Broken tax system is killing economy, says ex-City lawyer

After months of febrile speculation, it’s now clear that next week’s Budget will batter Britain with more punishing tax rises. But for self-confessed ‘tax nerd’ Dan Neidle, a former City lawyer who shot to fame after exposing the tax affairs of former Tory minister Nadhim Zahawi, how the Chancellor fills an estimated £30 billion black hole in the public finances is a source of endless fascination.

‘Most tax rises hit growth,’ he says, calling on Reeves to choose the option that has ‘the least worst impact’. He argues that if the Government opts for tax rises, rather than spending cuts or more borrowing, then it should ensure the pain does not fall solely on workers.

‘If I were her, I would cut employee National Insurance by 4 per cent and increase income tax by 3 per cent,’ a move he reckons would raise £8 billion.

‘It would be a tax cut for employees and a tax increase for landlords and retired people,’ he says.

‘People should pay the same tax. It’s not fair that someone who is working should pay more than someone retired or living off investments.’

Neidle acknowledges that such a step would technically break Labour’s pledge not to raise income tax, but points out that ‘for an employee, it would actually be a tax cut’.

However, he doubts Reeves will make any bold moves, which he says will be ‘ultimately damaging for the economy’.

He is right to be pessimistic. Just last week Reeves ditched widely telegraphed plans to increase income tax, with the Chancellor instead said to be aiming for a ‘smorgasbord’ approach of raising taxes drawn from narrower bases.

But Neidle warns it is precisely this piecemeal ‘tinkering’ that has left Britain’s tax system ‘dysfunctional and one of the least competitive’ globally, stifling growth.

Britain has one of the world’s most complex tax codes, stretching to more than 23,000 pages.

Neidle has called for scrapping stamp duty, cleaning up inheritance tax and a rethink of property levies to simplify things.

He says: ‘Stamp duty on property stops people moving, adds to human misery and holds back the labour market. Stamp duty on shares is just as damaging. Why would we want to make it harder and more expensive to invest?’

He is also critical of changes to inheritance tax announced in last year’s Budget, which he claims will leave loopholes for avoiders while penalising small businesses and family farms.

He says: ‘You end up with small companies and farms broken up to pay the bill, while those with slick advisers get away unhurt. That cannot be right.’ Neidle was thrust into the spotlight in 2023 when he uncovered that the then Conservative Party chairman and former Chancellor Nadhim Zahawi had underpaid millions of pounds of capital gains tax – a revelation that ultimately saw him sacked by Rishi Sunak, the Prime Minister of the day.

At the time, Zahawi’s legal team sent letters to Neidle to try to prevent him from publishing information about the Tory politician’s tax affairs.

However, he released the correspondence publicly 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 tribunal found he had broken its code of conduct by trying to stop Neidle publishing his allegations.

Since then, the tax crusader has turned his beady eye on Labour’s former deputy Prime Minister and Housing Minister Angela Rayner, who resigned in September after being found to have underpaid stamp duty when buying a flat in Hove, East Sussex.

‘What surprised me was how she gave a misleading impression of confidence and certainty when she hadn’t done the work to back it up,’ Neidle says.

His bluntness and willingness to take on the big beasts have made him an influential figure in the UK tax world.

But he says he did not set out to become the country’s unofficial tax watchdog.

Before his run-in with Zahawi, Neidle worked as head of tax in the London office of legal giant Clifford Chance.

He joined the firm in 1998 and in 2008 he was made partner – ‘terrible timing’, he jokes as it coincided with the financial crisis.

Neidle left the firm in the pandemic to set up Tax Policy Associates, an independent think-tank that critiques policy and tries to expose those exploiting taxpayers.

Neidle says the complexity of the system has led to a flood of unregulated businesses selling questionable schemes under the guise of helping people organise their finances.

‘In the old days, it was big corporations raiding the Exchequer. Now it’s unregulated firms raiding their own clients. My role is as much about defending people from conmen as it is about policy.’

Turning back to the gaping hole in the public finances, Neidle is characteristically blunt.

‘You can either fill it with spending cuts, or you can fill it with tax rises. But it’s a fantasy to pretend there’s some magic third option,’ he says.

He also blasts repeated leaks from the Government over potential tax and spending policies.

‘They scare people off from investing or moving house. People tell themselves they’ll ‘wait until after the Budget’, and that can’t be good for growth.’

For Neidle, Britain’s ultimate failure is not that it taxes too much – the Nordic countries have higher rates – but that it taxes badly.

‘They manage to raise more money in a stable, rational, competitive way,’ he says of Scandinavia. ‘We do the reverse; our system is irrational and anti-growth.’

Neidle also warns that the tax system has become ‘a ratchet that only ever gets worse’ and radical change is needed.

He says: ‘We either pay more tax or accept fewer public services. Unless we face up to that, our economy is going nowhere.’