Examination of Witnesses (Questions 100
- 112)
WEDNESDAY 7 DECEMBER 2005 (Morning)
MR ROBERT
CHOTE, PROFESSOR
COLIN TALBOT,
MR JOHN
WHITING AND
MR MARTIN
WEALE
Q100 Lorely Burt: Mr Weale, do you
want to say something?
Mr Weale: Yes. In my view there
are considerable tax incentives for investing in land and housing
one way or another and to have added yet another incentive would
have been a mistake. In that sense I regret that the REITs are
going to be allowed into SIPPs but that is a separate point.
Mr Chote: There is a general point
which is always going to produce awkward judgments here. Ideally
you do not want the tax system to be discriminating against investments
in different sorts of assets. There are some things, like second
homes, where it is an investment but it is also yielding a flow
of consumption benefits as well. If you have the two of them there
trying to deal with that in practicality is quite awkward.
Mr Talbot: The Cabinet Office
has issued, over the last four or five years, several guidance
documents on making better policy in central government. I suggest
people in the Treasury read some of them because this is not the
way to make policy.
Lorely Burt: Indeed.
Q101 Chairman: At the same time we
have had the press for the past six months saying "Is the
Government off their head allowing investment in holiday homes
and fine wine?". Then, when the Chancellor wakes up to it
and takes it away, they say "He is off his head for taking
it away". Can we have it both ways? If you were Chancellor,
Mr Whiting, what would you have done, never put it in in the first
place?
Mr Whiting: Yes. I think that
is probably the case.
Q102 Chairman: Any points you want
to make to us?
Mr Whiting: Obviously one has
to draw attention to the oil taxation changes.
Q103 Chairman: I was going to come
on to that aspect. Despite stating that there will be no further
increases in North Sea oil taxation do you think the unanticipated
increase in the supplementary charge on North Sea oil companies
reduces their willingness to invest in exploration activities
or the development of alternative sources of energy?
Mr Whiting: It is going to cause
them to look carefully. At least there is, again, an assurance
that there are no further tax changes to come in but this is not
exactly a welcome thing. It is ironic that a one-off windfall
tax might have been better than this continuing £2 billion
a year. It is going to cause companies to look more cautiously.
It is interesting to note that they have an option within year
to defer taking allowances and, therefore, potentially pay more
this year at the lower rate and pay less next year at the higher
rate. That could adjust these figures by as much as a billion.
The reference there is paragraph 5.129 within the Book. There
is quite a lot of money to come out of the oil industry.
Q104 Chairman: The third quarter
profits of Shell increased by about 68%, BP 27%, an extra £6
billion has gone in to their coffers as a result of the increase
in oil prices. Is there not a case of special pleading?
Mr Whiting: Is that all from the
North Sea? No, it is profits made worldwide.
Q105 Chairman: Yes.
Mr Whiting: The bit that we are
particularly interested in is obviously the profits taken out
of our own North Sea environment. That is where one worries a
little as to whether this is the right message to encourage longer
term investment and developing marginal resources.
Q106 Chairman: The Government have
said there are opportunities for development in 24 other fields
and a number of agreements have been signed with oil companies
at the moment.
Mr Whiting: Yes.
Q107 Chairman: Anyone else want to
sweep up?
Mr Talbot: Two points: one is
a lot of the discussion you had earlier in terms of medium term
public sector finance is focused on the period up to the end of
the next spending review. It would be interesting to ask the Treasury
and the Chancellor some questions about the longer term spending
projections which are in the long-term fiscal report, particularly
chart 5.2, which shows public sector expenditure as a proportion
of GDP going up to around about 45% of GDP in the next 40 years
or so. That is very interesting because the message we are getting
on the current round is that we are going to depress slightly
below the current level of GDP in the next spending review but
it looks like it is going to go up structurally after that. The
other point I want to make, in the discussion you had last year
on the spending review there was a lot of discussion around the
efficiency issues which were raised by Mark Todd about the impact
that is likely to have on the public sector. One of the debates
was about localism versus efficiency moves. One of the trends
which is becoming increasingly apparent is that we are moving
back to much larger public organisations. If you went back ten
years to 1995 when you were a public servant the chances are that
five years earlier you would have been working in a larger public
organisations than you were in 1995. If you did that now you would
find most public servants are working in larger organisations
now than they were five years ago and that trend is set to continue.
We are moving to much larger public organisations in both local
and central government than we have had in the past 10 years.
Q108 Chairman: Very helpful. Any
other points? Give us a killer question.
Mr Whiting: If you want a killer
question—
Q109 Chairman: The Chancellor's spies
are here but never mind.
Mr Whiting: —the particular
issue that we would always pose when looking at a package like
this is what is it doing for the competitiveness of UK plc? Is
it attracting/retaining investment in this country as opposed
to it leaching somewhere else. We all know the global international
pressures. It is that assessment. There have been a number of
changes here, we were talking about the oil measures a moment
ago, did that encourage investment in the UK. The film tax changes,
is that the right balance. It is a challenge that we would always
pose, to what extent does a package of measures like this really
encourage the international business community to locate here.
Q110 Angela Eagle: You have not mentioned
deregulation. You must put things on both sides of the balance
sheet.
Mr Whiting: I think that is a
very fair point: deregulation and cutting red tape. It is very
welcome that, for example, the famous form 42 is largely to be
dispensed with. Thankfully that means 400,000 companies will not
have to fill in unnecessary forms which should not have been brought
in in the first place.
Mr Talbot: I am sorry to be a
stickler for procedural things but one question you could ask
the Chancellor is in what sense is this a Pre-Budget Report? Given
the number of spending taxation reform announcements that are
contained in it, I fail to see in what sense it is "pre".
Q111 Chairman: A Budget statement,
is it?
Mr Talbot: Yes.
Mr Weale: Can I mention the question
does the Chancellor have a coherent view of what he wants to achieve
by the structure of land and housing taxes that we currently have,
including all the various things we have discussed and the wide
range of things we have not? If not, perhaps there should be a
review of land and housing taxation.
Chairman: Good point. Thank you very
much for that.
Q112 Ms Keeble: Including council
tax?
Mr Weale: Including council tax,
yes.
Chairman: Thank you.
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