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George Osborne: No more stealth taxes

Speaking at the launch of the "Making Taxes Simpler" report at the Institute of Chartered Accountants of England and Wales, George Osborne said:

"I'd like to thank Geoffrey Howe for all his work in producing this excellent report.

Geoffrey has been campaigning on this issue for longer than I have been in politics, and since he is the last Conservative Shadow Chancellor to actually become Chancellor, I naturally pay close attention to his record.

Thank you also to the rest of the group, whose distinguished membership includes a former paymaster general, a former senior adviser in the Treasury, a leading tax QC and a former chairman of the ICAEW's own Tax Faculty Technical Committee.

So thank you to Stephen Brandon, Adam Broke, Lord Cope, Kwasi Kwarteng and to my Parliamentary colleagues John Bercow and Andrew Tyrie.

It's hard to think of a group better equipped to fundamentally reform the way we make tax law in this country.

I'm sure that the members of the ICAEW need no convincing of the urgent need for that reform.

Yesterday saw the final Parliamentary stages of the 2008 Finance Bill.

The history of this complex and unwieldy piece of legislation provides a perfect lesson in how not to make tax policy.

The sorry story of badly thought through proposals, complex initiatives and humiliating u-turns that have gone into the making of this one Bill is almost as long as the tax code itself:

the £500 million tax rise on enterprise,

the ill-conceived and badly drafted changes to the remittance rules and the taxation of offshore,

the unworkable proposals on income shifting and foreign profits, neither of which have, thankfully, yet made it into law;

and the endless stealth taxes - on the poorest paid, on small companies, and on the owners of cars bought up to seven years ago.

As the report states, individually each of these episodes has been damaging.

But collectively they have served to undermine the UK's reputation as stable environment in which to work, save and invest.

The reasons for these failures are partly political - Budgets and Pre-Budgets have been driven by the shortest of short term tactical considerations with little apparent regard for the longer term economic consequences.

Combined with an obsessive desire to raise taxes by stealth, this has progressively undermined public trust in the tax system.

The Labour dominated Treasury Select Committee hit the nail on the head last week.

They said: "For personal tax decisions, the sudden and final nature of Budget decisions has been less about the need to prevent forestalling activity than it has been about the perceived benefit of seeming to pull rabbits from the hat."

Sadly Gordon Brown's rabbits have too often ended up looking like dodos.

I see today that Labour Treasury Ministers have dismissed Lord Howe's proposals without even reading his report. It shows how short term and partisan their focus has become.

Their comments also betray a fundamental misunderstanding of how anti-avoidance measures work in practice.

But the reasons for the poor quality of our tax law are also structural.

I have sat, both as a backbencher and a front bench member of Finance Bill Committees and watched in dismay as the Treasury produces hasty and ill-thought-out changes to our tax code that then pass into law with little consultation and no real scrutiny. That has to change.

The capacity of Parliament to scrutinise tax legislation has been overwhelmed by the Treasury's accelerating tendency to produce it.

This government's short term approach to tax policy and the structural flaws in our system are the reasons why, almost three years ago, I commissioned Lord Forsyth to lead a group of distinguished experts in the most thorough review of the tax system ever carried out by an opposition party in this country.

And it is why I asked Geoffrey Howe to take forward the Tax Reform Commission's ideas on reforming the way we make tax law - not least because it is his ideas that have underpinned so much thought in this area over the last twenty five years.

I am extremely glad that Geoffrey agreed, because this is a truly excellent report.

Let me tell you how we will take this forward.

I can announce today that the next Conservative Government will create an Office of Tax Simplification as proposed in the report.

The OTS will include HMRC and Treasury officials, academics and crucially members of the professions, whose remit will be to systematically examine the existing tax code and make proposals for simplification.

As the report suggests, I hope that it will become an authoritative, independent and permanent voice on tax law, operating in a similar way to the National Audit Office, which will create a sustained and powerful institutional pressure for the simplification of the tax system.

I can also announce that the next Conservative Government will significantly improve the parliamentary scrutiny of new tax legislation.

As Chancellor I will introduce and entrench a new convention that proposed changes to tax law that are of a technical nature will be produced, together with draft legislation if that is possible, no later than the Pre-Budget Report before the Finance Bill in which they are to be included.

So many of the problems we have seen over the last eleven years could have been avoided if such a simple convention had been in place.

This new convention will be combined with proper Parliamentary scrutiny, and I want to make sure that the extraordinary wealth of experience and expertise in this area that is available in the House of Lords is properly used.

As the report makes clear, existing work by the Joint Committee on Tax Law Rewrite Bills, as well as the Lords Economic Affairs Sub-Committee on the Finance Bill, has shown that it is perfectly possible to use these resources without compromising the exclusive privilege of the House of Commons when it comes to the rates and incidence of taxation.

Anyone who has been involved in the process of making tax law will see that they constitute nothing short of a revolution in our framework for making and scrutinising tax policy.

The result will be that simplification becomes a embedded feature of tax policy.

It will also mean better tax law as we bring more expertise to bear on legislation.

And it will mean no more stealth taxes. The Government will no longer be able to bury the bad news in the small print.

At a time of deep economic difficulty, the last thing the Treasury should be doing is creating yet more uncertainty and instability.

With these proposals a future Conservative Government will restore trust in the tax system so that businesses and individuals can work, save and invest with confidence.

Simpler taxation. Better tax law. No more stealth taxes.

By making the long term institutional changes proposed by the Conservatives today, that will be true not only of the next Conservative Government but also of the many governments after that."

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