free market argument had been won – and I’m sure that the very visible collapse of the Soviet Union hammered the final nail in the coffin.

I’m not so sure that’s the state of political discourse today.

We’ve seen a lot of people in recent years come out against those fundamentals.

We’ve started hearing the old calls for greater taxes on the highest earners, renationalisations, and trade protectionism.

Now of course, it’s legitimate – indeed important – for all policymakers to take a step back and ask themselves “are our policies delivering for the people of this country”.

But there is a reason why we study history: to learn from the follies and successes of the past.

Time and again, it has been proven that the free market, and private-sector driven growth, and taxation which encourages ambition, and a State which accepts it can’t do everything, does lead to national prosperity.

We have the system we have because it works. Other systems, to put it bluntly, historically haven’t worked. And in the modern, interconnected world we live in, they are even less likely to work.

If you remove the disincentives for doing well – whether that’s for individuals or companies – then those individuals or companies will simply move away and take their aspirations elsewhere.

And when a country stops doing well, it is only a matter of time before the people living in that country begin to suffer. Inevitably, those who have the least are hit the hardest.

In other words, it’s not a game. Livelihoods – and indeed lives – depend on the government of the day getting the economy right. Aside from the defence of the realm, there is no more important task for a government to do.

What that means is that you cannot use the economy as some sort of a safe space in which to try out abstract theories. That is for the university debating society. We have the fifth biggest economy in the world to run.

When I entered the Treasury in 2010, alongside George Osborne and the rest of the ministerial team, we had one ambition: to pull Britain’s economy back from the brink, and to set it on a path to recovery.

That meant restoring stability; reining in excessive spending; and putting in place the right policies and incentives for growth.

So I’d like to talk a little more about how we created, and implemented, our strategy for economic success.

In the 1970s, one of the then Chancellors’ private secretaries casually remarked to a journalist that “I have no idea what a deficit is”.

These days, I can assure you that everyone in the Treasury knows what a deficit is!

Reducing the deficit is the task we were asked by the British electorate to do – and it’s the task we have to keep a relentless focus on.

Back in 2010, we inherited a deficit of £153bn, which was around £5900 for every household in Britain.

We’ve made a huge amount of progress since then; but even this financial year, we are still having to borrow £3,300 for every household in the land.

That’s simply a reflection on the size of the ship we’ve had to turn round.

The good news is that we are succeeding. We have a credible path for deficit reduction, backed by the independent Office for Budget Responsibility, which will take us into running a surplus in the 2019/2020 financial year.

Perhaps equally importantly, public sector net debt is set to fall every year, from 82.5% of GDP this year to 71.3% in 2020-21.

That’s important for two reasons:

First, because it gives us room for manoeuvre in exceptional economic times. If the situation is such that an additional stimulus is required from Government spending, then we’ll be able to afford it.

And second, because servicing the interest on debt diverts funds from where they could be better used.

It’s an experience familiar to anyone who has put too much on a credit card!

Servicing our public sector debt cost us over £45 billion in the last financial year. That is more than we spend on schools or defence. And that’s in an era of extremely low interest rates.

It won’t come as a surprise to many in this room that making cuts in public spending is never a pleasurable activity.

Even if you do believe there are things the state shouldn’t be doing…

Even if you do believe that subsidies can cause harm as well as good…

There is little fun in standing up and announcing spending cuts!

Yet it is necessary. That is why in the first year of Government we carried out a comprehensive spending review. We followed that up in 2013. And, following the election last May, we repeated the exercise.

“Do more with less” has been the mantra.

A significant part of the savings were simply due to making better use of our existing resources – pooling functions, harnessing technology, cutting down on our use of external consultants wherever possible.

Part of the savings came from reducing the cost of government – in particular, making the Civil Service a more cost-effective organisation.

Some of the savings came from reductions to the welfare bill – which, under the Blair and Brown administrations, had been allowed to expand to unsustainable levels.

And some of the savings came from reviewing capital projects which weren’t providing adequate value for money.

I chose the word “review” specifically, because it’s easy to categorise spending cuts as simply saying “take this off the shopping list”.

In reality, it is much more complicated than that. The conversation will typically be along the lines of “Are we doing this project in the most cost-effective, joined up way? Is it the most important thing to be doing right now? Could we be more innovative about how we fund or design it? Is there a cheaper option that could achieve the same outcome?”

In many ways, that is the point of what we do in the Treasury. Believe it or not, the first guide to how to run the UK economy was written over 800 years ago, in 1178. It says: “The highest skill at the Exchequer does not lie in calculations, but in judgements on all kinds”.

The central “judgement” involved in public spending is where to cut – and where to invest.

Everyone knows that if you don’t water a plant enough, it will wither away.

Conversely, give it too much and it won’t do very well either.

But what works in the desert doesn’t work in the paddy field.

The same rules apply when it comes to government spending.

There have been significant areas where we have maintained spending or actually increased it.

Health and schools are the most major areas in terms of cash – but there are many others. National security. Police. Science and research. Energy innovation. Transport. Overseas aid. Pensions.

We’ve made it a priority to improve the quality of our infrastructure, and reverse the decades of underinvestment our roads and railways suffered from.

Above all, we have never shied away from investing in things that will improve our national growth.

If keeping hold of the purse strings is the first function of the Treasury, then the second is pulling the levers for economic growth.

So today I’d like to talk about three specific levers.

The first of these levers is the taxation system.

That’s my particular field, as Minister responsible for tax.

Our policy is extremely straightforward. We know that one of the best ways of attracting talent to your economy is through competitive taxes. And that one of the best ways of making sure that talent goes elsewhere is by making your taxes too high.

It’s not rocket science – but it’s astonishing how often people forget this basic principle.

Further to competitive, low taxes, there’s one other things which helps businesses prosper, drives job creation, and supports economic growth: the certainty of having a fair and properly working tax system in place.

Low taxes; fair rules which are followed. Those are the two principles we’ve followed since 2010.

Back then, our rate our rate of corporation tax was 28%; and it was a fact that one of the factors pushing businesses away from the UK was our tax regime.

So, even at a time of deficit reduction, we made it a priority to cut the corporation tax rate.

Since 2010 we have cut it from 28% to 20%. These cuts will save businesses £10 billion a year from 2016.

This was part of a range of pro-business reforms, including the introduction of the Patent Box, and reform of R&D credits to make them more generous.

We’re going further along the same route, so that by 2010 the rate of corporation tax will be 18%, the lowest in the G20.

These cuts will benefit over a million businesses.

They will help attract more overseas investment.

And they will help support UK businesses, allowing them to retain more of their profits and use that money to invest in plant and machinery or to hire more people.

We’ve increased the level of the Annual Investment Allowance to eight times what it had been previously.

And, to provide the stability and certainty that businesses need, we have committed to publish a Business Tax Roadmap in March this year, setting out the government’s tax plans for the rest of the parliament.

The second lever you can pull is more of a diplomatic one: opening yourself up to some of the world’s fastest growing and most exciting economies.

Over the years, this has been a nation that has reaped the rewards of being open to the world around us.

The benefits of free trade have been proven time and again. And it’s not just businesses who benefit: the evidence suggests that an increase in our trade to GDP ratio is associated with an increase in per capita income.

So if we want to secure our economic success, then it’s important to be active all over the world – with the fastest-growing economies in Asia; with the United States; as well on our doorstep, with the nations of the European Union.

That’s what we’ve been doing over the past six years: building partnerships and signing deals with India, China, and the Far East; making London a Western hub for renminbi and Islamic finance; and helping our world-leading financial services sector gain business worldwide.

And, closer to home, we’ve consistently called for, and proposed, measures to improve the EU’s competitiveness: from a Capital Markets Union to a free trade agreement between the EU and the US, giving British businesses improved access to a market six times the size of our own.

The third lever is putting in place policies to improve our national productivity, one of the key drivers of a nation’s prosperity.

For too long, we have had a so-called “productivity gap”, between our economy and that of countries such as Germany and the United States.

There are no easy solutions to the productivity gap. It is due to a large number of factors – some of them negative; some of them, such as our record levels of employment, positive.

But there are actions we can take to resolve the problem – and, for the first time, last year we published a Productivity Plan setting out precisely how we do that.

I’ve already mentioned our national infrastructure, and the problems caused by the fact that for several decades, we failed to invest enough in it.

We’re now turning that around – indeed, we’ve committed to spend £100bn on infrastructure over the course of this Parliament…

We’ve set up a National Infrastructure Plan with an infrastructure delivery pipeline…

We’ve published a specific plan for the skills we need…

And, so we can look more clear-sightedly at the future, we’ve also set up the National Infrastructure Commission, to take a long-term, depoliticised approach to major projects. It will set out its initial ideas in time for the March Budget.

Improving our national infrastructure will also help deliver a key part of our long-term economic plan: regional rebalancing.

London and the South East has been an enormous economic success story over the past few decades. But as the cricketers in this room will know, you can’t rely on just the one batsman if you want to field a world-class side.

Our ambition is therefore to enable cities outside London and the South East to display equally impressive growth – and help the country’s economic recovery.

Michael Heseltine showed the way forward back in the 1980s, when he said government policies for cities such as Liverpool needn’t be one of managed decline.

Today, that’s what we mean by the Northern Powerhouse: a combination of more funding and greater devolution, to help cities in the North reach their fullest potential.

We’re particularly interested in developing capability in areas where a competitive advantage can be created.

One example is science and innovation, where some of the most exciting developments are happening in Northern cities. Manchester, for example, is home to the new supermaterial graphene – and we’ve supported the National Graphene Institute in Manchester with almost £40 million of funds.

Great transport created the first Northern Powerhouse nearly 2 centuries ago. And it can create the second one today – which is why we’re investing £13billion in transport in the North over the course of this Parliament, including the creation of Transport for the North, a new, dedicated body.

Alongside that, we’re putting in place a new and exciting programme of regional devolution – not just in the North, either, but across the country.

As a government, we wholeheartedly believe that the best decision making often happens at the regional or even the local level.

That shouldn’t come as too much a surprise, perhaps; because when local decisions are made at the local level, they tend to be made by people who know the area extremely well, and have the greatest incentive to implement policies effectively. It is, after all, their patch. We should work with that rather than against it.

So the offer we made to local leaders was as follows:

If you want that greater responsibility, if you can live with that greater accountability, if you have an ambition for what your city can achieve, then we will look at giving you those powers.

These powers could be quite significant: control over major budgets; managing housing, health, and skills; running city-wide transport networks.

Giving those levels of powers away carries a risk, of course. That is why we asked leaders to demonstrate that they were are capable of implementing that ambition, and could live with the increased responsibility.

So if a large city wants control over major powers and budgets, it must have a directly elected, executive person covering the whole metropolitan area, in the form of a Mayor – just like many of the world’s greatest cities, including London.

Already, we’ve signed some exciting deals with a host of regions including greater Manchester and Cornwall, and many more discussions under way.

We’re clear that this is not just a programme for the North. There should be no monopoly on Powerhouses – we want a Western, Midlands and Southern Powerhouse too.

Because if all regions can mirror the tremendous success of London and the South East, then that will be a long-term gamechanger for the British economy.

So there is still a lot to do over the course of this Parliament. But we shouldn’t forget quite how far we have come over the past 5 ½ years.

With growth leading the G7, record levels of people in work, living standards and wages rising, our economy is truly delivering for the British people.

We made the tough decisions and we’ve been getting the results.

But good times in the future aren’t a given. Worldwide, there are still plenty of risks out there.

They are risks we have to insulate ourselves against – and the best way we can do that is to make sure we have our own house in order, start running a surplus and reducing our debts, and continuing to create economic security.

The worst thing to do, right now, would be to throw away the fruits of our hard work.

I spoke earlier about the resurgence of voices asking us to do exactly that.

We’re not going to – because this country’s economic security is much too important.

What we will do is continue down the path we took in 2010:

One which gets us living within our means as a nation;

One which helps people and businesses prosper, expand, and create growth;

And one which will make the UK fundamentally stronger, and more able to withstand any storms in the global economy.

It hasn’t been an easy path in the past, and it may not be an easy path in the future either.

But that makes it all the more important to stick to it.

Thank you – and I’d be delighted to take some questions.

David Gauke – 2015 Speech on Digital Tax

davidgauke

Below is the text of the speech made by David Gauke, the Financial Secretary to the Treasury, at HMRC on 14 December 2015.

Good afternoon, and welcome to HMRC’s first-ever Christmas conference.

It’s been quite a year – two Budgets, a Spending Review, an Autumn Statement, and of course a General Election.

Lots of work has been done, lots of changes have been put in place, and I suspect that many of you, like me, are now looking forward to some time away from the office.

I certainly have one eye towards the upcoming Christmas festivities, as I’m sure many of you do. And as the father of three boys, I’m currently in the process of managing expectations around presents.

We’re having mixed progress on this in the Gauke household, but it’s fair to say that digital expectations are high and will remain high. And as a government minister, I have to take some responsibility for that.

Because the government has similarly high digital expectations for HMRC, albeit expectations that must – and will – be met, and not just for Christmas! I am confident will be met.

In every walk of life, people are embracing the digital revolution. From banking online to doing their food shopping, from advertising a business to paying invoices, millions of individuals and businesses are benefiting from the convenience and simplicity of digital services.

But businesses and service providers are going further than simple digital interaction with their customers – they are harnessing the opportunities of the digital age to transform how their businesses work, and how they provide their services.

And it’s the customers who are reaping the benefits.

If businesses can do this then so should government. Our ambition is bringing the digital revolution to Whitehall – ensuring that the services it provides are similarly transformed. Last year for example, more than 27% of people renewed their tax credits online, almost doubling the previous year’s figure. This online renewal service has been welcomed by users with customer satisfaction rates for the service reaching over 80%.

Life should be made easier for the customer

The tax system is no exception.

My ambition is to make fundamental changes to the way the tax system works, transforming tax administration to make it more effective, more efficient and easier for people and businesses to pay their taxes.

And we have made it a priority to invest in making that a reality.

Last month the Chancellor announced, as part of the Spending Review, a further investment of £1.3 billion to transform HMRC into one of the most digitally-advanced tax administrations in the world.

This includes access to digital tax accounts for all small businesses and individuals by 2016-17, delivering an additional £1 billion of tax revenue by 2020-21.

And today I have published ‘Making Tax Digital’. This sets out the overall vision to achieving this transformation, the steps needed to get there over this Parliament, and details of the consultations to follow in the coming months.

‘Making Tax Digital’ is structured around four foundations:

First, ‘Tax simplified’ – All taxpayers will receive the data and services relevant to them and, for those who have difficulty going online or who need extra support, help will be available through other channels.

Taxpayers shouldn’t have to give HMRC information that it already has, or should be able to get from elsewhere – for instance, from employers, banks, building societies and other government departments.

Taxpayers will see the information that HMRC holds through their digital tax accounts, and be able to check at any time that their details are complete and correct.

Better data means fewer mistakes, fewer delays, and a better outcome for all parties. This is an important development both for individuals and businesses, which Jim [Harra] will talk about in greater detail in the next session.

HMRC will use this data to tailor the service it provides, according to each taxpayer’s individual circumstances. In 2016, HMRC will consult on how information from more third parties might reduce the reporting burden on taxpayers.

Second, making tax digital for businesses. By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account.

We will expect businesses to keep digital records and to update HMRC on a quarterly basis. But these updates will be done through software or apps and will be integrated into business’ digital record keeping.

And I want to stress that this is the end of the tax return – this is not going to feel like doing four tax returns a year. Indeed, we expect these reforms to ease the admin burdens on businesses and to help them plan their cash flow more easily, by providing greater certainty about what they will owe.

Updating HMRC directly in this way will be secure, light-touch and far less burdensome than the tax returns of today.

In a real-time economy we should match tax more closely with the related transactions – many taxpayers have told HMRC that they want more certainty over their tax bill, and don’t want to hold on until the end of the year or even longer to find out how much they have to pay.

Many businesses already use tools like these, but sometimes we need a catalyst to energise change. The requirement to use software or apps is this catalyst; it gives business certainty in terms of direction and allows full benefit from their use to be realised.

Over the next year, HMRC will be undertaking a wide-ranging consultation exercise, and I want to work with you in ensuring that these reforms provide the maximum possible benefit for business.

Third, making tax digital for individual taxpayers’. By April 2016, every individual and small business will have access to a digital tax account which will be simple, personalised and secure, offering an ever-wider range of services. Individual taxpayers will be able to interact with HMRC digitally and at any time that suits them.

Fourth and finally, tax in one place.

At the moment, many taxpayers have to contact different parts of HMRC to find out their financial position relating to different taxes. A business may pay income tax, VAT, National Insurance or Corporation Tax; an individual may pay income tax, National Insurance contributions or student loan repayments, and receive Child Benefit; some people run a business as well as being an employee or having a pension.

In the next five years, all taxpayers will be able to use their digital accounts to see a single, up-to-date and easy-to-follow overview of their tax affairs, just like they do in their online banking.

Together, all these elements will ensure that, by 2020, HMRC will have moved to a fully-digital tax system.

So I’d like to share with you what that system could look like.

Needlessly bureaucratic form-filling will be eradicated – taxpayers will not have to tell HMRC information it already knows.

Unnecessary time delays will also be eliminated, because the tax system will be operating much more closely to ‘real time’. This will keep everyone up to date, removing the risk of missed deadlines, unnecessary penalties, debts arising and errors in the tax system being carried forward from one year to the next.

Importantly, taxpayers would have 24/7 access to digital accounts, as well as having a complete view of all their tax liabilities and entitlements, allowing them to send HMRC information and payments simply and efficiently.

And for those who have difficulty going online or who need extra support, help will be available through other channels. These taxpayers will be offered alternative means of support – over the phone, through face-to-face visits or through partners in the voluntary and community sector. We will also ensure free software is available for those with the simplest affairs.

These reforms will quite simply transform the experience of millions of taxpayers.

You’ll hear more about these plans this afternoon, including how these will be implemented and how some aspects of their design will be the subject of further consultation.

And I would urge you all to get involved in shaping these plans – we want them to be the best they can possibly be.

As we make tax digital, we will need to make sure that the new plans work for you, for the taxpayer, and for the UK. So we want to hear your voice and your views. Today I have also published a discussion document on payment, and we’d welcome your comments on that.

We very much hope that events like today, as well as our more formal consultations, will give you and the people and organisations you represent the opportunity to contribute to this work, and shape tax administration for a generation to come.

So – before I hand back to Edward [Troup] – thank you for your work so far, have a relaxing Christmas break, and let’s continue our conversations in the New Year.

David Gauke – 2015 Speech to the ABI biennial conference

davidgauke

Below is the text of the speech made by David Gauke, the Financial Secretary to the Treasury, at the ABI Biennial Conference held in London on 3 November 2015.

Good morning – I’m very pleased to be here with you today.

UK insurance has a long and proud history, stretching back to the London coffee houses of the 17th century. But there is nothing old-fashioned about today’s industry. It is a great UK strength and an industry we are proud of.

It is good news for everybody – your shareholders, your customers, and the wider economy – that British insurance is the best in Europe. Our ambition, as a government, is to do our utmost to keep it that way.

The insurance industry has a dual social role.

First of all, it is vital in helping businesses and individuals manage risks and plan for the future.

But it is also a key contributor to national prosperity. You employ 300,000 people. You sell £20 billion a year in exports. In 2014, the industry held £1.9 trillion in invested assets and contributed £29bn to the country’s GDP.

The past few years have had important developments on both fronts.

We all remember the floods of 2012 and the winter of 2013-14.

Flooding is a stark example of the importance of insurance, and I would like to thank the insurance industry and the ABI in particular, for their hard work and commitment to successfully progress Flood Re.

It is a great example of government and the private sector working closely together. It will ensure available and affordable insurance for those at high flood risk and will make a real difference to people’s lives.

I am delighted that the regulations introducing Flood Re have now been approved by both Houses in Parliament and that Flood Re will soon be designated. This means that Flood Re will shortly receive its powers and duties. Subject to Prudential Regulation Authority (PRA) approval, it will then have the legal authority to start operating.

We’ve also had the most fundamental change to how people can access their pension savings in nearly a century. Adapting to these changes has required a great deal of work from the industry, and I have been impressed by the many providers that have stepped up to make these reforms a success.

Over 200,000 people have taken advantage of the new flexibilities and I’m pleased that already over 90% of customers are being offered flexible options, and that a quarter of the largest providers are planning product launches in the next six months.

The ABI has found that £5 billion was accessed by savers in the first six months of the freedoms. That represents a major step forward in creating a climate where individuals can take control of their own hard-earned savings, and enhance their retirements as they see fit.

These are truly historic reforms, and the government will work closely with industry to ensure that they deliver real freedom and choice for consumers.

We’ve also had major steps forward on the prosperity agenda.

The Insurance Growth Action Plan tasked UK Trade and Investment to develop target market strategies for China, India, Brazil, Turkey, Indonesia – that is, some of the most rapidly growing markets in the world.

These strategies were designed to sell the UK insurance markets’ comparative advantage in these emerging markets, and are already helping UK insurers to access those markets.

Which means more revenue, more jobs, more growth.

So there’s been no shortage of good news stories. But there are also important challenges ahead.

Our changing society and our rapidly developing technological landscape means that there is a lot for the industry to adapt to.

With challenges, of course, come opportunities. UK financial services are nothing if not adaptable – so I know that the industry will adapt to the changing environment, spot new opportunities – and continue growing, and serving their customers.

So what are the key areas of change – and of opportunity – for the future?

I would suggest three:

The first, keeping up with a changing society;

The second, making the market even more effective;

And the third, staying competitive in the global race.

Pensions are a vital part of the insurance industry. And it’s no secret that, as our society enjoys ever-greater longevity, the pensions system will require a new approach.

We have two principles here:

First, that people who have spent their working lives saving money into their pension pots should have the freedom to decide how to spend that money.

And second, that pension products should meet the needs of different types of pensioners;

The government’s policies are transforming retirement savings for the long-term, from top to bottom. The pension freedoms we have introduced mark an unprecedented shift of power, away from government and industry, and towards the consumer.

Good progress has been made to date. But it is important that industry continues to innovate, and introduce new products that are tailored to consumers’ changing needs.

In light of the recent reforms, this is a great time for the industry to reflect and consider what it can do to provide a better service and encourage more people to think about saving for retirement.

Now that customers have more choices, they will also want more advice. And it is clear that new and emerging technologies have an important role to play here.

New digital models to provide high-tech, low-cost, user-friendly advice are emerging in the industry all the time. These new technologies could have a significant role to play in meeting customers’ needs around financial advice.

The Financial Advice Market Review, launched in August, is considering the opportunities and challenges presented by such technologies to provide cost-effective advice services. In particular, the review seeks to understand how the regulatory environment can support technology-based advice models. The review will report back at Budget 2016 and I would encourage all of you to engage with it.

Looking to the future, the pensions tax consultation was an opportunity for insurers to take stock and consider how the industry can adapt and provide a better service

It’s been really positive to see the ABI, who have been a key stakeholder, working closely with government to ensure pension provisions are improved.

The consultation closed at the end of September, and we’ve already picked up on some of the key themes:

  1. the need for more effective communication around the importance of saving for a pension;
  2. the significance of having a stable system;
  3. the need for consistency in the system to tackle perceptions of unfairness.

The ABI will be a great support to us in developing our policy over the coming months, and we look forward to working with them.

But, of course, it’s not all about pensions. And the second area I’d like to touch on today – making the market even more effective – touches on all aspects of the insurance industry.

Effectiveness comes from security.

Insurance fraud is a significant problem, which comes at a great cost to consumers and industry. It’s a particular issue with motor insurance – and the government has taken a number of steps to tackle this problem.

Earlier this year, the government set up the Insurance Fraud Taskforce. The group, made up of consumer and industry representatives, has been asked to investigate the causes of fraudulent behaviour and recommend solutions to reduce the level of insurance fraud. We hope to achieve a set of robust and ambitious proposals by the end of the year, ultimately aimed at reducing the cost of insurance fraud for consumers.

We have also set up MedCo, which became operational in April 2015. It will facilitate the independent sourcing of medical reports in soft tissue injury claims, helping tackle fraudulent and unnecessary whiplash claims. And we’re reviewing the MedCo Portal, to make sure it’s meeting its objectives and tackle teething problems.

Effectiveness also comes from making the most of new technology.

I’ve already touched on how automated advice systems can help provide low-cost but high-quality advice on pensions.

But there’s much more it can do. Financial technology helps the customer and – as a driver of innovation – it helps the industry’s competitiveness.

That’s why we’re pulling out all the stops to foster the best investment environment, the right tax system, the appropriate regulatory framework and the best infrastructure for Fintech companies to flourish across the UK.

We now have a “Special Envoy for Fintech” in the shape of Eileen Burbidge, whose role will be to promote the UK as a global Fintech hub and help develop our strategy.

We’re launching an international benchmarking exercise to look at how we perform compared to other countries.

And we’re working closely with the regulators to explore how we allow innovators to experiment with novel ideas early on, without having to worry about getting regulatory authorisation.

It’s an exciting, rapidly growing area – so I look forward to your ideas on how we can make the most of it.

To make the market work more efficiently, we also need to take action on tax measures where appropriate.

I know, for instance, that concerns have been raised by several UK insurers that misuse of the EU status of Gibraltar by other UK insurers to avoid VAT was impacting on their ability to compete fairly.

So at the Summer Budget we took action, and changed the VAT rules so that the supply of these insurance repairs services is deemed to be where the service is used and enjoyed – i.e. in the UK. The measure will level the playing field and deter possible expansion of this avoidance.

And while we’re on the subject of tax, I would like to say a few words about the insurance premium tax – IPT for short.

As you know, the UK standard rate of IPT remains lower than many other EU states, including Germany where the standard rate is 19%.

As part of the Summer Budget, it was announced that the standard rate would be increased from 6% to 9.5% as of 1st November.

We recognise the challenges insurance businesses have faced in implementing the IPT rate change this summer. I can assure you that HMT officials are in close communication with industry representatives, to see whether the HMG/ABI agreement on amending the rate needs to be reviewed.

In addition, as part of a major exercise in digitalising the UK tax system, we are making operational changes to make it easier for insurers to submit their IPT returns.

We would like to thank you for the cooperation we’ve had so far and hope that you will agree that the government’s work on e.g. tackling insurance fraud and VAT tax avoidance will help keep premiums down in the long run.

The third area which I would like to talk about today is global competitiveness.

We have made real progress in showcasing what we have to offer internationally. Already, we’re reaping the rewards.

But we also have to be constantly on the lookout for opportunities to keep us one step ahead. And where we risk falling behind, we need to act.

One such area is alternative risk transfer.

Through Insurance Linked Securities (ILS), new ways have been found to share insurance risk with capital markets. ILS has helped to increase the capacity of the reinsurance sector, particularly for specialist or extreme types of risk, and investors have benefited from high performing assets which diversify portfolios.

This is now a $60 billion market and growing fast. ILS looks here to stay.

But crucially, the UK does not currently have the right framework to support the growth of ILS in the London market. So there is the risk that the expertise which ILS business requires could be drawn elsewhere.

That is why the Chancellor announced in the March Budget that Treasury and the UK regulators, working closely with the London market, would design a regulatory and tax framework to support the domicile of ILS business in the UK.

And as well as constantly refocusing ourselves, we also have to ensure we remain competitive within Europe.

Europe, at its best, can bring good benefits. Put simply, our insurance firms tend to do very well in Europe.

Our industry’s use of technology and experience of online sales gives us an edge in European markets where a large number of UK insurers already operate. And our continued role in the EU has helped us influence regulation to protect UK interests, such as the long-term guarantees package in Solvency 2.

A few weeks ago, the commission launched its action plan for Capital Markets Union (CMU), a flagship project for the new commission. Its primary objective is to create deeper and more integrated capital markets in the EU, by breaking down the barriers to the free movement of capital.

The action plan recognises that Europe requires significant long-term investment in assets such as infrastructure. Insurers, who often have long term liabilities, are the largest institutional investors in Europe and natural investors in such assets.

So the CMU is good news for insurers, good news for the City, and good news for the UK.

Having said that, there is a balance to be struck between regulation and competitiveness.

We have been supportive of Solvency 2, for example, as it represents a major improvement on the patchwork of European insurance legislation under the previous Solvency 1.

Solvency 2 is the global gold standard in insurance regulation and will bring opportunities for UK firms to expand to new markets, to innovate and to provide new products.

We firmly believe Solvency 2 will help support financial stability across the financial system, while securing insurers’ central role as a stable, long term provider of finance through the “matching adjustment”.

We recognise Solvency 2 will need time to bed in, and we will be monitoring its impact closely. In particular, we have pressed for consistent and proportionate implementation to ensure a level playing field across Europe. We will also be keeping a close eye on how Solvency 2 affects the competitiveness of UK firms outside the EU.

So as can be seen, it’s been a busy time for the industry!

But, I hope, also an exciting time.

As the UK economy continues to go from strength to strength – and just last week, we had the news that we are now the top G7 country in terms of the ease of doing business – that will create fresh opportunities for UK businesses.

We look forward to working with you to make the most of those opportunities.

No doubt, there are challenges ahead; but I firmly believe that with a savvy approach and a flexible outlook, the UK insurance industry can continue to be a world leader for many years to come.

Thank you.

David Gauke – 2013 Speech on Social Investment Tax Relief

davidgauke

Below is the text of the speech made by the Exchequer Secretary to the Treasury, David Gauke, on 22nd October 2013 and was held at the Livery Hall at the Guildhall in London.

I’m very pleased to be here this morning, in such a historic venue.

In fact, as something of an amateur historian, when I was given the rather grand job title of Exchequer Secretary to Her Majesty’s Treasury three and a half years ago, I thought it would be a good idea to investigate its history.

And – after an extensive trawl through the internet archives – I discovered that the title of Exchequer Secretary to the Treasury dates all the way back to the mid-1990s!

In that context – when I was looking at the history of the term social enterprise – I was not surprised that it predated the title, Exchequer Secretary to the Treasury, but not by as much as I might have thought. It was first coined as recently as 35 years ago, at Beechwood College in Leeds.

Of course the concept of a social enterprise dates back much further. Whether that be the John Lewis Group in the early 20th century… The Co-operative Group in the 19th century…

Or going back even further, The Bridge House Estates; which was founded a stone’s throw from here in 1282, to maintain bridges over the River Thames.

The government recognises the crucial role that such groups have played, and will always play in our economy.

And we recognise the important role it currently plays. The social enterprise sector – in fact – employs more than 2 million people, and the total annual incomes from the sector are estimated at over £160 billion per year.

So not only are these organisations good for thousands of communities up and down the country. They also play a key role in driving the UK economy.

As such, we want to give social enterprise groups the support they need.

Social Investment Market

One of the recurring issues that we know these organisations face is access to finance. And without access to capital it can be a real struggle to scale-up, to grow or even to become self-sustaining.

For this reason the government – led by the work of Nick Hurd – is committed to growing the social investment market.

And as part of this work, we’ve launched a number of initiatives focusing on all parts of growing this market, including:

– the supply of finance

– the demand for finance

– creating an ‘enabling environment’ for social investment

So we’ve worked hard to ensure that we’ve got the right regulation in place to support the sector.

And we’ve also established a number of publically-backed funds to directly support social enterprises in the UK.

But we know that there remains one massively under-represented type of investor in this market – and that’s the type of investor I want to spend the rest of my time focussing on today. The private, individual investor.

Individual investor

Some services to cater for this type of investor are emerging. But we know that there is a further appetite out there, and we need to find a way to tap into it.

A Cabinet Office paper published in the summer stated that fewer than 16% of High Net Worth Individuals currently have investments with ethical, social or community benefits. Yet 77% of potential pension contributors said they would prefer to contribute to a social investment fund than to a conventional fund for their pension. And 36% said they would choose social investment even when it involves a significant trade-off with financial return.

So we needed to find a way to tap into this enthusiasm. And I know from my day to day role – my more readily understood, but somewhat less glamorous job title is Minister for Tax – that tax levels and reliefs can be a key lever for encouraging certain behaviour.

It was with this in mind, and this type of investor in mind, that at this March’s budget, we committed to introducing a tax relief for social investment.

Social investment tax relief

That tax relief, the matter-of-factly titled ‘social investment tax relief’ is currently being designed by my officials at the Treasury.

We consulted on it over the summer and I’d like to thank everyone here that contributed.

We now plan to introduce the relief by early next summer, through the 2014 Finance Bill.

In the consultation document we outlined that the relief would:

Firstly, offer individuals income tax relief – as a proportion of the amount invested – for investment into qualifying social enterprises.

Secondly, allow social enterprises to receive up to £150,000 in investment through the scheme in any 3 year period.

Thirdly, offer relief on investment instruments other than equity.

Fourth, focus on allowing established forms of social enterprise – Community Interest companies, community benefit societies and charities – to benefit from the relief.

And fifth: allow for investments via a ‘nominee’ – to cater for those individuals who do not want to make investment decisions personally and would prefer to make use of professional expertise.

I appreciate that there are a lot more details to be ironed out, but we will be publishing our draft legislation on this in December, and I strongly urge you to explore some of the detail then.

Enterprise Investment Scheme

Now, some of you may have noticed something familiar in the form of this relief. And this is neither coincidence nor plagiarism.

The model of the scheme takes inspiration from the successful and long-standing Enterprise Investment Scheme, or EIS.

A scheme which will not only be well understood by many investors, and thus easy for them to figure out and operate in.

It is also a scheme which is very successful at achieving its aims. In fact, since its establishment in 1994, it has brought over £8.7 billion of equity investment into nearly 20 000 small, UK companies.

This shows the impact that a well-targeted tax intervention can have on motivating private investment into specific areas of the economy, and it is a success that we want our relief to emulate.

Wealth advice community

So that is how we plan for the social investment tax relief to look.

But – as many of you will know – announcing a tax relief is only half the story. We need people to know about it. And we need people to know how to use it. And that is why the wealth management sector –many representatives of which are in this room today – will have such an important role to play in all this.

You are at the forefront of delivering financial advice to the public. You’re the ones they turn to when they want to know where they can invest most safely, or most profitably, or most ethically. So you can play a crucial role in enabling investors to understand and to make use of this scheme.

And networks such as this one – the Social Investment Academy – have a crucial role to play too, in bringing together people from across the advisory community. And in spreading news of the scheme.

I understand that this is only your second meeting as a group? So I’m very grateful to have had the opportunity to speak to you so early in your existence.

And I’m sure that either myself, or a member of my Treasury team will be very happy to attend another of these events closer to the implementation of the tax – when we have greater detail on its exact workings – to explain things in more detail.

We want to see – as I’m sure do many people in the room – a strong social investment market here in the UK.

And – as government – we’re doing the best we can to support it – through our actions on both regulation and on taxation.

We hope that you – as wealth advisors – will be able to help us spread the word, and to build the strength of the market here.

And I’ll look forward to working with you as you do so.

Thanks for listening.

David Gauke – 2013 Speech on Tax Competitiveness

davidgauke

Below is the text of the speech made by the Exchequer Secretary, David Gauke, on 28th February 2013.

I was very pleased to be invited to speak at this event, which I know forms part of Politeia’s Recovery and Growth economic series.

‘Recovery and growth’ are, of course, two of the biggest challenges facing the UK. And as a Government, as a country, we cannot afford to be complacent about our economic position in the world.

We are in a global race. This race pits us against a number of existing and new competitors and, like any competition, there will be winners and there will be losers. There will be countries that continue to move towards ever greater prosperity, and there will be countries that see their economic outlook, and in turn their standard of living, decline.

As Government, it’s our role to do what we can to ensure that the UK falls into the former category. That our economy is stable once again, and that our businesses have the right environment to compete in the 21st century. Some factors in achieving this are beyond our control. The economic circumstances we inherited. Commodity prices. The Eurozone crisis.

But other factors are within our control and, within the strict fiscal constraints in which we have to operate, we have to make sure that we pull all the levers available to us to achieve growth. This is why we are reducing burdensome regulation – reforming planning and employment law, modernising our infrastructure, improving our education system, increasing apprenticeships and reforming welfare.

But one of the biggest levers we have access to, and the lever that I would like to talk about today, is tax.

I know that this Government’s tax policy has been at the centre of some very lively debate, and this is a debate that we welcome. Allister has played a very large role in this debate, and it is absolutely right that organisations like Politeia and the Taxpayers Alliance have joined the discussion too, and made calls for radical reforms. I welcome a debate not only on how much we tax but what we tax.

But what I want to do this evening is take head-on the critique that this Government has failed to make significant supply-side reforms to our tax system and, in particular, our corporation tax system. I will make the case that this Government, when compared to both its international competitors, and its historic predecessors, has embarked on some radical tax reform in challenging circumstances.

We inherited the largest deficit since the Second World War, but the Government is taking decisive action to return the public finances to a sustainable path. Spending cuts will constitute 79 per cent of the total fiscal consolidation by 2015/16. Total spending, as a proportion of GDP, is forecast to fall from 47.4 per cent in 2009-10 to 40.9 per cent in 2016-17. Nonetheless, we operate in an environment where a competitive and efficient tax system is essential, but with limited flexibility in the public finances.

So how have we responded? Put simply, this Government wants to establish the most competitive tax system in the G20. Not only to attract businesses here, but also to help the enterprise that already exists on these shores.

We set out our plans in the Corporate Tax Roadmap, and have worked hard, together with business, to introduce a substantial package of corporate tax reforms to make the UK more attractive as a place to invest.

We have cut corporation tax from an inherited rate of 28%, to 23% from this April, and then 21% from April 2014. We have reformed the Controlled Foreign Companies tax regime, which is seeing organisations move their head offices to, rather than away from, the UK. We are introducing the patent box and making our R&D tax credit regime more generous; ensuring that the UK is an attractive place to invest for innovation. And we have increased the rate of VAT, as taxing consumption is much less damaging to businesses than taxing employment or profit.

We’ve managed to deliver all these changes in a time of austerity, and I know that other countries have been envious of what we’ve managed to achieve.

My focus this evening is on business tax, but we cannot ignore personal tax. The top rate of 50 per cent, as inherited from Labour, was one of the highest in the developed world. It was supposedly implemented to raise greater revenue and address the country’s deficit, but ended up having the opposite effect.

It only served to discourage talented individuals from working in the UK, it raised little (if anything) in revenue and – most worryingly – it sent a signal to businesses and entrepreneurs (the exact people that could bring jobs and growth and revenue to our country) that Britain was not open for business.  And that is why this April we will be reducing that rate to 45p – a level which is lower than Japan, Germany, Canada and Australia.

This was a politically brave move, it isn’t one that will make us popular with some people, but I am certain it sends the right message to high earning individuals and strengthens our prospects for growth.

A better tax environment for business leaders and for businesses though, isn’t just about the policies we introduce. It’s about making sure that we engage with the sector when making these policies, and that we give them advanced warning of any major changes.

This is why, for example, we published the majority of Finance Bill clauses in draft, for greater scrutiny, at least 3 months before introduction of the Bill. Businesses welcomed this opportunity to engage as early as possible, and this has resulted in better quality tax law. We will continue that engagement. In fact, this greater level of engagement has proven beneficial with regards to collecting taxes too.

The complexity of many large companies’ tax cases, and the large amounts involved, make engagement the most cost-effective way to improve tax compliance and support businesses at the same time. So for the largest two thousand corporations in the UK, we now have dedicated HMRC customer relationship managers.

This strategy has been very successful. By supporting the organisations and ensuring rigorous compliance they garnered positive feedback from business, while also helping HMRC to maximise revenues by recovering the right amount of tax.

But HMRC can only collect the tax that is due under the law. And the law in this area is not simply a domestic matter. As with most major economies, the tax system in the UK is consistent with internationally agreed OECD guidelines.

There are international concerns over whether the current corporate tax rules manage to properly capture the profits generated by multinational companies in the jurisdictions where their economic activity is located. And it’s understandable that not only citizens, but the vast majority of businesses will feel aggrieved if some companies aren’t seen to be paying their fair share of tax.

This is a complex area, but any reform will require concerted international action. It is an issue that all countries are facing, and politicians will continue to work with each other to develop the appropriate international solutions.

We are also working hard to simplify the tax system on our shores. We established the Office of Tax Simplification – or OTS – in 2010 to provide independent advice on simplifying the UK tax system, and we have implemented a number of their recommendations.

But let me address one argument that is sometimes made – that ‘if only we simplified the tax system, we wouldn’t see the avoidance that has featured so prominently in recent months’. There is an element of truth in this. Complexity can provide the opportunity for avoidance.

But it is also the case that complex behaviour can take advantage of simplicity in the tax system. Many of the high profile cases that have attracted media attention have had little to do with complexity within our tax system.

I believe we have to look at the complex interaction between the tax systems of different countries and an international tax architecture that has not kept pace with the complex modern global business environment. In other cases, relatively simple tax rules have been exploited by complex and contrived behaviour. To paraphrase Einstein, a tax system has to be as simple as possible. But no simpler.

This has been something of a whistle stop tour through this Government’s actions on tax, but hopefully it provides some kind of overview of the large number of actions we’ve taken, and changes we’ve implemented, to reduce the tax burden on businesses. I believe that these have been radical reforms. And I’d like to spend the last few moments explaining why, by comparing the actions that this Government has taken against those of both our international competitors, and our political predecessors.

With regards to international comparisons, I believe that our approach has been vindicated, and that the UK is increasingly becoming known as a competitive nation for investment. We have a considerably more competitive CT rate than the US at 40%, France at 33.33% and Germany at 29%.

But perhaps most striking was the recent survey by KPMG, asking tax professionals to rate the three countries they rated as most attractive from a tax perspective. In 2009, the UK featured in only 16% of responses. By 2012, this number had increased to 72%. In three years, we had moved from being an also-ran to the number 1 spot as the most competitive tax regime in the world, ahead of the Netherlands in second and Ireland in third.

The report stated that a low effective tax rate remains the number one tax factor when assessing the competitiveness of a country’s tax system, but that stability, simplicity and advanced warning of major changes are also of high importance. These are all factors this Government has worked hard to enhance, and the report is a reflection of the way this Government has rebalanced our tax regime from being a business hindrance to a business facilitator.

So when some complain that we have not taken the radical steps necessary to make our tax system competitive, I would say – ask the people who deal with the tax system for a living, who deal with different tax jurisdictions on a day to day basis. KPMG did just that.  And the answer is clear – and positive.

Closer to home though, let us compare the radicalism of the current Government, in terms of cutting business taxes, with the Governments of Mrs Thatcher. Like many in this room, I look back with admiration to a Government that came to power at a time when the country faced severe economic difficulties. Our borrowing high, our competitiveness in decline, the Thatcher Government pursued a number of radical reforms which transformed our country for the better.

But in terms of tax reform, how do we compare?

A comparison with the first Thatcher Government – with Sir Geoffrey Howe as Chancellor – draws up some interesting parallels. Both Governments have to be described as tax reformers, as opposed to tax cutters. The deficit in 1979 was 4.1% of GDP, lower than the 11.2% we inherited but, like the current Government, Sir Geoffrey’s focus was on reducing borrowing. For example, the overall tax burden was sharply increased in the 1981 Budget, in the teeth of a recession. However, within the constraints in place, both Governments have engaged in tax reform. Both Governments increased VAT and cut income tax, predominantly by raising the personal allowance.

Turning to business tax, in the early ‘80s, further revenue was found from the Petroleum Revenue Tax and a windfall tax on bank deposits. A comparison can be made with higher taxes on North Sea Oil and the Bank Levy. But if we ignore all those taxes, we see that only minor changes were made in business taxes. In current prices, the value of the net change in the corporation tax burden was less than £1bn per year.

In contrast, the total fiscal impact of changes to the corporation tax regime introduced by George Osborne, excluding the North Sea, amount to a reduction of around £7 billion per year by 2015/16.

The current Government’s record also stands comparison to the second Thatcher Government from 1983 to 1987. With the advantages of benign economic conditions (a just reward for the courage shown in the first term), a huge Parliamentary majority and a Chancellor – Nigel Lawson – with a close interest in tax reform, this Government has a deserved reputation for radicalism in this area.

The 1984 Budget saw the announcement of substantial reductions in the corporation tax rate, from 52% to 35%. However, it should be remembered that this was funded by making capital allowances and other reliefs less generous. That is not to say that the reforms were wrong – they were not, they have stood the test of time and future Governments followed in this direction. But this meant that the net corporation tax burden was reduced by less than £1bn per year in today’s prices for the 1983 to 1987 Parliament, as with the preceding Parliament.

This once again shows the radicalism of this Government’s equivalent reduction by £7billion a year by the end of this Parliament.

It is true, of course, that different times require different responses. Capital is more mobile now than it was in the 1980s. Consequently, competition is greater and Governments have to work harder to attract investment than was once the case. Nonetheless, it is clear that not just in international terms but also in historical terms, this Government has delivered substantial tax reforms, making our tax system much more competitive.

But this is not to suggest that we will become complacent, nor that we think our work is done. The nature of a global race is that one cannot be static. But with regards to tax reform, I believe that we have made strong progress towards our goal of the most competitive tax system in the G20.

That we are creating a simpler, competitive, well-enforced tax structure, which will help businesses to help the country back into economic prosperity. That we are putting in place the conditions for recovery and growth.

Thank you.

David Gauke – 2012 Speech on Taxation

davidgauke

Below is the text of the speech made by David Gauke, the then Exchequer to the Treasury, on 5th October 2012.

Introduction

I was delighted to receive an invitation to make the keynote speech here today, at this – CIPP’s Annual Payroll and Pensions Conference and Exhibition.  Celtic Manor played host to one of the great European Ryder Cup triumphs in 2010. And given Sunday evening’s extraordinary efforts over the USA in Medinah, it seems apt to be here. Excitement, drama, triumph and despair – and unlikely comebacks. We all knew dealing with the tax system can be like that – but now we know that those words can apply to golf too.

It is also apt that I give this speech at CIPP’s annual conference.  I have enjoyed very constructive engagement with CIPP, both during my time in opposition and in government, across both policy and operational matters.

And I am pleased to be able to draw attention to an excellent new CIPP initiative here today. Next week CIPP will announce their new national apprenticeship initiative, in conjunction with the Department for Business, Innovation and Skills. The scheme will create up to 600 skilled jobs helping to address the lack of trained resource in financial administration in small and medium sized enterprises.  I see this as an excellent example of how short-term Government seed-corn investment, alongside business, can lever a sustained increase in employer investment in skills, to ultimately support growth.

Before turning to the key matters I want to address, forgive me if I take you back to when I first started work for a major City law firm, as a trainee solicitor in 1995.  Fee earners did not have their own computers.  Communication was through letter, fax or occasionally telex. If you needed to be contacted when out of the office, you could book out the firm’s mobile telephone.

I raise these points not as a nostalgic look back at a more peaceful age, but to highlight how much the world has changed in the last 18 years. Despite the Treasury’s well documented tight-fistedness, I not only have access to the internet, but I don’t need to dial in for it.

But until fairly recently, the world of tax was behind the times. In 2005, most of us were already paying our utilities online, but three quarters of those filling in self assessment forms did so by post.

While my search engine seems to know to offer me discounted tickets to see Ipswich Town FC play at home – we have until recently failed to make use of the technology available to make life as easy as possible for taxpayers.

Of course paying tax is rarely going to be as popular an exercise as buying football tickets – even for an Ipswich match. But in many ways, that makes it even more important to make the process as painless as possible.

Regardless of our opinion on tax, it affects us all and is intensely personal. But much of our experience is framed by the method and manner in which it is collected.

And I believe the extent to which technology can improve that process is limited only by our imagination and initiative.

So I want to talk to you today about how we are using technology to improve the taxpayer experience.

To reduce burdens on households and businesses; to improve transparency; to allow taxpayers to take responsibility for their tax affairs; to help HMRC exercise a fair and efficient approach to tax administration, and to help the public hold government to account for the way it raises and spends their money.

Modernising PAYE

To modernise the tax system has been our goal since my party was in opposition. In my role as a Shadow Treasury minister, I was struck by how cumbersome the Pay as You Earn system was.  David Freud, advising us on welfare reform, was concerned that in order to move to a universal credit system, we needed earnings information in real time.  So for some time, we worked together to find a way to reform radically how PAYE worked.

Since coming into office, we have already made substantial progress to improve the personal tax system, and in particular PAYE, which for too long had been neglected.

HMRC’s new computer system holds all a customer’s PAYE records in one place, for all their employments and pensions. That new system is now delivering much better accuracy and efficiency.

It allows HMRC, for the first time, to see the full tax position of callers to their contact centres as soon as they get in touch – helping HMRC provide a better service.

Through using the new technology, great progress has been made clearing old backlogs – HMRC are over 97 per cent through the legacy cases (those prior to 2007-08) and will clear these by December this year.  They are aiming to be completely up to date on later tax years (2008-09 to 2011-12) by April – ready to start 2013/14 with PAYE in the best shape for many years.

RTI

And we are making further investment in Real Time Information – a system that will bring PAYE into the 21st century by allowing HMRC to receive information on employees’ earnings, tax, and National Insurance Contributions as they are paid, rather than at the end of the year.

RTI is the single biggest innovation in the administration of the tax system since PAYE was brought in after the Second World War.

It will make it easier for employers to administer PAYE and will make tax more accurate.

RTI integrates PAYE reporting with normal business practices; enables employers to provide information more frequently; in time it will let more issues be resolved in-year; and makes it is easier to adjust when employees leave or join within the tax year. The majority of the pilot employers questioned expect a reduced burden when end of year is taken into account. And they have told HMRC they see clear advantages in increased accuracy and simplicity – especially around starters and leavers.

And I’m pleased to say CIPP have also been hard at work making the lives of employers easier.  Their new Payroll Assurance Scheme should help employers ensure their payroll returns are accurate and complete. I wholeheartedly welcome initiatives of this kind in supporting employers, and by extension HMRC, in the payroll process.

In steady state, we expect our new RTI system to save employers around £300 million net per year in admin costs alone. And we also expect reductions in tax credit error and fraud of £300m.

As a consequence the system is expected to pay for itself within a year.

RTI will also provide a key building block for our reform of the welfare system – which will make sure that work always pays, and is seen to pay.

It will ensure DWP have up-to-date information about employment and pension income, so that Universal Credit awards can be assessed dynamically, without people needing to send information about their pension or employment income.

DWP and HMRC have been working closely to make sure the two projects are appropriately joined up. And that the necessary technology to support RTI for Universal Credit will be in place this month – ready for DWP to use from October 2013.

As you will know, we’ve been piloting the RTI scheme since April, and a couple of months ago I travelled to Solihull to make CIPP’s first RTI submission as they joined.

That provided an excellent photo opportunity of the back of my head as I clicked a mouse button – not quite awarding medals at the Paralympics, but at least I got a small cheer….

From next month, large employers will be able to join the RTI pilot or expand existing involvement, and I would encourage all who have not signed up to investigate the requirements and consider joining as soon as possible – the benefit of doing so cannot be overstated.

From the start of our pilot in April, with just 10 employers, we now have over 1600 PAYE schemes in the pilot – exceeding the target for September by over 15 per cent, and with over 1.9 million individual records sent through the system.

And I am pleased I can say that we have received strikingly positive feedback from the pilot employers. It’s not always the case that the words ‘very easy’ are used to describe an HMRC initiative. And it’s even less often that a tax administration reform is described as ‘pretty cool’ – to quote one Twitter user…

But this reflects the work they have been doing with stakeholders and customers – to ensure that RTI works for them.

The achievement is all the more encouraging given the additional impressive work on data quality taking place, which will ensure HMRC sustains the success as the pilot scales up.

Most employers will begin reporting PAYE in real time in April 2013. All employers will be routinely reporting PAYE in real time by October 2013, in time for the introduction of Universal Credit.

Modernising the personal tax system

But this is only a start of our reforms to bring the Personal Tax system into the 21st Century.

In November last year, HMRC published two discussion documents that took our vision further. They presented our plans for the future, and gave a taste of our ambition.

They spelled out our ambition – to deliver a personal tax system that is more transparent and easier to use for the individual taxpayer.

We want to increase awareness and accountability, making it easier for individuals to know what they have paid, what their overall tax rate is, how it has been calculated and when and why they should interact with HMRC.

While this will not happen overnight, we have started the debate. And we want to engage with individual tax payers to understand whether, what, and how they want to see information on their tax affairs.

Tax transparency

For many, the details of tax are difficult to understand, detached from everyday life, a black box of rates, thresholds and reliefs.

They trust their employers and PAYE to get it right for them, and do not understand the system’s limitations and what can go wrong.

It is little wonder that taxpayers find it difficult to work out exactly how much of every pound they earn they get to keep.

The fact that tax is necessary – to support critical public services – should not give Governments carte blanche to take as much as they can get away with.

Governments need to be accountable for what they raise, how they raise it, and how it is spent. And for that to happen, people need to be in a position to understand what they pay and why.

If I were to summarise Government’s vision for tax it would be transparency, simplicity and efficiency.

And in order to deliver that, I have been clear that I want nothing less than to transform the UK Personal Tax system fundamentally to deliver a better experience, and a more transparent approach for the taxpaying public.

Examples of recent achievements

Other countries are already taking decisive steps to help their citizens engage in their tax affairs. And the evidence shows that allowing customers to view and transact with their own tax leads to greater awareness and understanding.

One idea would be for full online personal tax accounts.

Accounts that would allow those who pay tax via PAYE to access their records online, as is already the case for those who declare liabilities through the self assessment process;

That would allow people easily to check and alter their address details at the click of a button;

That would allow HMRC to correspond with millions of taxpayers at minimal cost through a mailbox system;

That would allow people to manage their tax themselves; see their tax rates; and see how those compare to previous years;

And that would allow employers to do the same.

Ultimately, you could access your online account through your phone – “Putting tax back into your pocket” so to speak…

My gas company has been doing this for years –  and perhaps it’s time for HMRC to be in the same position.

Personal tax accounts could be something for the future.  A lot of thinking would be needed on how they might best work for the taxpayer.  But in the meantime, we have already taken steps to improve transparency.

At Budget this last year we announced that HMRC would introduce a personal tax calculator by April 2012 so that individuals can work out how much tax and NI they may expect to pay, and what their effective tax rate is.

That has been delivered and the mobile app version was downloaded 34,668 times in the first 24 hours, and now has around 220,000 downloads – the Guardian made it ‘app of the week’ and it was the second most downloaded free app in Apple’s online iTunes store.

At the last Budget, we announced we would take this further – with tax statements for 20 million customers every year from 2014/15.

But as well as informing individuals on their tax affairs, it will also make it easier to provide up to date information to HMRC.

Helping increase accuracy, reduce burdens on business, prevent fraud and error, and reduce costs to the Exchequer.

We’re also doing work to help out business.  Our new online ‘Business Tax Dashboard’ for example allows businesses to see how much tax they have already paid and how much they still owe.  Just one of a number of measures that has led to reduced admin burdens for business up and down the UK.

And these are just some of the ideas we’ve had.  I want businesses, individuals, and representative bodies like CIPP to come forward with how we can improve tax transparency further.

Tax/NICs integration

Part of that process involves removing misleading elements of the tax system. While the headline standard rate of tax declined between 1980 and 2010, the level of direct personal tax has remained roughly the same. That is because National Insurance – a tax on income, if not strictly speaking income tax – increased.

Jean Baptiste Colbert, the Minister of Finance under King Louis XIV famously said 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”

That certainly seems to have been the approach taken in the recent past, with a persistent policy of keeping tax and National Insurance separate, even though for most intents and purposes, they fall on the same base and go to the same place – the Exchequer. That allowed the previous government to keep headline income tax rates low, despite raising taxes on income.

But I believe people should know how many feathers have been plucked. That is my motivation for tax transparency, and underpins our approach to Income Tax and NICs integration.

As many of you are aware, at Budget 2011 we said we would look at  how best to bring together the operation of income tax and National Insurance contributions.

In doing so, our aim is make the tax system more transparent, and also less burdensome.  Over the past 18 months we have had excellent engagement with organisations such as CIPP to work through the detail. Operational integration is not straightforward, we knew that when we started.  But by working in partnership with organisations such as CIPP we can work through those issues to identify what more we can do to simplify the system for employers and employees. This collaborative approach is essential in such a highly complex area where the potential impacts on employers are significant. It is crucial that major reforms are well thought through rather than rushed.

We also need to consider the impact on the individual as well as business. As set out in the Government’s 2011 publication, “integrating the operation of income tax and National Insurance: next steps” any reforms that make NICs match income tax structure could mean that a significant number of individuals would end up with a different NICs liability.  Some could pay more and others less. Therefore before proceeding with any reform, it is our responsibility to ensure we have a clear understanding of the number of individuals likely to be affected and how they will be affected.

I encourage businesses and representative bodies like yours to continue to engage with us on this and other reforms – as I am grateful to you for doing thus far. I hope to be in a position to provide an update on this detailed programme of work shortly.

Conclusion

The ideas of this Government – and the ideas that we are taking on board from taxpayers and their representatives – offer to use technology to transform the way that tax operates.

Ideas that will make it easier for HMRC to keep information up to date and for taxpayers to provide it.

Ideas that will lead to greater individual understanding of and engagement in their tax affairs.

Ideas that could make the administration of the personal tax system easier for employers and fairer for individuals.

Ideas that will increase accuracy, reduce burdens, and cut costs.

Ideas that will benefit the administration of the tax system, but also taxpayers, and – perhaps most importantly – the debate surrounding what we pay and how we pay it.

Thank you.

David Gauke – 2011 Speech to the Tax Journal Group

davidgauke

Below is the text of the speech made by the then Exchequer Secretary to the Treasury, David Gauke, to the Tax Journal Group on 9th November 2011.

Good afternoon, and thank you for inviting me to speak here today. It’s a pleasure to speak to so many of the leading legal and business executives from the tax industry.

The businesses that are represented today from the backbone of our economy, and are the driving force for our recovery.

Your companies and your success are critical to meeting the growth challenge, creating the jobs, driving the investment, and stimulating the innovation that we need.

But the businesses here today, and the businesses represented on the panels throughout this conference haven’t assumed the position of domestic and global leadership through mere luck. They have done so through enterprise and ambition.

And it’s the same endeavour that this Government supports to lead us through tough economic times.

It’s no small challenge. We are still in the midst of an economic crisis that stretches back three years. What was once the worst financial crisis in almost a century, a crisis of private and banking sector debt, has transformed into a crisis of sovereign debt.

The focus today is on Greece and Italy, but it’s easy to forget that when we came into Government there was much concern about the UK’s fiscal credibility.

Because we inherited a dire economic situation. The largest peace time deficit the country had ever seen, borrowing one pound for every four that we spent, with Standard & Poor’s putting our AAA rating on negative watch.

But through the toughest Spending Review in decades, we set out plans to eliminate the structural current budget deficit by 2015.

It was a plan that meant S&P took us off negative watch. It’s the reason the market continues to back our debt, with gilt yields falling record lows in recent months. When we came to Government our rates were tracking the likes of Spain and Italy. But we managed to break rank, and now we’re tracking the likes of Germany.

And those low interest rates make a real difference to businesses refinancing debts, and households paying mortgages. An interest rate increase of just one per cent, would take as much as £10bn out of families’ pockets, and would bring unbearable pressure on businesses across the country.

Fiscal consolidation is not an ideological commitment it is an economic necessity. And as we face continued instability, now is not a time to change tack. We have to stick to the plan and we will.

But fiscal consolidation begs the fundamental question…where should the burden lie? Spending or taxation?

In our Spending Review we were clear…the burden would fall on spending. Restoring spending as a share of the economy to a level closer to its historical average.

All the international evidence and experience suggest that consolidation through spending restraint would be more likely to promote growth.

Hand in hand with that, we have to ensure that we have a tax system that supports our businesses.

In today’s globalised economy, tax competitiveness is arguably more important than ever.

After years of tariff reform, technological advance, and information revolution we are operating in a much more fluid world economy.

Globalisation and the free movement of capital and labour have created vast new opportunities, and indeed the UK has capitalised on these. And in difficult economic times like these, free and open markets are the most powerful tool that we have for a global recovery.

But globalisation also brings challenges…where our competitiveness slips, we can very quickly be left behind. And more often than not, business success in the UK has come in spite of rather than because of our tax system.

In 1997, the UK had the tenth lowest main rate of corporation tax in the EU. But by the time we came to office, we’d slipped to 20th

According to the World Economic Forum, on an overall measure of competitiveness, in the last decade we slipped from 4th to 12th in the global league table.

We are committed to reversing the decline that has marred the last decade or so.

First and foremost that means making our tax system an asset. Making sure that we have a tax system that supports growth and doesn’t stand in its way.

Our ambition is to create the most competitive tax system in the G20.

This is a big challenge. But it’s one that we can meet even as other countries rise to the task.

In fact I was struck by comments by the former Labour Cabinet Minister, James Purnell in an article in the Financial Times only last week. In it he argues that the British state has is ‘good at fixing problems’… Thatcher after the Winter of Discontent, Tony Blair on the health service, and he also lists, the Chancellor George Osborne through the deficit reduction plan.

Compare our resolve in tackling our deficit with the fiscal deadlock in the US this summer, or the monetary hesitancy in the Eurozone. In James Purnell’s words, not mine, “Britain’s state governs. It’s one of Britain’s real competitive advantages.”

We are committed to creating a tax system which is competitive and stable will provide business with the confidence to invest and expand over the long term.

Higher taxes on profits simply make the UK business environment internationally uncompetitive…reducing the returns on, and the incentive to invest…undermining productivity to the detriment of our private sector and our wider society, rich and poor alike.

That’s why we are reducing the main rate of Corporation Tax by 2014 it will reach 23% – the lowest rate in the G7 and one of the lowest rates in the G20.

We are resisting the European Commission’s proposals for an EU financial transaction tax. Whilst we support the idea in principle, it can only work if implemented globally. Even the Commission itself estimates that the current proposal could reduce EU GDP by as much as 3.4% of EU GDP, that’s €422 bn. And, as the Chancellor said in Brussels yesterday, the tax will be paid by pensioners not by banks and bankers.

Furthermore, as a home to many of the world’s biggest Multi-national companies, our approach to tax needs to reflect the realities of dealing with companies stretching around the world and over different jurisdictions.

A competitive tax system should recognise that fact.

Central to doing that is a move towards a more territorial system of taxation.

That is why we have taken steps to reform the taxation of foreign branches, introducing an opt-in exemption from corporate tax for the profits of foreign branches of UK companies.

And it’s why we are also taking action to improve the Controlled Foreign Company (CFC) rules… rules that have been in place since 1984 and have become outdated.

The consultation on new CFC regime closed at the end of September and I would like to thank all those who have contributed to the debate that has taken place over the summer. You have given us much to think about and I am grateful for the level of engagement from the industry, including from many of you here today.

There will be an update on the CFC proposals in the next few weeks, ahead of the publication of draft legislation, and we remain determined to embed a competitive CFC regime.

However any reform to the tax system has to consider the issue of fairness alongside that of competitiveness.

Facing the deficit that we do, we have had to make difficult decisions on tax….decisions that at times necessarily involve a trade off with competitiveness. But decisions that nonetheless ensure that we embed a tax system that is fair.

Firstly, we inherited the 50p rate of tax from the previous Government.

And we have kept the rate as a demonstration of our commitment to share the burden for reducing the deficit. But we nonetheless understand that higher marginal tax rates are not good for the UK.

We believe that making this permanent would do lasting damage to the UK’s economy which is why we have repeated that this is only a temporary measure.

Secondly, the bank levy.

We believe that it’s right that banks make a full and fair contribution to cutting the deficit, and a fair contribution in respect of the risks they pose to the UK economy.

It is also intended to encourage banks to move to less risky funding profiles. Encouraging them to look to more stable sources of funding rather than flighty short term funding. Because as we saw in the crisis, a liquidity shock can all too easily turn into a system wide seizure.

Banks need to be more resilient to those shocks. Look to secure stability for the long term, working with the grain of our wider reform programme, to underpin a sustainable and stable economy.

But the levy balances that imperative, with our commitment to maintaining the UK’s presence as a leading, global financial services centre.

In delivering tax policies, there are times where it is necessary to make trade-offs.  There are times when different objectives take us in different directions.

But I think it was helpful for the Chancellor, in his March Budget, to set out his principles of good taxation for a modern age.  They are that:

Our taxes should be efficient and support growth.

They should be certain and predictable.

They should be simple to understand and easy to comply with.

And our tax system should be fair, reward work, support aspiration and ask the most from those who can most afford it.

I have said something about how we have made our tax system more efficient and growth supporting.  And about the need for fairness.

But let me say a little about certainty and predictability and simplicity.

Because there are always pressures to add to the complexity of the tax system.  Usually, this is as a consequence of the belief that the tax system should be used not just to raise revenue but also to achieve other policy objectives.

And, of course, there are times when tax can do just that.  For example, it is legitimate for the tax system to encourage expenditure in research and development.

We know that there is a market failure that needs to be corrected because firms reinvesting in R&D cannot capture all the benefits that accrue from investment in this area.

And there is a place for using the tax system so that externalities are incorporated into the cost of a good, for example.

But there are those that argue that we can go further, that we distinguish between ‘good’ and ‘bad’ business practices and tax them accordingly.

On examination, this raises many issues.  Some would say that we should favour ‘long term investment’ versus ‘short term speculation’.

But should the tax system encourage people to hold onto an investment for longer than they want to solely to benefit from a tax break?  That would damage economic efficiency.

We could see whole business models facing a changed tax regime because of the activities of one or two businesses that attract negative headlines – thus damaging predictability.

And the history of providing tax breaks to encourage particular types of behaviour has often resulted in avoidance opportunities that have proved to be very expensive.  Which was then followed by complex anti-avoidance provisions.

There is always a risk that attempts to use the tax system to influence behaviour can result in additional complexity and uncertainty for businesses.

So, for the avoidance of doubt, it is not the Government’s attention to assess all businesses and divide them into producers and predators.  And then apply different tax rates to them, perhaps with a ‘predator surcharge’.

Of course, such an approach would place considerable extra demands on HMRC.

HMRC already faces a substantial and difficult task to effectively protect the tax base, ensuring that businesses and people pay what they owe.

We want a tax system that supports business, that demonstrates that the UK is open for business, but doesn’t leave the tax base open to exploitation.

It’s impossible to protect low and competitive rates, if we’re not prepared to protect the tax base.

This isn’t something that can be achieved through sabre rattling however.

How companies experience the UK tax system is as important to tax competitiveness as the headline rates that we set.

It means that our approach to tax collection has to be as intelligent as it is vigilant.

That’s why I support the work of HMRC’s Large Business Service. And it is why I think it is right than an approach of constructive engagement between HMRC and taxpayers is in the best interest of maximising revenue collection, and expanding business activity in the UK.

It’s an approach based on cooperation and trust. Trust from Government in business not to engage in aggressive avoidance. And trust from business in Government and HMRC to treat them fairly and work in complete confidence.

With ever increasing complexity of business affairs, increased cooperation is the only route to efficient and competitive tax systems. It goes hand in hand with the headline reduction in tax rates.

We’ve come a long way in the last year alone to restore UK competitiveness.

Indeed, according to the World Economic Forum, for the first time in a decade the UK has moved back into the top 10 in the global competitiveness index.

But we still have a long way to go, and in difficult economic times it is vital that we work together to understand what more, or indeed what less, our Government can do to boost competitiveness and promote growth.

I look forward to working with you all in the years to come.