Lords slam government’s handling of tax policy

12/06/08 00:02

The government has been criticised for recent changes to the tax system in a damning report published by the House of Lords today.

The Lords’ Finance Bill Committee has released its annual analysis of changes introduced in the Budget, and it will not make happy reading for chancellor Alistair Darling.

The government was slated for failing to consult with businesses on the impact of its policies, including changes to rules surrounding capital gains tax and non-domiciles, instead dropping a number of tax bombshells on them.

In particular, the Lords criticised the sudden revelation that capital gains tax (CGT) taper relief would be scrapped in November’s pre-Budget report, which sent shockwaves through the business community and sparked a number of petitions.

“We see no reason why there could not have been earlier, better and more open consultation,” the report said.

“The feeling that the system is unstable and subject to severe shocks cannot be good for the competitiveness of the UK economy.”

The report also expressed concern that changes to non-domicile tax rules will hamper UK competitiveness by deterring foreign entrepreneurs and investors from doing business here.

Commenting on the report, Lord Vallance, chairman of the Committee, said: “We have heard harsh criticism from the private sector of the way in which the residence and domicile initiative was handled. It was claimed that the shocks which have been given to the tax system by these changes and those to capital gains tax may undermine the stability of the tax regime and UK competitiveness.

“Our general impression from the evidence we received was that this year the formulation of tax policy has been marked by uncertainty of direction.”

The report also argued that the government had failed to make a compelling case as to why the changes would benefit the UK, suggested a code of practice be drawn up for future consultation on tax policy, and made a number of recommendations to “restore the certainty and predictability which investors need”.