TAX reform is set to play a significant part in the next general election, due in less than three years. I have referred in recent weeks to calls for the abolition of inheritance tax (IHT) and stamp duty. These speculative shots are to be augmented by heavier artillery.

Possibly before the election, we can expect the deeper thoughts of a high-powered tax review launched last week by the well-respected Institute for Fiscal Studies (IFS).

In 1978, a similar IFS review urged a move from income to consumption taxes, and it is astonishing how we have since got used to the price of a wide range of goods and services being inflated by more than a sixth to pay value-added tax.

Less palatable have been Gordon Brown’s determination to squeeze as much tax as he can from property, through stamp duty and IHT, and the increasingly aggressive attitude to tax collection by Revenue & Customs. These developments have occurred with virtually no discussion, and no mandate from the public.

So Robert Chote, the IFS director, is right to say that the time is ripe for another examination of the tax system. Life has moved on since the 1970s. The internet has made it much easier for companies and individuals to avoid tax, because they can buy from foreign websites and possibly skip Vat.

Meanwhile, too little has been done to eliminate the poverty trap, whereby many of those on state benefit do not have enough financial incentive to go back to work.

One of the worst examples of the current piecemeal thinking about tax surrounds the issue of saving and borrowing. The government decided that, because of graduates’ greater earning power, it should turn student grants into loans. But it then expanded the student population to half of all school-leavers, producing a generation of borrowers rather than savers who cannot normally escape the triple burden of student loans, mortgages and raising a family until they are in their forties.

Brown has replaced personal equity plans with less- generous individual savings accounts, which he may yet abolish because he believes that tax relief favours only the well-off. But he has done little to encourage saving among the poorest, other than stakeholder pensions and child trust funds, neither of which have been taken up with much enthusiasm.

Result: millions are reaching retirement age with barely a bean to their name. So what does the government do? It comes up with the A-Day pension rules, which vastly favour the wealthy, and tries to cajole everyone else into working longer — to pay the taxes to finance the more generous pensions they will need to make up for their lack of personal savings.

The IFS review is chaired by Sir James Mirrlees, an economics Nobel prize winner. He and his committee will need every ounce of their undoubted brainpower to sort out the mess our taxes are in.

Pensions shambles

MIRRLEES should be forgiven if his eyes glaze over at the tosh packed into the Department for Work and Pensions’ white paper published in May, and some of the submissions it has prompted — “inspired” would be too ironic.

The pensions white paper was painted with such a broad brush that it was begging for someone to fill in the blanks, and most of the financial- services industry has been among the 10,000 — that’s right, 10,000 — people who have so far lobbed in their two pennies’ worth. Tomorrow marks the end of the consultation period, thank goodness.

Fatter state pensions and, as mentioned above, older people working longer are two ideas. But the centrepiece is a pensions account — cosily called the Britsaver — that is designed to help non-savers to save, mainly by frogmarching them into occupational schemes into which employers will be compelled to pay.

While the Association of Chartered Certified Accountants (ACCA) frets that too many low-paid people won’t find it worth their while to take out a Britsaver, especially with a more generous state pension to cushion them, the Association of British Insurers (ABI) fears that the plans may damage the savings of those already in company schemes unless existing rights to guaranteed benefits and so on are protected.

The ABI thinks large employers will dilute their existing schemes down to the minimum laid down by the white paper, and the ACCA thinks the proposals will drive many small businesses to the wall.

None of this will happen for at least six years. Meanwhile, I recommend you shovel as much as you can into a personal pension to immunise yourself from what promises to be an unholy shambles.

Opening time

DIANA WRIGHT’s postbag shows that many readers are devastated to find they are too late to chase compensation for mis-sold endowment policies, because the Financial Services Authority insists they must do so within three years of receiving a “red” letter warning them their policy is unlikely to cover their mortgage.

But a new ruling by the Financial Ombudsman Service has lifted that deadline for a couple who were too confused to decide what to do.

It is still too early to say how wide a precedent this sets, but hold on to your documents: the floodgates may be about to open.