Examination of Witnesses (Questions 67-79)
MR JOHN
WHITING, MR
ROBERT CHOTE
AND MR
MARTIN WEALE
9 DECEMBER 2004
Q67 Chairman: Mr Whiting, could you introduce
yourself, please.
Mr Whiting: I am John Whiting.
I am a tax partner with PricewaterhouseCoopers and also Chair
of the Chartered Institute of Taxation's Tax Policy Committee.
Q68 Chairman: We have got a few issues
on tax, but the ones for Martin and Robert I think we will start
with. Following the PBR, there has been wide discussion of a number
of tax announcements mostly to do with anti-avoidance, which we
will come to shortly, but apart from those, Robert, what struck
you as the most important elements of the non-macroeconomic parts
of the PBR?
Mr Weale: Well, I suppose what
struck me was in some senses what did not bark. I mentioned earlier
the issue of savings, which is tied into the issue of incentives,
the provision of pensions and so on. Now, obviously the Chancellor
is likely to say that he is waiting for the final report on the
Pension Commission, but on the whole issue of savings and incentives
to save, there is really very little discussion beyond sort of
tinkering here and there. I thought in some places there was actually
a misunderstanding of what saving actually is and I suppose I
would have liked to have seen perhaps a more thorough look at
the combination of incentives to save and incentives to work.
We have built up over this period of government a range of specific
ad hoc measures and one gets the impression of something of a
patchwork where there is a coherence and the aim is to lift people
out of poverty and so on and a lot of progress has been made with
that, but I still think that there is no coherent view about essentially
where the high marginal withdrawal rates apply, how they affect
incentives and structuring the tax benefit system in a way that
minimises the disincentive effects without increasing its costs.
What struck me most was what was not there rather than—
Q69 Chairman: The sort of medium- to
longer-term issues which have not been sorted out.
Mr Weale: Yes, but the PBR would
be a place to air discussions on those.
Mr Chote: I guess the package
of childcare measures was interesting. I do not know whether you
want to pick up on those specifically, but obviously there were
a variety of elements to those and there are pros and cons to
the different parts of it. In terms of what is important in the
sense of impact on winners and losers—
Q70 Chairman: Angela is coming to that
at the end.
Mr Chote: Okay. The key measures
would be the £50 one-off winter payment for the over-70s,
the raising of one of the tax credit thresholds in line with inflation,
an increase in the limit on the childcare credit and the postponement
of the fuel duty measures. All of those add up to create a not
untypically progressive pattern in the sense of being of relatively
greater benefit to people towards the bottom of the income distribution
than at the top. Then there is also the issue about the allocation
of extra money for local authorities on council tax and obviously
there is a debate there about how much of that would actually
feed through into lower council tax bills or whether it will get
swallowed up elsewhere, so I guess in terms of monetary magnitudes,
those would be the important ones.
Q71 Chairman: I wonder if somebody could
give me a short answer to the proposed property investment funds.
As you know, they have been delayed further and I think the Government
have promised a further discussion paper in 2005. What are the
differences of opinion between the industry and the Treasury on
this, if any exist?
Mr Whiting: This is the property
investment funds, or real estate investment trusts, as they are
sometimes termed, REITs. I think generally industry is keen on
them and, frankly, picking up something Martin said, in a sense
it is one of the dogs that did not bark and it was disappointing
that they were not at least committed to. So whether they are
now seen as something that might cost the Treasury a significant
sum and, therefore, they are just slowing down progress, I am
not sure, but I think you would find generally that the property
industry is disappointed that they are not coming forward and
also from the savings industry because they are seen as a good
vehicle for getting more money into property in a more flexible
format, so I think there is disappointment that there is not a
commitment. All right, at least there is another document to come.
Q72 Chairman: On the Chancellor's announcement
about his plans not to introduce a general anti-avoidance rule,
that has been followed by statements in the PBR with the Treasury
saying that they will intervene to stop any avoidance scheme related
to rewards from employment. Is that just another way of putting
the anti-avoidance in place?
Mr Whiting: I think that could
be a very shrewd observation, Mr Chairman. It is one that we are
slightly concerned about because, as you are well aware, because
we have not had the general anti-avoidance rule, the route followed
was tax avoidance disclosure which a huge amount of effort has
gone into and I think the number of avoidance-blocking measures
which have come in is testament to the fact that the system is
working. The Inland Revenue is, by all accounts, perfectly happy
with it. However, as you point to, we do seem to have this threat
of retrospective legislation which very much flies in the face
of how we do law and tax in this country and one of the concerns,
apart from whether this is a slippery slope into retrospection
in all places, is whether this sounds a bit like general anti-avoidance
rules.
Q73 Chairman: You are on record as saying
that there is at least one other area in terms of retrospection.
What is that area?
Mr Whiting: Well, there was some
discussion over interest allocations with that area as one where
the Revenue could look at it, but the out-and-out statement by
the Paymaster General was in terms of employment law. In past
history there has only been one actual use of retrospective legislation
which I think was 1978 with a particularly artificial scheme,
known as the "Commodity Carry Scheme", so that is the
only example I know where it has been used, but the threat we
have here is clearly something that is very worrying about the
principles in which we do tax.
Q74 Chairman: The legislation emphasised
that the avoidance schemes would be closed down "where necessary
from today". First of all, is that sufficient time for the
tax planners and, secondly, what about the Human Rights Act here?
Mr Whiting: There is never any
objection to the Government, the Minister, standing up and saying,
"As of today, we are going to block such and such",
so let's get that clear, that is known. The idea that you can
stand up and say, or put a written statement down and say, "Right,
if something turns up in the future, we don't know what it is,
but we reserve the right to come back to today and basically change
the way the tax law operates', let's be clear, the system of tax
we have in this country is that you are taxed on the basis of
what the law says. If, therefore, there is a possibility of retrospectively
altering your tax bill, then it does have very interesting human
rights implications and it has been mooted that this idea of retrospection
could now be vulnerable to human rights challenges if we go that
far.
Q75 Mr Cousins: Who has that been mooted
by?
Mr Whiting: I have seen plenty
of commentators.
Q76 Mr Cousins: By people like PricewaterhouseCoopers?
Mr Whiting: We have certainly
sort of speculated, but we are not experts in it, though I have
certainly seen plenty of commentary.
Q77 Mr Cousins: Who is faster on their
feet in dealing with avoidance issues—firms like yours or
the Inland Revenue?
Mr Whiting: I think all of us—
Q78 Chairman: Is not the nub of it, as
Jim said, that the Inland Revenue feel, "There are some really
smart guys out there. You are a bit smarter than us and you're
always a yard ahead of us, so this is why we are announcing this"?
Mr Whiting: Well, of course I
am very pleased that we are deemed to be extremely fast on our
feet.
Q79 Mr Cousins: No, I was asking you,
do you consider that you are faster than the Inland Revenue?
Mr Whiting: We do not think we
are faster now. We will think up ideas, we will put planning ideas
to our clients, and of course now we have tax—
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