The current UK system of fiscal events is not allowing organisations to focus on long-term planning and instead creates a burden for British business. This is the result of a survey of the Chartered Institute of Management Accountants (CIMA) among 602 finance professionals. Four in ten (41%) CIMA members consulted state that long term plans within their organisations have been disrupted by changes to economic, tax and regulation policy. CIMA is therefore asking the Chancellor for more cuts to the fiscal calendar and a reduction of the number of Budget statements.
According to a study undertaken by Martin Wheatcroft, former chief accountant at the National Grid, there has been an increase in the number of tax policy changes in previous budgets, with around half of the 1,453 changes in tax policy in the last 45 years being made between 2010 and 2016. As many as 263 occurred in the last two years alone, creating an increasingly complex fiscal landscape for British business.
Proving how unsettling policy change has been, nearly half of UK finance professionals (46%) claim that the ambiguity of forthcoming fiscal events cause as much as or more uncertainty to their businesses than Brexit. In addition, 67% of polled CIMA members are asking for less frequent changes to regulations, subsidies and taxes.
At the same time, the continual micro adjustments in tax policy are not overly financially effective. Each tax policy change has affected the public purse by an average of just £0.3 billion a year in the five fiscal years following its announcement. This shows that the benefits of the current system of fiscal planning and strategy are negligible. Instead, the Government’s five year forecasts have lacked accuracy and been consistently overoptimistic. By focussing on fewer and more significant tax policy changes the burden on business and individuals might be reduced and instead more stability for future economic growth could be created.
In place of the current system, CIMA proposes reducing the number of Budget statements each Parliament to just two – a Five Year Spending Review and Budget, to take place near the start of each government’s term, and a mid-Parliament review. Checks on the nation’s finances would be maintained thanks to an Annual Performance Review each summer, where the just completed financial year and the latest forecast for the coming year would be reviewed and spending plans adjusted as necessary to reflect circumstances.
This longer-term approach would help focus on outcomes rather than inputs, allowing ministers and departments to focus on delivery. Without such changes, governments run the risk of stifling organisations’ ability to thrive amid economic uncertainty, as Brexit negotiations begin.
Martin Wheatcroft, author of ‘Simply UK Government Finances 2016/17’ said:
“Despite last year’s announcement to eradicate the Spring Budget, there is still room to improve the efficiency and impact of the UK’s fiscal system. An average of more than 100 changes in tax policy each year is not good for business, for individuals, or even for government. How can we focus on growing our businesses, the economy and saving for our futures, when we are constantly changing course?
“All of us would benefit from a much more stable tax and regulatory system, not least the government itself. The reform that CIMA proposes would not only benefit businesses by reducing costs in the short-term and by supporting their ability to plan for long-term growth, but it would also help government to manage the public finances more effectively.”
Andrew Harding, Chief Executive – Management Accounting of the Association of International Certified Professional Accountants, of which CIMA is a part, concluded:
“Until the Chancellor’s Autumn Statement announcement, the UK was the only major advanced economy to make significant changes to the tax system twice a year. This reform was certainly a step in the right direction, but it’s not nearly far enough.
“By adopting a Five Year Spending Review and Budget, a mid-Parliament review, and Annual Performance Reviews the Government would introduce a world-leading system that takes a longer term view, meddling less but achieving more.
“With the backing of Martin Wheatcroft and our members, we urge the Chancellor to break further with tradition, and value consistency over political capital. We believe business, society and government will be better off taking a long-term view that is focused on financial viability and value creation.”
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