Helen Miller

Is the international tax system fixed and fit for purpose or still in need of serious remedial action? Should we hold off on introducing further anti-avoidance measures until current policies have had time to work or forge ahead with fixing our broken system? Helen Miller, an associate director who runs the tax sector at IFS, explores these issues in Tax Journal.

We provide evidence on how changes in the use of high-skilled workers (inventors) in a foreign location affect a firm's domestic use of the same type of worker. We exploit rich data that provide variation in the location of inventors within multinational firms across industries and countries to control for confounding firm–time and industry factors. We find that a 10% increase in the use of foreign inventors leads to a 1.9% increase in the use of domestic inventors. Our results suggest that foreign and domestic inventors are complementary in the production of knowledge.

By the end of the parliament, tax receipts are due to return to their pre-recession share of national income. However, compared with 2007/08, policy choices mean the taxman looks set to raise more from VAT and less from other indirect taxes; about the same amount from personal income taxes, though with more of that coming from the highest earners; less from the main property taxes; and substantially less from corporation tax. HM Treasury will be more reliant on small taxes, including five entirely new ones. Whether these changes have been part of a clear and coherent overarching strategy is, to put it kindly, unclear.

Between 2007–08 and 2009–10, total government receipts collapsed – they fell by over 9% in real terms and were 2% lower as a proportion of national income – largely as a result of the financial crisis and resulting recession. By the end of this decade, government receipts are forecast to be 37.2% of national income,2 a little lower than in 2007–08 (37.5%) but higher than in 2009–10 (35.8%) and 2015–16 (36.3%) and a little higher than the average level over the two decades before the recession (36.4%). On the face of it, these aggregate numbers imply that, by 2020–21, we will be more or less back where we started, raising around the same proportion of national income in revenue as just before the crisis. However, this masks considerable changes in the composition of receipts.

This paper is a response to the House of Commons Treasury Committee's call for evidence for their inquiry into UK tax policy and the tax base.

Corporation tax was one of the most active policy areas under the coalition government in power in the UK from 2010 to 2015. This paper reviews the policy changes and sets out where they leave the UK corporate tax system.