Broken tax system is killing economy, says ex-City lawyer
After months of feverish speculation, it is now clear that next week’s budget will hit the UK with more punitive tax increases. But for self-described “tax nerd” Dan Neidle, a former City barrister who rose to fame after exposing former Tory minister Nadhim Zahawi’s tax dealings, how the Chancellor has plugged an estimated £30bn black hole in the public finances is a source of endless fascination.
‘Most tax increases hit growth,’ he says, urging Reeves to choose the option with the ‘least bad impact’. He argues that if the government opts for tax increases rather than spending cuts or more borrowing, it must ensure that the pain is not placed solely on workers.
‘If I were him, I would cut and increase employees’ National Insurance by 4 per cent.’ income tax He thinks a 3 per cent move would generate revenues of £8bn.
‘This would be a tax cut for employees and a tax increase for homeowners and retirees,’ he says.
‘People should pay the same tax. It’s not fair that someone who is working pays more than someone who is retired or living off investments.’
Neidle accepts that such a move would technically break Labor’s promise not to raise income tax, but notes that ‘for a worker it would actually be a tax cut’.
Related: For self-confessed ‘tax nerd’ Dan Neidle, how the Chancellor has plugged an estimated £30bn black hole in the public finances is a source of endless fascination.
But he is skeptical that Reeves will make bold moves, saying it would be ‘extremely damaging to the economy’.
He is right to be pessimistic. Just last week Reeves abandoned widely telegraphed plans to raise income tax, with the Chancellor saying he was instead aiming for a ‘buffet’ approach of increasing taxes from a narrower base.
But Neidle warns that it is precisely this piecemeal ‘fix’ that has left the UK’s tax system ‘dysfunctional and one of the least competitive globally’ and hinders growth.
Britain has one of the most complex tax laws in the world, spanning more than 23,000 pages.
Neidle calls for scrapping stamp dutycleaning inheritance tax and rethinking property taxes to simplify things.
It says: ‘Stamp duty on property prevents people from moving, increases people’s misery and holds back the labor market. Stamp duty on shares is equally harmful. Why would we want to make investing more difficult and more expensive?’
He is also critical of changes to inheritance tax announced in last year’s Budget, claiming it will penalize small businesses and family farms while leaving loopholes for evaders.
He says: ‘Small companies and farms are falling apart to foot the bill, while those with resourceful advisors escape unscathed. ‘This can’t be true.’ Neidle came into the spotlight in 2023 when he revealed that then-Conservative Party chairman and former Chancellor Nadhim Zahawi had underpaid millions of pounds of debt. capital gains tax – a statement that eventually led to his sacking by then Prime Minister Rishi Sunak.
At the time, Zahawi’s legal team sent letters to stop Neidle from publishing information about the Conservative politician’s tax affairs.
But he made the correspondence public and stood by his analysis.
Last year, one of Zahawi’s lawyers was ordered to pay £310,000 by the Solicitors Regulation Authority after a court found Zahawi had breached its code of conduct by trying to stop Neidle publishing his allegations.
Since then, the tax dodger has set his sights on Labour’s former Deputy Prime Minister and Housing Secretary Angela Rayner. Rayner resigned in September after it was revealed he had underpaid stamp duty when buying a flat in Hove, East Sussex.
‘What surprised me was how he gave a misleading impression of confidence and certainty when he didn’t do the studies to back it up,’ says Neidle.
His outspokenness and willingness to tackle the big beasts has made him an influential figure in the UK tax world.
But he says he didn’t set out to become the country’s unofficial tax watchdog.
Before meeting Zahawi, Neidle was working as a tax officer in the London office of legal giant Clifford Chance.
He joined the firm in 1998 and became a partner in 2008; He jokes that it’s “terrible timing” as it coincides with the financial crisis.
Neidle left the firm during the pandemic to found Tax Policy Associates, an independent think tank that criticizes policy and seeks to expose those who exploit taxpayers.
Neidle says the complexity of the system has led to an influx of unregulated businesses selling dubious schemes under the guise of helping people organize their finances.
‘In the old days, it was big companies that raided the Ministry of Finance. Unregulated companies are now raiding their own customers. My job is as much about protecting people from scammers as it is about politics.’
Turning to the huge gap in public finances, Neidle is characteristically blunt.
‘You can either fill it with spending cuts, or you can fill it with tax increases. But pretending there is a magical third option is a fantasy, he says.
He is also critical of the constant leaks from the Government on potential tax and spending policies.
‘They scare people away from investing or moving house. People are telling themselves, ‘They’re going to wait until the budget is finished’ and that can’t be good for growth.
According to Neidle, Britain’s ultimate failure was not that it taxed too much (the Scandinavian countries had higher tax rates) but that it taxed poorly.
“They manage to raise more money in a stable, rational and competitive way,” he says of Scandinavia. ‘We do the opposite; Our system is irrational and anti-growth.’
Neidle also warns that the tax system has become ‘an increasingly evil cog’ and that radical change is needed.
He says: ‘We either pay more taxes or accept fewer public services. ‘Our economy is not going anywhere unless we confront this.’
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