The Government constantly uses the competitiveness of our tax system as a means of attracting business to the UK. Its natural tendency is to focus on key policies and headline tax rates, but it is how the tax system operates in practice that is crucial both to competitiveness and, more parochially, to effective tax collection.

The reality is that spending cuts imposed on HM Revenue & Customs (HMRC) and the wider tax system over the past few years are now biting, and a denuded and demoralised department is struggling to cope with the ever more complex regimes imposed by policymakers.

The standard of statutory drafting has fallen over the past few years. This hurts taxpayers and the Exchequer: nobody’s interests are served when legislation fails properly to implement policy.

Scarce resources are being deployed recasting perfectly effective legislation in plainer English, part of the Government’s well-intentioned but ultimately pointless Tax Law Rewrite Project. And on occasions, errors have been made.

There is a worrying focus on clarifying this bad legislation through generic published guidance (which courts construing the law will ignore).

This practice raises profound constitutional questions, given how easily guidance can be changed without any input from the legislature.

Even where the law is clear, it may be wrong. The 2008 Budget contained the fourth attempt since 2003 to make the rules relating to stamp duty land tax on partnership transactions match the policy (previous iterations having, at one point, unreasonably inconvenienced taxpayers but at another costing the Exchequer untold millions in easily constructed avoidance schemes).

Poor statutory drafting also increases the burden on already overstretched tax authorities. Taxpayers, understandably, expect to be able to approach HMRC to seek clarification on often ambiguously drafted new law, and HMRC is generally obliged to provide it. But in too many areas, the underresourced department lacks the capability to do this properly.

The frustration is palpable when one receives a written response that is wrong on its face, and then, when seeking clarification on the telephone, is told by the author that he has no legal training.

Even that much progress can now be difficult to achieve, with HMRC moving away from permitting phone contact with the technically qualified staff who actually resolve questions. Instead it is all too common to have to call a general helpline where non-tax specialists feed queries into a black hole from which they may or may not emerge in a reasonable time or, indeed, at all.

Even simple mechanical matters of no technical difficulty are proving a problem. VAT registration is probably the most publicised. Security checks, introduced to combat carousel fraud, mean that this simple but critically important task can now take several weeks — weeks during which a new business cannot issue VAT invoices to customers and so is subject to uncertainty, commercial disadvantage and extra administrative burdens.

There are less prominent issues, too. For example, there is no facility to pay stamp duty in London — the city the Government likes to portray as the world’s leading financial centre. While-you-wait stamping can now be accomplished only in Birmingham . . . and only by appointment.

What makes the decision to strip back expenditure on the tax system even more perplexing is the obvious resulting costs to the Exchequer.

An under-resourced HMRC is one that is unable to challenge effectively questionable positions taken by taxpayers. It may be something as simple as not inquiring into a tricky point on a tax return; it may be losing or failing to pursue a debate about whether a transaction was on arm’s length terms (with a phalanx of highly paid economists instructed by the taxpayer lined up against HMRC’s tiny team); it may be deciding to legislate to prevent future use of an avoidance scheme, but not to challenge it in the courts where it has already been used. However the problem manifests, serious amounts of tax are being lost.

All of this is hugely damaging to the competitiveness of the UK. Poor administration is a powerful negative itself, but defective policy implementation and ineffective enforcement also leads to a shortfall in tax revenues that must be made up elsewhere in higher rates or new taxes.

It was the Conservative Party that first proposed that cuts to HMRC would result in massive and unrealistic savings, so balancing an otherwise obviously unsustainable shadow Budget package some years ago (echoes of the non-domiciliary controversy and the Tories’ exaggerated claims as to how much revenue could be raised from an annual levy).

Sadly then, as now, instead of demonstrating the innumeracy of the Opposition proposal, the Government decided to copy it. The cuts to HMRC’s resources will rank as one of the greatest false economies in recent years and should be reversed.

The author is a tax partner at the City law firm Travers Smith

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• BGC 'set aside £40m to lure Tullett brokers'
• Legal aid review to ensure value
• Fears as 21 magistrates' courts face closure