Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 140-149)


22 NOVEMBER 2006

  Q140  Ms Keeble: At present I understand that for every £5.43 which is being contributed by the Government parents are contributing £1. Would you expect to see that change and the level of parental contribution increase, and what sort of level of parental contribution would you take to be an indication that the policy is succeeding in encouraging parents to save? Have you done any work on that? Would you have views on that?

  Mr Gray: I am not sure that we have.

  Mr Jones: That is very hard to say because, of course, the type of saving for a child that might be appropriate at particular times in the child's life might be different. Bear in mind that with the child trust funds the funds cannot be accessed until age 18. Parents have to decide whether that is an appropriate vehicle into which to put savings for the child. Obviously, it is one form of saving which is highly relevant but it is not the only form.

  Q141  Ms Keeble: I wondered if we could have a note on the different areas of research that you are doing into how many of the parents who are on the maximum tax credits and therefore will be getting the enhanced payments are taking up the funds, and if you have any information at all as to what is happening with the accounts that you place, and also what you are looking at doing in terms of encouraging take-up, which seems to be the most crucial thing, and how you are working out who needs to be targeted and who is going to do the targeting, because there is still a very hard core of people who obviously are not using these and if they are the ones who most need it then it is particularly important to have effective research to find out who they are.

  Mr Gray: We can certainly send out all the research we are currently doing and have planned.[8] It certainly does cover income distribution ranges, to cover your point on tax credit take-up.

  Q142 Jim Cousins: Mr Gray, one of the Government's great successes has been an increase in the corporation tax take. I have been studying your accounts, which are quite helpful in setting this out, that about a third of all the increased revenue that HMRC raised between the financial year 2004-05 and 2005-06 was accounted for by increases in corporation tax. There was an increase in tax take of 25% in a single year. That is a very notable performance. Your predecessor has now done this review which the Committee has just seen, the review of the links with large business, because obviously the bulk of the corporation tax take does come from the large business sector. There are a variety of measures set out here—business forums, more consultation between business and HMRC, an escalation rule which will mean decisions get taken very much earlier and very much down the tree of decision making. What impact do you think this might have on corporation tax take?

  Mr Gray: I do not think we have done assessments as to whether it has an impact one way or the other in the aggregate. What we are seeking to do in implementing that review, as I think I was saying in response to Mr Newmark earlier, and how I would characterise all those specific measures you mentioned, is to try and get to a more open, transparent relationship in our dealings with big business. The intention of that would be to get to a position in which it is easier and more expeditious for us to reach agreements with business about the level of tax, and specifically corporation tax, that they are paying. My aspiration would be that that creates an environment in which it is easier for us to collect the right amount of tax and to close any tax gaps, but to seek to quantify what is the effect in the way I think you are asking me I would find extremely difficult.

  Q143  Jim Cousins: It is very interesting that you should say that because this review was carried out by your predecessor as Chairman of Her Majesty's Revenue and Customs, and one thing that is clearly missing from this review is the impact on revenues. It is not mentioned in the whole document. You are really telling the Committee that against this background, where increases in corporation tax have been of such strategic significance in sustaining the Government's public expenditure programme, there is absolutely no estimate of what the implementation of this review might mean for revenues? No such exercise has been done?

  Mr Gray: That is what I am saying, but what it is all about is seeking to create an environment in which it is easier for us to administer this system. Obviously, one of the pressures behind the review, and certainly behind issues that some parts of business have been raising, is the potential implication of the way in which we operate and conduct the tax system not only on people's willingness to engage with us constructively in meeting their tax bills but also potentially at the margin on their business decisions, and clearly a driver in all this is seeking to create an environment in which businesses find that doing their business and paying their tax in this country is, I will not say more congenial but a more satisfactory relationship, and that obviously carries implications for the levels of business and levels of tax going forward.

  Q144  Jim Cousins: Can I just be clear about this, because set out in the report is the creation of an advisory committee at strategic level, and the report itself is not a one-person report; it is the product of a great deal of thinking by a variety of people, some of whom do come from HMRC, and at no stage in this exercise was a study asked for or done on tax take? Can that be right?

  Mr Gray: The focus is on the environment within which tax obligations are being met in the UK, and that clearly potentially has an impact one way or another on levels of tax take, and if we have a better environment, other things being equal, one would expect that to have a favourable impact, but the way we do our business is not the only thing that has an impact on levels of tax take. The legislative framework which ministers and the Treasury review from time to time in terms of setting levels and structure of corporate taxes is also an important driver in all that.

  Q145  Chairman: When you told me that back office functions like debt management and so on could be withdrawn from Kent—

  Mr Gray: Well, part of debt management.

  Q146  Chairman: —you said they could be withdrawn to places like Bradford. Could they be withdrawn further afield? Do you exclude them being withdrawn, for example, to some overseas agencies?

  Mr Gray: We certainly have not got any plans to do that, no.

  Q147  Chairman: On enforcement, you have since March 2005 carried out three separate consultations on your review of "powers, deterrents and safeguards". Why has all that taken so long?

  Mr Gray: This is a difficult process. We are trying to balance some fine judgments here between pressures one way and the other. It would have been nice to get to conclusions rather more quickly, but equally it is important to try to get to conclusions that are going to be most sustainable, and I think the worst of all worlds would have been if we had rushed through these processes, gone through inadequate consultation and then found, for example, that not only the creation of any adjustments to legislation but also the operation of the system were immediately coming under scrutiny and attack, so I think getting it right in this difficult and delicate area is really quite important. That does not mean I am completely complacent. This process should not go on year after year.

  Q148  Chairman: Are you trying to introduce the new set of rules for the new organisation or are you just matching up what Customs and Excise had on the one hand and what—

  Mr Gray: No. Predominantly we are trying to do the former of those, which is to say that within the context of a unified tax regime, and the environment within which we are operating and the economic and political considerations that go with that, what is the right level going forward? Inevitably that discussion is bound to be influenced and people's views on where we should go are bound to be influenced by what were the respective starting points, but I would place it squarely in your first definition rather than the second.

  Q149  Chairman: You were originally trying to make these changes in the Finance Bill 2006. Are you going to make the Finance Bill 2007?

  Mr Gray: I hope we will be in a position to do some of that, yes, but obviously it depends on the continuing process of consultation, and in the normal way it will depend on all the pressures that arise across the piste as to what measures can and should be included in a particular Finance Bill. It is important to say that we are not operating in a vacuum here, Chairman. We have established sets of powers that we continue to operate unless or until there is any modification to them.

  Chairman: I understand. Right, Mr Gray. I am going to leave it there. Thank you and your colleagues very much.

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