Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 260-273)


26 OCTOBER 2005

  Q260  Peter Viggers: There are a couple of questions about revaluation for council tax purposes in England. The Government decided to carry out council tax revaluation in England and then decided not to. Meanwhile the Valuation Office Agency, one of your executive agencies, spent £55 to £60 million and trained and recruited about 1,760 staff. Was all of the £55 to £60 million wasted and what will happen to the 1,760 staff?

  Dawn Primarolo: In terms of the investments, from the £60 million figure I think that you mentioned, £45 million will be potential use in the future in terms of information that has been collected and where we are across a whole range of things, so that data stays. In terms of the 1,400 Valuation Office staff, the VOA immediately lost 200 who were on short-term contracts or who were agency staff. It has now commenced formal procedures with regard to the terminating of contracts and also there has to be further discussion about what happens next in terms of the total number of staff in the Valuation Office Agency that were attached to this. I do not have at this point, Mr Viggers, all the details exactly because there are still some decisions to be taken. I am happy to ensure that the Committee—and it may be a number of weeks yet before the final decisions are taken—is given a clear answer about what would actually happen over what time period and the numbers involved. I am sure you can understand that this is still the subject of discussions and negotiations.

  Q261  Peter Viggers: Quite an expensive démarche unless you would like to support it further?

  Dawn Primarolo: I will certainly make sure that you have the note with regard to Valuation Office staff and what happens next.[8]

  Q262 Chairman: You are the Minister responsible for that?

  Dawn Primarolo: I am indeed, yes. I am just saying there are certain decisions that need to be made before the full answer can be given and they have not been made yet.

  Q263  Jim Cousins: You are the Minister for tax avoidance.

  Dawn Primarolo: Well, no, I do not avoid it myself!

  Q264  Jim Cousins: Of course not.

  Dawn Primarolo: And I do my best to try and assist others not to as well.

  Q265  Jim Cousins: We admire your efforts with regard to tax avoidance. That is the kind of admiration that is better expressed publicly than privately.

  Dawn Primarolo: It has been a long afternoon, Mr Cousins, I am sorry, I missed that.

  Q266  Jim Cousins: But a substantial number of disclosures of potentially tax avoiding schemes are now being made under the new provisions which were made in the Budget. Can you tell us whether any major new tax loopholes have been identified? As a result, what do you think the additional tax revenue generated is likely to be?

  Dawn Primarolo: The protected tax revenue that the Revenue will get, or we will not have lost, is £1.5 billion. The total disclosures across the whole area are just over 1,600. The way the Department proceeds on these is firstly those that require immediate action are legislated for, and you may recall that there was a series of measures in the Finance Bill which we completed before the summer recess and that tomorrow afternoon on the floor of the House there is a National Insurance Bill which is also linked in terms of a scheme that was avoiding national insurance. So the Department takes it forward either on challenging that the schemes are even legal through the normal assessment enquiries and the challenge that the current law prohibits them, or they take it forward in terms of having identified what is commonly called a loophole and closing it. The National Insurance Bill tomorrow is an example of that. I think it is £250 million on national insurance that we are seeking to protect.

  Q267  Jim Cousins: £250 million on national insurance and of course the Bill is in front of the House, but what about direct tax and VAT?

  Dawn Primarolo: That is the total of £1.5 billion.

  Q268  Jim Cousins: What measures to address the avoidance of VAT and direct tax that have been demonstrated by these disclosures are going to be considered?

  Dawn Primarolo: The ones that have already been submitted have been considered and, as I have said, they have either been legislated for in the Finance Bill which we have just had or they are being pursued through the normal process of revenue assessment and then challenged as to whether the schemes work at all, and therefore there is another dispute with the taxpayer. Obviously the speed with which the disclosures come in, and as HMRC consider legislation is necessary, they would pass the reports to myself as Minister and I would take the decision on whether we immediately act on them in the normal way, which is to make an announcement of an effective date and then legislate in the next available Finance Bill. The most recent example is tomorrow's National Insurance Bill.

  Q269  Susan Kramer: Just a quickie on the National Insurance Bill. You are obviously going after the most sophisticated, creative financial minds in their own pocket so how confident are you that the National Insurance Bill will, if enacted, be effective in shutting down these sophisticated, complex tax avoidance schemes and if it is enacted how will you evaluate that success?

  Dawn Primarolo: In terms of this particular challenge, which is basically City bonuses, successive governments have tried to deal with them, and I know, Ms Kramer, you were on the Finance Bill when we had this discussion because the tax part of it was in the Finance Bill. The problem with these highly sophisticated schemes is that they require highly sophisticated legislation to prevent them and they only target that particular area and then the planners move on somewhere else and then everybody complains that the Finance Bills are getting too large and there is too much administration. So I have tried a slightly different approach this time which was my statement last December at PBR to say that any attempt to avoid national insurance and tax on bonuses, however they try and do it in the future—and we closed down the schemes we knew about at the time of which this is the last bit—and we will close it and we will do it effective as from 2 December last year. This is a very specific attempt to concentrate people's minds. The challenge as ever is you close the loophole and they move somewhere else, and then Parliament and tax officials and tax specialists and accountants do not like the complexity of the administration, which I have the greatest sympathy for as the Minister who had to take it through Parliament. It is a specific instance in a specific area and whether it works is whether we get the money in or whether we do not lose the money.

  Q270  Susan Kramer: Do you have a benchmark you have set yourself to bring it in?

  Dawn Primarolo: That is where the £250 million comes in and it was within the documentation that was announced at the Budget. Again, I do not have the exact reference but I am happy to let you have that.

  Chairman: Mr Love, a last question?

  Q271  Mr Love: I just wanted to ask a very general question. You have told us about the benchmarks and the rationale for the Bill that is coming forward tomorrow and the savings you hope to make in national insurance, but do you have an overall tax avoidance target similar to the 1% that the National Audit Office expect you to live within as far as the tax credits system is concerned?

  Dawn Primarolo: Yes we have and it is published as "assessments of the tax gaps", as it is politely called, in a number of areas. Those have been in previous documentations and the PBR will update the Department's performance against increasing revenue take and preventing loss of revenue in those areas. On the direct tax side, it is a much more complex issue in terms of actually identifying a specific number. It is because there are varying methodologies, and there is not one methodology for achieving what the figure is. We could invest a great deal of time in trying to do that but I have directed the energies of the Department to pursue the tax lost rather than consider how they might define it as a total figure. There is various speculation out there but on the direct tax side I am not able to specifically put a figure on it and until some methodology does emerge that is agreed as reliable we will continue to be unable to do that.

  Q272  Mr Love: Perhaps you could measure it against the level of complaints that come in against the tax system?

  Dawn Primarolo: People only complain about us requiring them to pay, not how many public services they get for what they do pay.

  Q273  Chairman: Minister, thank you very much. We look forward to receiving those few notes and then to see you probably early in the New Year as our inquiry unfolds. Thank you very much indeed.

  Dawn Primarolo: Thank you very much.

8   Ev 45 Back

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