Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 300 - 319)



  300. Have you said you will not extend VAT on children's clothes?
  (Mr Brown) Maybe I should just sum up what was said in the manifesto!

  301. Have you ruled out extending VAT on children's clothes?
  (Mr Brown) You can read the manifesto like me. We have said we will not raise the basic rate of tax, and not extend VAT to children's clothes, to food and to other items like transport costs, and that is a matter of record and certainly said that in 1997 as well.

  302. And books and newspapers?
  (Mr Brown) Books and newspapers. For gentlemen and ladies of the press here I can repeat that. What I also said in the manifesto is that we would make no other promises about taxation because these are matters for Budgets. I made that clear during the General Election campaign at successive press conferences; and I made it clear under questioning in a large number of debates. We are not going to make promises on every item of taxation, whether it tax allowances or tax relief—these are matters for the Budget.

  303. You have ruled out in the manifesto two types of incomes tax increases—you have ruled those out. You have ruled out four types of VAT increase by extending them to those four groups you have just confirmed to us. Very helpful.
  (Mr Brown) I do not think it is a surprise, Mr Ruffley. I have been saying this for the last year.

  304. What is interesting is that you have decided to rule out certain potential tax increases. Why those things?
  (Mr Brown) We said all these things in 1997 as well.

  305. Why.
  (Mr Brown) We thought that was the right thing to do.

  306. Why?
  (Mr Brown) In relation to income tax we said in our manifesto that it was right to do this because we wanted to reward work in the ways that we are doing; and we sent a signal through the tax rate both at the top rate and the basic rate.

  307. Why did you choose to specifically rule out extending VAT to those four items? Why those particular tax increases? Why did you rule those out specifically?
  (Mr Brown) I think the history of VAT in this country is a very interesting one, and those who try to extend VAT to fuel, which we opposed at the time, I think recognised that where particular low income households had high costs in the Budget associated with food, transport, with newspapers and fuel, that it was a very difficult way of raising tax, when you were going to penalise middle and lower income households. That is why I think most people around the country thought that the proposal of the last Government to extend VAT to fuel was a mistaken one.

  308. Abolishing the upper earnings limit on employee national insurance contributions how much would that raise, hypothetically?
  (Mr Brown) I do not have the figures here.

  309. It is £5 billion. It is a lot of money, is it not?
  (Mr Brown) I do not have the figures here, but we will send you a note.[2]

  310. I have the figures.
  (Mr Brown) I make it absolutely clear that we have ruled out the tax issues that I have raised; but we leave it open to ourselves in the Budget—and any sensible Chancellor would leave himself in that position.

  311. You have ruled out six potential tax increases?
  (Mr Brown) For very good reasons which I have given you.

  312. I want you to explain why you will not rule out raising the upper earnings limit, which will be an increase in tax. Abolishing the upper earnings limit—why will you not rule that out? You have ruled out these other items six times.
  (Mr Brown) No, it was not responsible for the—

  313. Why is it not responsible to rule this particular tax increase out—raising the upper earnings limit, the national insurance contributions for employees, which matters to a lot of middle income earners who will be listening to this and reading about this. Why will you not rule it out? You have ruled out that. You have ruled out income tax.
  (Mr Brown) Because in 1992 the then Conservative Government made a promise that they would not raise any taxes and they would not change any rates, and that was a mistake, because Chancellors and people responsible for the nation's finances must have the discretion to make decisions that are right for the interests of the country at a particular point in time. We sent a signal about the importance we attach to work; about what we said about the basic rate of income tax and the higher rate of income tax; we were concerned about the effect of VAT on lower and middle income families for basic consumer goods and we sent a signal in relation to VAT; but it is not responsible to go through 250 tax allowances—

  314. You have done six, why not do a few more?
  (Mr Brown) The reason is the reason I have given you. As far as work is concerned and the reward of work, which is an essential part of the Government's strategy in encouraging and reinvigorating the work ethic, we sent a signal about the basic and top rate of tax in terms of VAT on food and other items. We were concerned, as you ought to be yourself after the effect that people saw by raising VAT on fuel on lower and middle income families, and in some cases on pensioners on fixed incomes; therefore, we sent a signal in that area but it is not responsible, and no Chancellor sitting here should ever get himself into the position that the last Conservative Government in 1992 got themselves into when they made promises on 250 different separate items related to income tax or other taxes. That is not a responsible thing to do if you have got to manage the nation's finances from year to year.

  315. I am not going to go through a list of 200; I am just picking out the most salient ones. What would it cost to raise the upper earnings limit to align it with the top rate income threshold. How much would that cost?
  (Mr Brown) I do not know, because that is a point you have raised with me and I said I would write to you about it.[3]

  316. It is about a billion. That is another large item. If you are saying to us that you do not want to raise taxes because it might be a disincentive to work, why is it not the case that you will rule out these disincentives to work—the potential increase on national insurance on middle earnings?
  (Mr Brown) Because, as I have said before, we have sent a signal about the importance we attach to work.

  317. You are giving a signal now, are you not? It is mixed.
  (Mr Brown) I am not going to make the mistakes. I think the last Chancellor but one to me, Lord Lamont, in his memoirs said it was totally irresponsible of the Conservative Government, facing the 1992 Election, to rule out tax increases in every area. He said he told John Major, the Prime Minister at the time, it was a terrible mistake for him to make. I think you were around for some of these discussions during the period after that and you know the Conservative Government then had to break a series of promises it made in 1992. It is not responsible for a Chancellor any finance minister to go through 250 tax items and make promises on each and every one of them, as happened in 1992. I am not going to get into that position, nor would you want, on a bipartisan basis, Chancellors to be tied in that way. It was a mistake.

  318. I think people will be puzzled that you have admitted you are ruling out six tax increases, as you did in the manifesto, but you will not rule out some of the most damaging potential tax increases for middle England. That is what you have told us today.
  (Mr Brown) Mr Ruffley, I do not think people will be puzzled at all, because we said it in our manifesto; we actually said it in our 1997 manifesto. If people have been puzzled then they must have been puzzled for almost five years. We have made these promises consistently in 1997 and 2001. We have made them to send out a signal about the importance we attach in the areas I have mentioned; but no Chancellor is going to get himself in the position of going through 250 or more tax allowances. I think if you reflected on it, it would be a mistake for your Party to return to the mistake and error that was made in 1992 ever again.


  319. Chancellor, if you wish to challenge Mr Ruffley's figures then you are free to do so. We look forward to getting that information.
  (Mr Brown) Mr Ruffley asked me two questions and then read out what he appears to have had from the Treasury's Ready Reckoner, and I will write and give him a copy again.

2   Ev 63 para 2. Back

3   Ev 63 para 2. Back

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