A few quick thoughts on the Chancellor’s statement

As with last year, there is likely to be much written on the blogosphere and in newspapers over the next few days dissecting George Osborne’s Autumn Statement. Rather than attempting to extensively cover it, I just seek here to tease out a few of my own notes on the tax issues which arose in the Chancellor’s speech.

The first is the decision to cut HMRC funding by 18%, or as expressed in the speech, HMRC’s agreement to make efficiency savings of 18%. That is a very significant cut-imagine the consequences for the body if one decided to eat 18% less? That would be a day and a quarter without food! Needless to say, much like binge dieting of this sort, the cut is also counterproductive. The end result will likely be a reduction in tax receipts. This is due to the fact that discretion in the hands of HMRC is contingent upon resource constraints. As discretion is increased, the number of arrangements that the Revenue may permissibly reach which do not collect the full amount of tax that might otherwise be due, also increases. The dicta of Lord Diplock in the Fleet Street Casuals case is authority for this suggestion:

“In the exercise of these functions the board have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge, the highest net return that is practicable having regard to the staff available to them and the cost of collection” (R v IRC, ex parte National Federation of Self-Employed and Small Businesses [1982] AC 617 (HL), at p. 637)

The second is the hypothecated tampon tax charge. By way of brief background, tampons are categorized as “luxury” products for VAT purposes and incur a VAT charge of 5%. The reason for this is that VAT (introduced in 1973) is harmonised within the EU and as a result, classes of products which are subject to different rates of charge were agreed with the EU in 1972 (h/t Aisling Donohue, “zero rates” were not frozen until 1991). At that point, it was agreed that tampons would be classed as a “luxury” item, although it might be worth noting that Johnson & Johnson started producing tampons in 1974. Osborne today announced that the UK government would seek to negotiate with the EU to reduce the tax on the product so that it is zero-rated for VAT purposes. Until that point, the tax collected from the charge will be put to women’s charities. My first thought is that this is a fantastic idea. My second thought is – why bother even negotiating to remove the charge and not just continue to hypothecate the charge? This will provide a vital stream of revenue to these charities. Whilst it might be argued that there is no reason that this charge should come directly from women’s products, and I would agree that it ought not to be a burden imposed solely upon women, it is worth considering, in practice, just how difficult it is to convince government to hypothecate taxes at all. Or how almost politically impossible it is to raise any new kinds of taxes, the revenues of which could be put directly to such charities. (Note (added Wednesday 25 November 19h21) having just read why these charities are having funding difficulties in the first place, I no longer support these assertions. They were first thoughts after all-and first thoughts are rarely correct!)

My final thought goes to Northern Ireland, the 6 counties located above my country of birth. After years of lobbying, the country is finally to get autonomy to set Corporation Tax rates and, unsurprisingly, has endeavoured to reduce the rate to 12.5% to match the Republic of Ireland’s rate. The idea is that Northern Ireland has been neglected in terms of Foreign Direct Investment, to the benefit of its southern relation, by reason of the differential in Corporation Tax rates. When the Republic benefitted hugely from the Celtic Tiger boom in the 90s, generated by a massive influx of foreign capital and companies, an equivalent economic surge was not felt north of the border. But it is misconceived to believe that this Celtic Tiger was solely brought about by the 12.5% rate, as I suggested here, not least because the Republic of Ireland’s Corporate Tax rate has been this low since the inception of the State, but did not achieve prosperity until the 90s. So too it is misconceived to believe that a lowering of the rate to 12.5% will bring about some magical influx of foreign capital and resurgence of Northern Ireland’s staggering economy.


About taxatlincolnox

Tax law academic. With this blog, I seek merely to contribute to the debate. All thoughts are mine, of course.
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