Letter from HM Revenue and Customs to
Mr Mike Brewer, Institute for Fiscal Studies, provided to the
Treasury Sub-Committee by Mr Brewer
Dear Mr Brewer,
FOI REQUEST RELATING
TO "TAX
CREDIT PACKAGE"
ANNOUNCED IN
PBR 2005
I am writing in connection with the request
you made on 9 December 2005 under the Freedom of Information Act,
about the tax credit measures announced in PBR 2005.
QUESTION
1. What information does HMRC hold about
the likely costs of the PBR package in 2009-10 and 2010-11?
2. What information does HMRC hold about
the likely cost in 2006-07, 2007-08 and 2008-09 of increasing
the earnings disregard in tax credits from £2,500 to £25,000?
3. What information does HMRC hold about
the implications of the PBR package on HMRC's costs of administering
tax credits in 2006-07, 2007-08 and 2008-09?
ANSWER
1. The estimated cost of the PBR 2005 tax
credit package in 2009-10 and 2010-11 is -£50 million and
-£150 million respectively.
2. The increase in the disregard from £2,500
to £25,000 from April 2006 is part of a package of measures
announced in the 2005 Pre-Budget Report that is expected to have
the following Exchequer effect: -£100 million in 2006-07,
+£200 million 2007-08 and +£50 million in 2008-09 as
set out in table 1.2 of the 2005 Pre-Budget Report.
The effect of the changes to the tax credit
system depends on the sources of overpayments of which income
rises above the disregard is only one. However, there is only
limited information available on the sources of overpayments as
the only year for which HMRC has complete data is 2003-04. This
is not a typical year, and one of the reasons for that is that
the initial income information used in calculating awards was
two years old rather than one year old as it is for all future
years.
The lack of representative data makes costing
the individual elements of the package difficult. Moreover, there
are uncertainties around the behavioural response to the measures
and importantly significant interactions between the different
elements of the package. While the overall cost of the package
is not affected by the order with which the changes are modelled,
the costs of the individual elements of the package are affected.
It is therefore very difficult to produce an accurate disaggregation
of the overall costs.
Taking these factors together, while the overall
Exchequer effect of these reforms as a whole can be modelled with
sufficient certainty, it is not possible to produce reliable estimates
of the cost of the individual elements on their own.
However, you have requested information that
HMRC holds about the likely cost in 2006-07, 2007-08 and 2008-09
of increasing the earnings disregard in tax credits from £2,500
to £25,000. The information which does exist consists of
calculations and estimates provided in the course of consideration
of policy options, and we consider it to be exempt from disclosure
under section 35 of the FOIA. Section 35 of the Act exempts information
if it "relates to the formulation or development of Government
policy".
In applying this exemption we have had to balance
the public interest in withholding the information against the
public interest in disclosing the information. In this case we
have concluded that the public interest in withholding the information
outweighs the public interest in disclosure. In order to ensure
that the Government's policy decisions are of the highest quality,
it is vital that PBR and Budget costings are based on sound advice
reflecting full and frank discussion and analysis. We consider
that disclosure of the information you have requested would in
future impact on the ability of officials/experts in providing
sufficiently free and frank advice.
3. The department does not hold information
that separately identifies the effect of the PBR package on HMRC's
costs of administering tax credits.
16 January 2006
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