Examination of Witnesses (Questions 100-113)
MR JOHN
WHITING, MR
ROBERT CHOTE
AND MR
MARTIN WEALE
9 DECEMBER 2004
Q100 Mr Cousins: Well, the deregulation
of charges in the financial services sector and the renationalisation
of savings—how does that grab you, Mr Whiting?
Mr Whiting: Being instinctively
something of a free market enthusiast, I am not too keen on regulations,
so, therefore, I would not particularly wish to see charges regulated
totally. Some sort of government oversight structure is very sensible
to make sure it is properly run, but, going back to your original
question on ISAs, I found the announcement a little disappointing
because why not just get on and say, "All right, ISA limits
will go this way until 2009", because, as Martin says, it
is a relatively small thing and it removes uncertainty, and actually
now start to think of what is going to happen post-2009 when ISAs
possibly come to an end.
Q101 Chairman: On that issue, as a Committee
we did push on that, for a limit and, like yourselves, we would
like some clarity on it.
Mr Whiting: It would seem to be
a fairly simple and easy thing to say "the limit goes ahead
to 2009, let us think about the bigger issue".
Chairman: We will raise that with the
Chancellor.
Angela Eagle: There is an interesting
little development which I think could be significant and I would
be interested in your view on what I have called wealth benefits
rather than income benefits. The Child Trust fund, for example,
there is now a consultation on whether to introduce a payment
at seven and the first payment will go into the fund this coming
April. There is also an extension of the saving gateway pilot
where the Government matches pound for pound savings of people
on very low income to try to allow them to build up a very, very
modest but perhaps important amount of wealth in an area of the
income distribution, the lower end, where there is almost no saving
since it is very, very difficult to save and the financial services
industry has virtually abandoned doing anything for people at
that end of the potential market. Any views Martin, Robert or
John on whether this is a good development which ought to be extended?
Q102 Chairman: Could we have brief answers
because we have a number of questions to ask you.
Mr Weale: I think the question
for people on low incomes is how much you want to give what is
a very high rate of return created by a subsidy rather than just
make sure that they have more income available for saving and
their other needs. I do not buy the argument that climbing on
the saving ladder is difficult; it is quite different from climbing
on the housing ladder because you can go into a building society
and open an account and put a very small amount of money into
it. It does suggest that the policy does encourage people to think
more about saving but I would like to know more about the balance
of costs and benefits.
Q103 Chairman: Are you really pressed,
do you want to answer it?
Mr Chote: No.
Angela Eagle: It is a very negative answer,
is it not?
Q104 Chairman: John, on the tax issues,
on the avoidance disclosure requirements, including the June 2004
Finance Act, what has been the Authority's typical response to
disclosures and how often have they announced an intention to
legislate against this scheme and how often have they indicated
that the announcement will take immediate effect? Give us very
brief answers to a half a dozen questions.
Mr Whiting: The disclosures that
have been put in as a result of the Finance Act 2004 started effectively
to go in during August but really September. The announcements
that we had with the Pre-Budget report were the first time that
we had any action on them. I think we were all slightly surprised
that nothing happened immediately in October, after the first
tranche of disclosures went in. This may come back to something
Mr Cousins was tackling me about, the speed of response, I do
not know. This was the first tranche on 2 December and of course
all of them were to take effect from that day.
Q105 Chairman: Okay. Is there any evidence
though that the new disclosure rules are having a significant
disincentive effect on the tax industry's efforts to devise new
tax avoidance schemes or is it Popeye getting spinach "Phew!
They are off again!"?
Mr Whiting: I think it is having
an impact because there have been some very clear signals both
with disclosure and the statements that have been made that the
Government, the tax authorities, are very determined to crack
down on what it sees as unacceptable avoidance, and in particular
totally artificial avoidance. Genuine routine planning, advising
somebody—
Q106 Chairman: Yes, but does industry
get energised with that, that is what I am saying?
Mr Whiting: It has caused us to
sit back and think very hard about where is the dividing line.
To that extent it has slowed the whole industry up; it has created
a little more uncertainty. Has it stopped people trying to think
of tax efficient products? No, I do not think it has, you would
not expect it to have done. Has it caused a slow down in the marketing
of them, a slow down in the attempts to devise new products, yes
it has because obviously things have closed down and you have
to bear in mind that the tax authorities are going to know somewhat
sooner.
Q107 Chairman: Creativity is still alive
and well in the industry?
Mr Whiting: I think the creativity
is still alive but whether it is as well as it was, I do not think
it is.
Q108 Chairman: Following the problems
of introduction and withdrawal of the 0% corporation tax, as you
know the Treasury has now published a discussion document on small
companies, the self-employed and the tax system. Now we have discussed
this with you previously in your visits here but what is your
view on the discussion documents? Does it affect and address the
right areas? What factors is it important for the Treasury to
consider when proposing changes to the tax system for small businesses?
Mr Whiting: If I am honest, Chairman,
it does not really address anything. It starts the debate and
I think that is helpful. I had a sudden phone call a moment after
the Chancellor had sat down from somebody in the Treasury explaining
to me that this was meant to be a very wide ranging document.
In the conversation I said "What is the timescale for any
changes?"; but it was emphasised to me that there is no timescale
because it is gathering the evidence. I think, to be fair, that
is constructive: let us have a big, wide ranging debate. I think
it is good that we have at least got it. I think an important
parallel step is within the Revenue & Customs, a new body
having a dedicated small business unit to focus on small businesses.
I would hope that in the debate that follows this we will be able
to look at things like the 0% corporation tax, like many of the
other burdens but not just the simple amount of tax burden.
Q109 Chairman: Do you think the Treasury
could learn from that and avoid any debacles that they have had
in the past?
Mr Whiting: I would hope it is.
As I say, the slight disappointment that I have with this is simply
that it is nothing more than starting the ball rolling but providing
the intention is to range widely, I think it is constructive.
Q110 Chairman: On the tax regime for
leasing, that has attracted particular criticism from experts,
others have claimed it is a loophole widely abused by multi-nationals.
What is your view?
Mr Whiting: I think leasing is
a perfectly sensible way of funding people's acquisition of plant/buildings.
The competitive nature means that if there is an attempt to go
into a lease because it moves the capital allowance benefit from
the putative buyer to the bank or finance house, the benefit of
that lease capital allowance is always passed back in the rates.
I think it is worrying that the tax authorities' attitude has
always been or seemed to be that this is an avoidance device rather
than just part of a way of doing business. If we are to have further
changes, one merit of them is at least they are to only change
for leases following the introduction of the rules. I think we
are all a little disappointed because of the possible international
implications.
Q111 Chairman: Last question, Legal &
General have said that the changes in insurance company taxation
will cost them £20 million this year. Do you believe the
new regulations have been announced in a way that is appropriate
for such far-reaching changes? Secondly, the Revenue has indicated
that these proposals are still in draft form and that they are
open to comment from the industry. Is there an opportunity for
adequate consultation or is it fait accompli?
Mr Whiting: There are a lot of
questions. You may have seen, also, that Norwich Union have commented
on the impact on them. There are a number of changes affecting
the life assurance industry under the banner of anti-avoidance.
Within those is something affecting shareholders' funds and what
are known as orphan assets that is very definitely not anti-avoidance
and it is that which has aroused the concern. Frankly that was
slipped in to the package under a power which allows regulatory
changes by Statutory Instrument. There was indeed the possibility
of consultation on it but given that the announcement was on Thursday,
the consultation period has closed already because we were allowed
three working days for what was a substantive change rather than
the blocking of an avoidance measure. Frankly, this seems inappropriate.
It is interesting to note that it is proceeding under a power
introduced some years ago to bring in Statutory Instruments and
when that power was mooted and brought in, in 1990, the then spokesman
for the Opposition really did object to the potential wide range
of this power to bring in regulation. The then Treasury Minister
gave him assurance that it would never be used in a wide ranging
way. The then Opposition spokesman was a very promising young
MP, Mr Paul Boateng.
Q112 Mr Cousins: He has done well since
then.
Mr Whiting: I believe he has moved
on.
Q113 Chairman: He gets slick answers
and moves on, does he?
Mr Whiting: That is a power to
make tweaks and twiddles, it is not a power there to make substantive
changes to the rules. The consultation is minimal and frankly
not real and it is of deep concern to the industry.
Chairman: On the bell, I think we will
finish. Can I thank you for your attendance and Robert and Martin
for staying the whole course this morning. Thank you.
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