Select Committee on Treasury Minutes of Evidence


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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