Select Committee on Treasury First Report

Annex 1: Monitoring of recommendations on selected subjects

B. BUDGETS

Fourth Report, Session 1997-98, The 1998 Budget (HC 647), published 20 April 1998.
(Government Reply: Fifth Special Report, Session 1997-98 (HC 877), published 1 July 1998.

Recommendation	Government Response	Committee Response/Follow-up	Further GovernmentAction
1. Treasury to explain:(1) what role it considers fiscal policy should play in stabilisation;(2) whether it considers that fiscal tightening has the same effect on demand, irrespective of whether it is achieved by public spending reductions or tax increases.	Explanation provided as part of reply.
2. Form of FSBR should make it easy for users to examine the effect of tax changes as a whole as well as the effect of new announcements separately. An index to the volume would also be of assistance.	FSBR was redesigned this year and put on a thematic basis. In preparing next year's volume, the Government will take account of the Committee's views.	Recommendation reiterated the following year.	Not practicable to show cumulative effects of all past Budgets, but Chapter 2 of March 2000 FSBR included various additional tables showing effects of Budget 2000 and PBR 99 on current budget surplus and net borrowing (Appendix 1, p 1). [Still no index.]
3. The Government should examine the issue of savings as a whole to ensure that the tax treatment of savings, the services provided by the National Savings Department, and proposals for stakeholder pensions are co-ordinated. Also, the effects of the savings limits and tariff income scheme for social security benefits should be re-examined.	The Government is continually examining issues of savings of various kinds and pensions to ensure coherence and to produce a complementary package which encourages the savings habit. A Green Paper describes a new way forward for welfare. All aspects of the benefit system are under review including the savings limit and tariff income scheme. The Government believes more people should be encouraged to save. Increases in the amount of money going to savings will be used as one of the clear measures of the success of welfare reform.		See Appendix 1, p 2.
4. We hope that reviews of housing benefit and Council Tax Benefit will contribute to a reduction on the incidence of high marginal rates.	The Government will continue to take work incentives into account in the comprehensive spending and welfare reform reviews.	[See Report on 2000 Budget]
5. The Government ought to make it clear whether the cost of Working Families Tax Credit (WFTC) will be regarded as part of social security spending (like its predecessor, family credit), and if so whether it will be recorded within or outside the control total, or whether it will be regarded as a tax relief.	Classification in the national accounts is for the Office for National Statistics. The Government's view is that WFTC is part of the income tax system [reasons given] and this was recognised in the presentation of general government receipts in the FSBR. The Government has no plans to change this presentation.	Committee (in report on 1999 Budget) had "no objection" to Government's presentation as long as explained, and figures consistent with national accounts also published. Committee called for review of treatment in report on 2000 Budget.	ONS ruled that, for national accounts, WFTC counts as expenditure. Matter under review by OECD.
6. Much of the success of the credit will depend on the details of its implementation.	The Government recognises that it will be important to get the details of the WFTC right. There will be an Inland Revenue project team working jointly with the Department for Social Security and the Benefits Agency in consultation with employers and payroll organisations.
7. Although the introduction of taxation of child benefit for higher-rate taxpayers would be controversial, we nevertheless accept the Chancellor's assurance that, if this were done, it would not breach the principle of independent taxation.	The Government will bring forward detailed recommendations for reform following the children's review. But, as the Chancellor indicated, none of the approaches being considered would involve bringing together couples' individual incomes and applying joint taxation.
8. The Treasury should give urgent attention to reducing the complexity of the new system of capital gains tax tapers.	Response justifies system as introduced.
9. We are disappointed that an environmental Green Book did not appear with the Budget. We entirely accept that it is essential to ensure, before introducing a new tax, that the ways of measuring whatever is being taxed are practicable and that the implications on behaviour have been adequately thought through. We will expect significant progress by the time of the next Budget.	Within the FSBR, the Government published an assessment of the Budget measures which will have a significant effect on the environment, and—where it was possible—gave an indication of the scale of any effects. This represented far more information about the environmental impact of policies than has ever been published with previous Budgets.The publication of such information within the FSBR reflects the fact that considerations of the environmental impact of policies are an integral part of the policy appraisal process. The Government considers that information on the environmental effects of policies should be presented alongside, rather than separate from, the economic and financial effects. The Government will be considering how the precise form of the published assessment might be developed in time to inform future FSBRs.
10. Where the Government claim that the purpose of a tax change is to affect behaviour, there should be a regular assessment of its success.	The Treasury and the Revenue departments continually assess all aspects of the tax system, including monitoring recent changes. This is part of the normal pre-Budget process.	Reiterated in following year's report, in relation to measures designed to increase productivity.	Effects of all tax changes monitored; for some recent changes there will be a time lag before data becomes available (Appendix 1, p 2).

Fourth Report, Session 1998-99, The 1999 Budget (HC 325), published 30 March 1999.
(Government Reply: Fifth Special Report, Session 1998-99 (HC 536), published 15 June 1999.

Recommendation	Government Response	Committee Response/Follow-up	Further Government Action
1. The Treasury's forecasts are not unrealistic.	Government welcomes Committee's conclusion.		Government forecast for growth in 1999 was 1-1.5%. Outcome (as stated in 2000 Pre-Budget Report) was 2¼%.
2. If there are substantive changes in forecast receipts and expenditure between the PBR and the Budget which are then used to justify additional measures announced in the Budget the basic arithmetic underlying these measures should be set out clearly in a user friendly format in the Red Book.	The Budget 99 Report presented information on the revisions to the public finances forecasts since the PBR.
3. Government should restructure climate change levy to provide incentive to move to renewable and lower carbon sources.	For consultation (Customs and Excise paper released on Budget Day).		Exemptions for electricity generated from "new" renewable sources and "good quality" combined heat and power plant (Pre-Budget Report 1999)
4. Government to evaluate effect of fuel duty escalator and report in next Red Book.	To be kept under review.		Escalator abolished (Pre-Budget Report 1999).
5. Treasury to publish results of its monitoring of effects of Budget measures on productivity.	A PSA target, so progress will be reported in departmental report.		See Cm 4615, April 2000. More details in 2000 PBR and future departmental reports (Appendix 1, p 5).
6. Government to examine whether tax and national insurance system produces distortion between unincorporated businesses and limited companies.	Under on-going review.		Appendix 1, p 5 quoted Government reply.
7. Table of financial effects of successive budgets to be shown separately and combined, with taxation and expenditure figures distinguished on a consistent basis. Should be possible to trace changes since PBR.	[First part not addressed in answer.] Information on changes since PBR included in Red Book.
8. Red Book should contain figures on distributional effect of budget, with basis of calculations made clear.	Government will continue to provide a detailed analysis and explain basis of calculations.	Recommendation reiterated in following year's report.
9. Independent element to be included in preparation of Budget leaflet (as it is planned to distribute to each household).	Documentation already complies with Cabinet Office guidelines.	Recommendation reiterated in following year's report.	Plan to distribute to each household still being considered (2000 EFSR, p 17 para 2.13)

Fifth Report, Session 1999-2000, The 2000 Budget (HC 379), published 13 April 2000
(Government Reply: Third Special Report, Session 1999-2000, HC 572, published 15 June 2000.)

Recommendation	Government Response	Committee Response/Follow-up	Further Government Action
1. NAO to audit Treasury's interest rate assumption.	Not appropriate. C&AG quoted: "No basis on which I could give an opinion".
2. Analysis of relative fiscal position should be accompanied by figures for annual and cumulative change in fiscal stance and fiscal impact.	Figures derivable from a number of tables in Economic and Fiscal Strategy Report.
3. References to fiscal stance changes should say whether absolute or relative and in latter case give basis of comparison.	Chancellor made this clear in Budget speech, and information is in EFSR.
4. Accounting conventions for policies such as WFTC should be reviewed.	Figures published on a variety of bases.		Chancellor noted that OECD is examining conventions for tax credits (Evidence, 22 November 2000, Q 257)
5. Treasury should publish effects of indirect taxes on various types of household; and "tax burden" should be stated to be "direct" if indirect taxes are excluded.	Impact can be measured using hypothetical spending levels. References to tax burden are shown in context of personal tax and benefit measures.		Phrase "direct tax burden" used in 2000 Pre-Budget Report.
6. Treasury should monitor and publish implications of any revisions to estimate of cyclically-adjusted PSNB in 1999-2000 for change in relative fiscal stance forecast in Budget 2000 and soundness of public finances.	New estimate and implications to be published in PBR, as previously.
7. Recent changes in CGT should be allowed to settle so Treasury can assess whether they have brought about results claimed for them.	Appreciates benefit of stability but also important to ensure UK tax regime remains appropriate. High priority on monitoring as sufficient information becomes available.
8. Consultation on double taxation proposals should be extended to end of May.	[Implicitly rejected]
9. Future changes to Stamp Duty should take account of greater effect on business property.	Effect on both parts of the market is taken into account.
10. Treasury to monitor burden on employers of paying tax credits.	Already monitored. Further checks and surveys to follow.		Comprehensive programme, including research with employers (Appendix 1, p 10)
11. Consultation on future tax credits should include (a) interaction with other benefit withdrawal tapers (b) "passport" to concessions (c) whether different components should have different taper rates.	Under discussion as part of consultation exercise. (b) needs to be considered in context of Government's wider agenda.
12. Future "green" tax proposals should contain clear objectives for behavioural change.	This is done.
13. Growth in current and capital spending to be shown combined as well as separately; changes to CSR limits should be indicated clearly.	More meaningful to show separately, as treated differently in fiscal framework. Information can be calculated from two tables in FSBR [second point not addressed].
14. CSR to make clear the pattern of spending in devolved administrations and whether converging with rest of UK.	CSR will contain settlement totals, but allocations a matter for devolved authorities. Public Sector Statistical Analyses analyse public expenditure by country.
15. Show effects of Budget measures on households grouped by income decile and different types of household.	Possibility under review.		Government committed to continue producing range of meaningful statistics in this area (Appendix 1 p 10).
16. If Budget leaflet is to be distributed to all households, a body fully independent of Government should be closely involved.	[implicitly rejected]

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Prepared 20 December 2000