Examination of Witnesses (Questions 180-199)|
12 DECEMBER 2006
Q180 Mr Newmark: I am just curious,
and we touched on this yesterday, have the recent figures on the
number and the pay of public sector workers ultimately affected
this figure, ie, as the public sector expands, the public sector
pension liabilities ultimately will increase?
Ms Brivati: Well, we have published
alongside our PBR documentation our long-term fiscal report and
we give our latest estimate about what the long-term impact of
our current liabilities and stance on pensions and pay is, and
that shows it rising to 2% of GDP over the next 50 years which
we deem to be affordable and sustainable, so we have taken it
into account over the long term.
Q181 Mr Newmark: My third question
is to do with the timing issue of this whole air passenger duty
noticed that air passenger duty is actually going up in February
rather than April which is unusual, is it not, because usually
things begin at the financial year and I am wondering why it is
happening, how many holidays will be affected, and what revenues
will be raised?
Mr Neale: There is no iron law
about when tax changes come into effect. We have chosen to implement
this particular change to air passenger duty from 1 February.
Q182 Mr Newmark: Is there a reason
for that? Do skiing holidays for middle-class people have anything
to do with it or anything?
Mr Neale: It is a matter of judgment
based on the information we have about the proportion of flights
that are pre-booked at any particular time and the Government's
policy and revenue objectives.
Q183 Mr Newmark: They are pre-booked,
so you should have an idea then of (a) how many passengers are
affected and (b) how much revenue will actually be raised between
that figure of February, which is an unusual date to begin this,
versus the beginning of the financial year.
Mr Neale: The information we have
is that roughly 30% of air passengers have booked more than two
months in advance, so that would give you an indication of the
number of passenger flights affected, but it is quite important
to emphasise that air passenger duty is not a levy on individual
passengers, it is a tax on airlines which airlines on the whole
tend to collect by collecting from individuals.
Q184 Mr Newmark: But it is still
ultimately affecting people who are flying, so you should have
an idea of how much you are going to raise.
Mr Neale: Well, it will be for
airlines to decide how they pass it on.
Q185 Mr Newmark: You are in the numbers
business, so you must have done an analysis. In your decision
to decide suddenly to raise it in February versus April, I assume
you recognise that there are going to be people who will be travelling
quite a lot over that mid-winter period.
Mr Neale: Yes, the point I am
making is how that is passed on to passengers is a matter for
Q186 Mr Newmark: That is not the
question I am asking. I have asked you a specific question on
the timing. It is unusual timing; usually it begins in April,
not February, and you must have done an analysis of roughly how
many people are going to be affected and how much more money you
are going to raise with that.
Mr Neale: I have given you an
indication of the proportion of passengers who are likely to have
booked more than two months in advance. We think the revenue raised
in respect of those passengers rate will be about £50 to
Q187 Mr Newmark: So you are not going
to give me any figures?
Mr Neale: We reckon the rates
will be between £50 and £100 million.
Mr Newmark: Thank you very much.
Q188 Mr Fallon: Can you just explain
to me, Mr Neale, what the Parliamentary and statutory authority
will be for collecting APD at the new higher rate from 1 February
in advance of the Budget and the Ways and Means Resolution?
Mr Neale: It is a perfectly standard
procedure. The Finance Bill will contain the provisions to implement
the tax and it will begin on 1 February. It is quite standard
practice for a Finance Bill to contain provisions that actually
come into effect earlier.
Q189 Mr Fallon: But in the previous
Mr Neale: Yes, it is not unusual.
Q190 Jim Cousins: The figure has
been given to us of a public sector pension liability of £530
billion. I just wonder what we know about the distribution of
those liabilities across the public sector workforce, because
it is plain that people with long periods of service at a higher
rate of pay will make up those liabilities to a much greater extent
than those on low pay with short periods of service. Indeed, there
may well be public sector workers who are not even members of
the public sector pension scheme. I wonder what we know about
the distribution of those liabilities across the workforce.
Ms Brivati: I will try to tell
you what we do know about the distribution of pension liabilities.
The way in which we take account of the management of the public
finances and the need to manage public finances against future
pension liabilities is to look at the future net cash payments
that are required from the schemes that exist, and all departments
publish the net cash payments in their departmental reports. That
will give you one indication of the distribution there.
Q191 Jim Cousins: That does not tell
us anything about the public sector workforce and who are the
main beneficiaries of future prospective pension payments. Plainly,
workers on low pay with short periods of service will not benefit
to the same extent as workers on high pay with long period of
service. I just wondered what we knew about the distribution of
those liabilities across the workforce in those terms.
Ms Brivati: I am not sure if that
is a question about the distribution of the liabilities rather
than a question about the distribution of the benefits of public
service pensions. I do not think I have any data on that.
Q192 Jim Cousins: Do you collect
that sort of data?
Ms Brivati: I do not know. I can
look into it and get back to you. 
Q193 Chairman: Can I ask Mr Neale, are
there any other instances in the past where your rates of tax
or duty as opposed to technical tax avoidance measures have come
into force soon after the Pre-Budget Report and been given retrospective
Parliamentary authority after the Budget?
Mr Neale: It is quite common for
Q194 Chairman: Are there any instances?
Mr Neale: I will have to come
back to you on specific instances, but it is quite common for
us to announce an anti-avoidance measure having effect from the
time of the announcement, and then
Q195 Chairman: That anti-avoidance
measure is different. I have asked for something different from
technical tax avoidance measures; I am asking for instances in
the past when new rates of tax or duty have come into force. I
wonder, Mr Cunliffe, if you could write to us this evening so
that, before the Chancellor's appearance tomorrow, we can have
Mr Cunliffe: We will do our best.
Q196 Chairman: You say you will do
your best. Will you do it?
Mr Cunliffe: If we are able to
write to you of course we will.
Q197 Chairman: I am looking for instances
here. If there are no instances then you write to us and tell
us there are no instances; if there are instances and examples
you write and give us them. It is dead simple.
Mr Cunliffe: I accept that, yes.
Q198 Mr Fallon: Could we now turn,
Mr Cunliffe, to the forecasting errors which you have made over
the last year. The Budget 06 was nine months ago, but if we turn
to Table B12 we will see that already, in nine months, you overestimated
tax receipts by nearly £5 billion: £200 million National
Insurance; £700 million in Corporation Tax, £500 million
in VAT and £2.8 billion in North Sea oil revenues. How did
you get it so wrong?
Mr Ramsden: Just to clarify from
Table B12, you are referring to our forecast for 2007-08?
Q199 Mr Fallon: I am referring to
the difference in what you forecast nine months ago and what you
published on Thursday. These are forecasting errors for 2007-08
of nearly £5 billion. How did you get it so wrong?
Mr Ramsden: Actually, if you take
out North Sea revenues the forecast error is significantly smaller.
Remember, we are talking about a period that at Budget 2006 was
not due to start for a year. If it would help the Committee, I
can explain what happened on North Sea revenues. As we detailed
in the Budget document at some length, at the time of the Budget
we were forecasting a significant increase in North Sea revenues
in 2007-08 consistent with the trend of the last two years. Since
the Budget 2006 forecasts were finalised, and over the last few
months, we have had a lot of new information all of which has
actually contributed to bringing down our forecast. In terms of
the impacts they have had, we have had a significant fall in the
data for oil production. There is an underlying long-term declining
trend in oil production which averages, over the projection period,
about 3% a year, but it has actually, in 2006, been significantly
in excess of that. We have had to fully factor those lower production
estimates in. Second, this Committee has discussed with us before
what we are assuming about capital investment in the North Sea,
and what has happened is that capital investment has come in much
higher than we were forecasting and, also, operating expenditure
in the North Sea has come in higher, reflecting the tightness
of the market for, basically, the kit that operators use and the
labour needed; it has been much more costly. That is important
because both capital expenditure and operating expenditure are
100% deductible against tax. The final thing that has happened
is that although, as we account in the document, the oil price
has risen in Dollar terms, because of the movements in the Sterling/Dollar
exchange rate the Sterling oil price, which is what drives UK
tax revenues, has been weaker. So that has had a big impact in
the baseline year in 2006-07. So those three factors togetherlower
production, higher investment and what has happened on Sterling
priceshas led to that £2.8 billion change in our forecast.
I might just say that for 2005-06, at Budget 2005, we were forecasting
that North Sea revenues were going to be about £7.5 billion;
they turned out to be nearly £10 billion. All that is meant
to illustrate is that at the moment, with everything that is happening
in world oil markets and, also, with changes that we have been
making to the North Sea regime, it is quite difficult to forecast
the North Sea.
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