Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 280-299)


12 DECEMBER 2006

  Q280  Mr Mudie: In her statement she actually says "introducing fully automatic limits remains a key priority" but then says "and from April 2007 I have instructed HMRC to introduce an IT solution to ensure that claimants will benefit from reduced rates of recovery without them having to ask for this service." That wording when you look at it closely does not exactly say it will happen in 2007. If she is asking them to do and she spells it out, why is she just not saying that this will happen in April 2007? Is she asking the Revenue people to actually have that as an objective but in the meantime do something else from April 2007?

  Mr Neale: The Paymaster General is asking HMRC to try to ensure that by April there is an IT solution that ensures that these rebated recoveries are in place and, yes, there is an interim solution meanwhile. HMRC from January will be identifying members of the public who might need this service and be offering it to them, but not using the IT.

  Q281  Mr Mudie: Okay. The Paymaster General said that a small proportion of claimants may experience disruption in their payments following the processing of changes in their circumstances. Which claimants are affected and why?

  Mr Neale: I am afraid I cannot answer that.

  Q282  Mr Mudie: Has the Government considered cancelling all demands for repayments until these automatic limits are put in place?

  Mr Neale: I do not think it would be appropriate to cancel all demands for repayment because not all households will be facing hardship and difficulty. I am afraid I cannot answer your first question; we can let you have a note on that. [6]

  Q283 Mr Mudie: There is this business of the migration of the families on income support or jobseeker's allowance. Tax credits have been running for four years. They are supposed to be migrated across. When will they be migrated across?

  Mr Neale: They will be migrated across as soon as the IT is robust enough to permit that to happen without risk or any interruption to their income.

  Q284  Mr Mudie: This has been promised and promised or threatened and threatened. In other words you are still not able to give us a date, time and place?

  Mr Neale: I cannot give you a date. The most important thing is that these people do not suffer an interruption to their income and we are not willing to take risks until we are sure the IT will work.

  Q285  Mr Mudie: Adam Sharples, Director General, Work, Welfare and Equality—one of your protégés I think, I remember he graced these tables—is at DWP now and on 6 February he said he had a timetable with HMRC. The plan was to migrate the remaining families between July of this year 2006 and April of next year 2000. Which part of the Government is accurate? He says he has a timetable with you; you say you do not have a timetable.

  Mr Neale: The Paymaster General is accurate because that is the timetable that we have elected to change in the light of what we now know about the IT and its robustness.

  Q286  Mr Mudie: Let us be clear. Adam Sharples is right, he is singing off the same hymn sheet as you, so by April of next year they will be migrated?

  Mr Neale: No, the timetable has been changed because we cannot be confident—

  Q287  Mr Mudie: Since February this year?

  Mr Neale: Yes since February because we cannot be confident that the IT is robust enough to permit that transfer to take place without interrupting people's income.

  Q288  Mr Mudie: Why is the extension of child benefit to mothers-to-be set for April 2009 instead of implemented? Is it finance or is it IT?

  Mr Neale: I do not know whether there is an IT issue there. We will let you have a note on that. [7]

  Mr Mudie: Thank you, Chairman.

  Q289  Jim Cousins: George, you are still Deputy Chief Whip material! Alternatively secured pensions: how much extra tax revenue are you going to raise by introducing the punitive regime for alternatively secured pensions that was set out in the Pre-Budget Report?

  Mr Neale: I cannot tell you off the top of my head what the revenue implication of that is but what it is not is a punitive regime. The Government introduced alternatively secured pensions for a specific purpose, namely to provide an alternative way of guaranteeing an income for people who have a principled objection to pooling mortality risk. It was not designed to enable tax reliefs to be used to build up capital sums for people to pass on when they die.

  Q290  Jim Cousins: Of course it is very difficult sometimes to see what the design framework of some of the Government's proposals is. You tell me that alternatively secured pensions were apparently introduced to meet the needs of one particular, rather small religious group. Did it not occur to anyone, Mr Neale, in government that they would also meet the needs of people who had serious terminal or chronic illness and might find the annuity regime very restrictive for them and might find the alternatively secured pension regime a much fairer and more attractive one? Did that not occur to anyone in government?

  Mr Neale: I do not think, if I may say so, that alternatively secured pensions have primarily been marketed to people with severe illnesses. They have been marketed—

  Q291  Jim Cousins: Do you think the Government should introduce tax regimes that are specific to members of small religious groups and not realise that they also meet the needs of people who have terminal and chronic serious illness? Did that not occur to anyone?

  Mr Neale: The Government's intention in introducing alternatively secured pensions was quite clear. It was to provide a facility for certain religious groups who do have a principled objection to pooling mortality risk. The reason the Government has taken the action they have is because they have been marketed primarily to wealthy people as a way of using tax relief to build up large capital sums to pass on on their death.

  Q292  Jim Cousins: Do you not recognise, Mr Neale, that they have been marketed as you put it—and I hope you are not suggesting that the Treasury has any ideological dislike of marketing—but they have been taken up by people who have serious illness, chronic illness, terminal illness and for whom the existing annuity regime was deeply discriminatory for them? Do you not realise that that has happened?

  Mr Neale: Alternatively secured pensions are still there; they have not been removed. What the Government has announced in these measures are certain steps to prevent the use of tax relief to build up large capital sums to pass on on death. The Association of British Insurers has welcomed the fact that we have retained alternatively secured pensions in that facility.

  Q293  Jim Cousins: Mr Neale, I quite understand the Treasury's desire to micro-engineer people's behaviour and to pass judgment upon it. I think it is an extremely unfortunate tendency but one that I recognise is now widespread. Can I ask you simply to say what extra revenue this punitive regime that has now been linked to alternatively secured pensions is going to produce? Surely you must know that?

  Mr Neale: I think the revenue impact is fairly small but we will let you have a note on the revenue impact of the measures we have taken on alternatively secured pensions. [8]

  Q294 Jim Cousins: What about missing trader fraud; can you give an estimate of how much it is costing you and how much it is going to go on costing you?

  Mr Neale: The PBR document sets out our latest estimates based on HMRC advice for 2005-06. It says that the revenue at risk, that is to say the level of attempted fraud, accounted for about £3.75 to £4.75 billion and the actual revenue lost was between £2 and £3 billion.

  Q295  Jim Cousins: And you have no present useful plans to do anything about that, do you?

  Mr Neale: HMRC has a comprehensive strategy for tackling MTIC fraud with a number of different elements to it. First of all, HMRC has an operational strategy, which is proving very successful, which consists of blocking repayments to businesses that are suspected to be implicated in MTIC fraud; blocking registrations of businesses that are suspected of being implicated; and tagging goods as they cross our borders to ensure that they cannot be used in a carousel and come round time and time again. That is the operational strategy. There is a comprehensive strategy of international law enforcement co-operation and we will be hosting a conference of our major European Union partners on MTIC fraud early next year. We signed earlier this month a bilateral agreement with the UAE to address MTIC fraud. Finally, there is a legislative leg which involves us getting a derogation from the European Union.

  Q296  Jim Cousins: Mr Neale, all of that is reassuring. We now know the airlines are going to claw back some of the air passenger duty with the extra flights that are going to be taken as people implement these wonderful international strategies. Could you tell me how much revenue is going to be saved?

  Mr Neale: I think the PBR does contain some numbers on that, at least the Budget document contains some numbers on that which we have not changed. Those numbers are associated with HMRC's operational strategy and with the obtaining of the derogation from the European Union bearing on those goods most commonly used in MTIC fraud.

  Q297  Jim Cousins: Mr Cunliffe, can you tell me whether there has been any discussion inside the Treasury of the rate of corporation tax that will be variable in different parts of the United Kingdom tax jurisdiction?

  Mr Cunliffe: I know of no such discussions.

  Mr Neale: There is no such discussion, no.

  Q298  Jim Cousins: Thank you, Mr Neale. There is not even a strategy for it?

  Mr Neale: There is no such discussion.

  Q299  Angela Eagle: The Stern Report recently heaped praise on the EU Emissions Trading Scheme as a very innovative way of beginning to put in place some of the market-based structures that we need to move from a high to a low carbon economy, and yet when we look at the way it is operating, only four out of the 25 Member States actually issued permits that were at or below their current emissions levels, which has meant that in reality in its first year of operation there is a huge transfer of about 1.5 billion from UK business to Europe in having to buy up carbon emissions. What can be done to reverse this because we are being penalised for doing the right thing and the rest of Europe, including some very big producers like Germany, is not exactly rushing to make this system bite?

  Mr Kingman: We entirely agree that there have been very significant teething problems with the development of the ETS and the Stern Review is also clear about that. I think we draw very significant comfort from the Commission's recent announcements on the national allocations where every country other than the UK had their provisional allocations rejected and the Commission is proposing to tighten up their allocations. That is absolutely vital to the working of the scheme.

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