Progressive Policy Insitute, Washington DC. 1 April 2009.

Introduction

The fundamentals of the UK's tax system, the way that citizens pay tax, was established as World War II came to a close. Taxing many more working people to meet the demands of war, required a new more centralised system, Pay As You Earn (PAYE). It was an emblem of the post-war era where the nation state was dominant, mass production was in the ascendant and jobs for life provided economic security. It was a society built on high levels of deference and low levels of expectation, where men went out to work and women stayed at home. Over half a century later the certainties of post-war Britain have gone, undermined by fundamental economic, social and political change.

To work successfully tax policy has to fit the circumstances of its time. In recent decades tax and spend policy has been the central battleground of British politics. The advent of globalised economies and assertive citizens has called into question the size of the State and the role it plays. But this debate until recently has focussed almost exclusively on what the State should do rather than on how it should do it. Now some are starting to question the operation of State functions and whether they are keeping pace with the changes we are witnessing. Tax policy is coming under the spotlight as doubts grow about whether it is structured appropriately to meet the challenges of the modern world. The Institute for Fiscal Studies, for example, will shortly publish the Mirrlees Review, a fundamental review of the UK's tax system, covering all areas of tax design including the way in which tax is collected.

This short paper examines the UK's tax collection system and the pressures it is under. It considers the changing context that it faces. And in describing some of the responses made by other countries it looks at some options for reform.

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