UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1031-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

TREASURY COMMITTEE

 

 

THE 2007 PRE-BUDGET REPORT

 

 

Thursday 25 October 2007

RT HON ALISTAIR DARLING, MR NICHOLAS MACPHERSON, MR MARK NEALE and MR RICHARD HUGHES

Evidence heard in Public Questions 268-386

 

 

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Oral Evidence

Taken before the Treasury Committee

on Thursday 25 October 2007

Members present

Rt Hon John McFall, in the Chair

Mr Graham Brady

Mr Colin Breed

Mr Jim Cousins

Mr Philip Dunne

Mr Michael Fallon

Ms Sally Keeble

Mr Andrew Love

Mr George Mudie

Mr Sin Simon

John Thurso

Mr Mark Todd

________________

Witnesses: Rt Hon Alistair Darling MP, Chancellor of the Exchequer, Mr Nicholas Macpherson, Permanent Secretary, Mr Mark Neale, Managing Director, Budget, Tax and Welfare and Mr Richard Hughes, Team Leader, Comprehensive Spending Review, HM Treasury, gave evidence.

Q268 Chairman: Chancellor, we do not need your witnesses introduced again. Now, the Pre Budget Report outlines that there have been quite a number of tax decisions taken which seem to be final in nature. Have we moved to the situation where we have two Budgets a year?

Mr Darling: No, we have one Budget which is normally in the spring of the year. The purpose of a Pre-Budget Report, as you may recall, its genesis is partly it takes over from the Autumn Statement which we used to have every November which is a half way through the year reporting. We changed the system in 1997/98 when we wanted to have the opportunity to set out not just progress but also thought it would be an opportunity to float ideas. Some were more certain than others, as you can see from this Pre-Budget Report. I have made firm proposals in some areas, there are others which we are consulting on.

Q269 Chairman: You have embarked upon a consultation on aviation taxation replacement for Air Passenger Duty, whilst at the same time indicating the total revenue to be raised by the new measure in its first three years of operation. Why did you not take a similar approach to reforming Capital Gains Tax, committing to a total revenue gain but consulting on the details?

Mr Darling: Because one was essentially a new tax. The Air Passenger Duty, as you know, at the moment, is charged on most though not all passengers getting on to a departing flight. A tax that is raised per plane is different, apart form anything else it covers more than passengers. Its structure will be different. There are issues of transiting and so on. I think it was right to indicate that the Government, recognising that aviation does have a contribution to make to the environmental damages that it causes, was proposing to raise more. This is a tax which is new in structure and already, as a matter of fact, a number of airlines have made a number of suggestions about that. That is different from Capital Gains Tax which is essentially a rate change and the concept of capital gains has been with us since 1965.

Chairman: We will come on to Capital Gains Tax later.

Q270 Mr Breed: No doubt, Chancellor, you or some of your colleagues have read the recent report by Policy Exchange, the think tank which was entitled, "More mirage than miracle due to the reliance on debt". It was trying to explain the situation, it felt that the economic miracle we have had over the last ten years was more of a mirage than a miracle because it built on so much debt: household debt, commercial debt and Government expenditure. How do you respond to that?

Mr Darling: As far as Government debt is concerned, it is at a historically low level and compares well with other comparable countries. As for what has happened in the economy, I think the fact that we have an economy that has now been growing for over 10 years, that we have 21/2 million more people in work, that we have been able to put more money into health, education, transport and security, all these things demonstrate to me that we have a strong economy. The other thing is that I know, and I have said this before and I will say it again, next year we are going into a period of uncertainty which is why I revised downwards my growth forecast for next year but this year we are the fastest growing major developed country. What I am disputing is the underlying assertion made by the Policy Exchange. In relation to debt, if you look at what we are doing as far as debt is concerned, then not only is it manageable, it fits within our fiscal rules, but also if I look at household debt, most of that debt is secured debt, it is mortgages; the unsecured debt, credit cards and so forth is coming down.

Q271 Mr Breed: We have just been speaking about Northern Rock which you said was solvent but ran out of money. Merely having them secured does not necessarily mean that people are going to have the cash to fulfil their daily requirements and weekly bills and everything else. The fact that some of these are secured does not necessarily mean they will have the available cash to meet all their requirements.

Mr Darling: If I perhaps give you an illustration. If you look at the household sector, its interest payments are about 9.8% of their disposable income, they were about 15% in 1990, so I think we are in a rather better position than we were 17 years ago.

Q272 Mr Breed: PBR noted that growth in the private sector debt and assets has increased the sensitivity of interest payments and receipts to changes in interest rates. Have you done anything to quantify that likely impact in those forecasts for the immediate future?

Mr Darling: We take account of all forecasts in the projections we make in the Pre-Budget Report but in relation to personal debt, as I said, a lot of that debt is mortgages and the like, which is secured. If you go back to your last discussion, one of the ironies of Northern Rock is it actually had a very good mortgage book. It was not a sub-prime problem directly that they had. In relation to personal debt, the unsecured personal debt, the credit card type debt, whilst I have said on a number of occasions that people do need to be careful about that, that has been falling as a proportion of income. I mentioned public sector debt, we are well placed and, as I said, everything we do is consistent with the fiscal rules we set ourselves. The underlying assertion made by the Policy Exchange, I do not accept. Without getting too partisan about it, I am pleased to see that people even on the political parties will at least outside the confines of the House of Commons Estate admit that the British economy is doing well.

Q273 Mr Fallon: Chancellor, the additional 2 billion that you found for health and education in 2010-11, you boasted about it three times in your Pre-Budget Report speech. Could you explain to me where it comes from because in the document you are not raising it from new taxes, you are not shifting it from other spending, you simply, at table B2, added it to the borrowing requirement, is that right?

Mr Darling: If you look at the total monetary expenditure, it comes from a combination of sources, what we think we can afford to spend over the next three years' spending review period. We set out quite clearly how much we are going to raise by taxes, we set out the borrowing requirement, so all the figures are there for people to see. My judgment was that we could spend that extra 2 billion, it meant that total monetary expenditure rose by 2.1% as opposed to 2% which was set in the Budget.

Q274 Mr Fallon: You simply added it to the borrowing requirements. It is really just an unfunded spending increase, is it not?

Mr Darling: No, it is not. I do not think you can isolate the 2 billion in that way.

Q275 Mr Fallon: That is exactly what you have added to the borrowing requirement for that year.

Mr Darling: If you look at all the figures, we have shown how much we have raised ---

Q276 Mr Fallon: Look at the figures in table B2, you have added 2 billion to the borrowing requirement for the year in which you are earmarking 2 million more for health and education.

Mr Darling: Government funding is financed by a combination of the money that we raise through taxes. Yes money is borrowing, and as I said to Mr Breed I believe that is justified because I think the investment is needed. That is why we do these as a combination of tax raising and also borrowing where it is prudent to do so.

Q277 Mr Todd: The efficiency targets set in this report are more challenging than their predecessors. You are seeking savings by 2010-11 of 30 billion a year, net of any implementation costs, therefore cashable, whereas the previous targets most people accept only about 60% have been actually cashable. Are the departments prepared for the very significant ramping up of the savings they have to achieve?

Mr Darling: They are and they have to be. It is quite demanding but some of the spending they want to do will have to be achieved through being more efficient. There is not room for being more efficient. For example, one of the things the MoD will be looking at is the number of people in their back-up functions. They employ a substantial amount in the Civil Service. They know they can be more efficient and they have plans to do that. In my last Department, the DTI, for example, we significantly reduced the head count so these things can be done and they need to be done because when you are spending this amount of public money I think the public rightly expect that you are pretty rigorous with it.

Q278 Mr Todd: One might have expected a more discriminating and focused approach. What appears to be being taken is a blanket 3% minimum saving across the board in all departments, regardless of their scale or the scope they have for making savings. That would not normally be the approach one would take in a business. What basis is there for that? Has there been some sort of external review which assesses where savings can be identified?

Mr Darling: It was not just an exercise done by the Treasury and imposed upon all departments. We reckon that a target of 3% is demanding and that it can be achieved. Obviously the ways in which departments achieve it are different. What we are asking some departments to do is slightly different from others. I think the general position of a demanding efficiency target is a thoroughly good thing but we have looked, because obviously we are aware of the fact that some departments are better placed than others.

Q279 Mr Todd: Chancellor, you will recall the political controversy over savings targets in the past and the use of Gershon's own evidence which was a maximum could be achieved and no more than that on his proposals in the last spending review. Has there been some external audit of the targets you have set in this case because obviously there was last time?

Mr Darling: Gershon, I think, was about 20 billion and that has been looked at by the NAO. Let me give you an example, the point you were making earlier. The Department of Transport, its efficiencies will be 5% and a lot of that will be in relation to the way in which it procures in the Highways Agency. It is thought that by being more efficient that way it can achieve more savings. Generally speaking, I think the overall requirement is one that is eminently doable.

Q280 Mr Todd: Something which would be helpful to us is something which builds the 30 billion up.

Mr Darling: Okay.

Q281 Mr Todd: It has already been queried.

Mr Darling: I am happy to do that for you. I am happy to let you have details of what I expect each department to be doing.

Q282 Mr Todd: That would be helpful because we have already had a query that the 3% minimum does not produce 30 billion over the period in time. Obviously there are some other elements that are hidden away within that which are not disclosed in the Pre-Budget Report in detail.

Mr Hughes: I can pick up on that point. That was a point made by Professor Colin Talbot in your expert session. The 30 billion and the 3% is calculated on departmental expenditure limits. I think he was looking at total managed expenditure. These are the targets being set for individual Government departments, it relates to the budgets that the departments hold. The reason that it is greater than 3% on total DEL is because there is some over-achievement by quite a few departments above the base line requirement which is why it is above what will just be a strict 3% target applied to total DEL.

Q283 Mr Todd: The post audit process, you suggest in the report that the NAO will of course be monitoring this, as I assume they must, but because of the change in the way that OGC is operating so that much of this responsibility moves back to the Treasury, I am assuming the Treasury will have a responsibility to audit this achievement as well. Will it be reporting regularly on the achievement of departments as a whole of the total managed output?

Mr Hughes: Of course we will report regularly, as regularly as is appropriate so that people can see what we are doing. I am very happy to send you further details on what we expect each department to do and how we expect it to be done. Just to be clear on that, departments are going to be publishing special VFM delivery agreements by the end of this year, setting out how they are going to deliver these savings and they will regularly report on that.

Q284 Chairman: Chancellor, to what extent do you think the US economy is vulnerable to a greater than anticipated downturn in the US?

Mr Darling: There is a great deal of uncertainty. I think if you speak to the US authorities, as I have done, they will say that the housing market, not just because of the sub-prime issue but they also have quite a problem with unsold houses, and general problems with mortgages, it is going to go through a difficult time. I think as the US Treasury Secretary, Henry Paulson, has said, there will be a penalty. However, they also say that other parts of the US economy are strong and, of course, the US Fed has cut interest rates by 0.5%, which will counter some of that. There is no doubt that if people are worried about their house value and they are worried about their mortgage, that influences how much they might be prepared to spend on buying a new car or how much they spend at the shops at the weekend. There is a degree of uncertainty. Nonetheless, not just the US Government but commentators are still talking about the US economy growing, perhaps at a slower rate than they thought a year or so ago but still growing. You are right, if you look around the world, for Britain the US market is very important, so too is the euro market which has slowed down but then the emerging markets, people are confident they will continue to grow at quite a rapid rate and that is important too.

Q285 Chairman: Given the recent movements of the dollar exchange rates, has the possibility of a disorderly unwinding of global imbalances risen now?

Mr Darling: As I said to you, there is uncertainty. I think, especially in the light of what has happened in the last few weeks, institutions themselves are now much more sensitive to the need to organise these things properly. You are probably aware the US Treasury is working with US banks with a view to trying to unwind some of their liabilities, these special investment vehicles as they are referred to. As I said at the PBR, I think I was right to lower the growth expectations for next year but if we can get through this - and remember as the Governor of the Bank of England today has made the point - the UK economy is in a fundamentally better position than it has been in the past when you have had difficulties like this.

Q286 Mr Brady: Chancellor, can I return to something I was pursuing with the Chief Secretary on Monday which is the impact of population growth on public expenditure. Public spending is anticipated to grow at 2% a year roughly in real terms over the Comprehensive Spending Review period. Can you tell us what the increase is over and above that level that is needed to keep pace with population growth?

Mr Darling: We set out the growth overall. Can I just say, because I think this is one of the things you were asking on Monday, when we ask departments to forecast what they would need to do, one of the things they had to take into account was the growth of the population. What we had in 2004 was an ONS estimate of the population at the end of the period of between 64 and 66, on Tuesday they announced they thought it would be about 65 so we were able to proceed on what appears to be a realistic estimate. That is one of the reasons, for example, on health, because of the demographics we have increased health spending by more than other departments. We have also made provision, of course, for housing because there is a demographic pressure there as well. I believe that we have made provision right across the piece for the fact that the population is growing. The other thing is - and the ONS makes mention of this as well - a lot of people who are coming here are migrant workers who work here for a fairly short time and then go back, and that also contributes to the growth of the economy which in turn generates the money that we are spending on some of these services.

Q287 Mr Brady: Obviously many migrants are contributing to the growth in the economy, many of them are contributing to Government revenue as well while they are here and that is very welcome. The figures that the Library has given me on this suggest that even using the figures for migrants and other forms of population growth we know about, and obviously there are those we do not know about as well, that amounts to about 0.7% increase each year over the period of the Comprehensive Spending Review. On that basis the effective increase in public expenditure in real terms is 1.3% in 2008-09, 1.2% in 2009-10, 1.4% in 2010-11. Is that not, in many ways, a more accurate picture of what is going to be happening in terms of public finances and the amount of money that is available for the provision of services?

Mr Darling: I have not seen the House of Commons' figures that you are referring to but what I would say is this, it has been the case for most years that the population of this country has been growing. The growth figures that we set out are simply the arithmetic differences between where you start and where you finish. What I can say to you is that when we drew up our spending plans we were aware of the ONS projections and, as I say to you, they are pretty accurate from even two years ago, and we have taken account of them. It is the case that the population will continue to grow and that works both ways, if you like. There are more people to spend the money on but equally there are more people contributing to the wealth that you need in the first place. Nothing has changed in that regard for decades.

Q288 Mr Brady: In per capita terms it would be fair to say that what is already seen as a fairly tight public expenditure settlement is tighter than it looks.

Mr Darling: It is a tight public expenditure round but I am not aware of that many people calling us for spending even more. It is a new development here on your side but I think it is a tough spending round. My view is this, since 1997 public spending has increased by above the trend rate of growth. It has levelled out now. Most departments have got good settlements and what the public are expecting them to do is to provide value for money for these settlements. Yes, you are right that if the population goes up that puts pressure on the Health Service, that is why it is increased by 4%; it is going up on housing, that is why we have increased housing; it will put more pressure on our transport infrastructure and so on. We have factored those into the forecast we make and the judgment we reach. Mr Fallon was asking about extra money that we are spending, one of the reasons that health spending will go up is because, especially following the Dasi Report and others, we will need to spend more on that, amongst other things to take account of the fact that our population is growing.

Q289 Mr Brady: Can I turn to the proposals for Capital Gains Tax. Last week when your officials were with us, Mr Neale, I think it was, told us that private equity was not the main motivation for the changes. Whereas in your PBR announcement, I think you said the intention was to ensure that those working in private equity pay a fairer share. Which of those views is correct?

Mr Darling: First, the changes relating to Capital Gains Tax were not principally aimed at private equity, though there is no doubt that if you have a higher rate than 10 pence, the 18 pence rate, that will mean that people in private equity will pay a higher share than they would otherwise do. I think I made the point too that if you look at that together with some of the changes we are making in relation to closing some of the tax loopholes, I think that will help ensure there is a fairer system. The main reason, the driving force if you like, behind the Capital Gains Tax was on the merits of having a simpler system. I have made it clear during the couple of interviews I have done on private equity I think it is important that we have a fair tax system. My view is that private equity can be a force for good and to say that one type of funding is good and another type of funding is bad is not terribly accurate nor is it terribly helpful.

Q290 Mr Brady: I am delighted to hear that Mr Neale was right when he spoke to us last week. How confident are you that these reforms are the most effective way in which we could target the private equity sector for a fairer taxation system?

Mr Darling: I think there are two things I would say in relation to private equity if you look at people's general concerns. One is how do you ensure that people pay a fair rate of tax. The Capital Gains Tax rate that I set out I think will help there. Whenever you have a wide differential between what you pay on income and what you pay on capital, there is always the risk that people may seek to arrange their affairs so they attract tax at a lower rate. I think the second thing which is broader, a non tax point, if you like, in relation to accountability and in relation to transparency is the code of conduct which Sir David Walker is likely to publish in November, which I hope private equity firms will sign up to. If you look at the two things people were concerned about earlier this year, I hope we can address these. As I say, the Capital Gains Tax changes were principally aimed at reform of Capital Gains Tax rather than private equity in itself.

Q291 Mr Brady: As you are aware, Chancellor, the reforms cause very considerable problems for a number of smaller businesses in particular. Without burdening the Committee again with an example I gave the other day about a constituent of mine who is selling a small business, a gain of 62,000, the tax payable will increase from 2,500 to 9,500, a very, very big hit for a small entrepreneur.

Mr Darling: I understand whenever you make any changes to a tax system that some will be pleased with it and some not so pleased. I also understand, indeed this was one of the points raised when I met the CBI, the BCC and the Federation of Small Businesses and the IoD earlier this week, that for people who are facing retirement, and who will make various assumptions about their businesses and so on, they have a particular concern. I suppose some people when they set up their business who are now facing retirement would have done so when CTG was at 40% rather than the present 10% rate. I think moving to a simpler system is the right thing to do. When I met the people earlier this week, I made it clear that I think the course of action which I set out is the right one. Of course I am willing to talk to them about how in detail we can improve things. Remember that the rate is internationally competitive, people still have their personal allowance of 9,200 so most people in share option schemes, for example, are unlikely to be realising a gain of more than that. We have still got rollover relief, we have still got the incentives for enterprise investment schemes and so on. I think all these things will help. A simpler system of tax which, after all, many people regularly call for, although I quite accept that sometimes they do not mean the tax they are paying, but a simpler system of tax instinctively must be the right direction to go.

Q292 Mr Brady: Finally, you mention the concerns of particular people moving towards retirement, what consideration, if any, did you give to the possibility of protecting people in that situation, either by allowing them to retain the taper relief or having a transitional period or any of those possibilities?

Mr Darling: I considered all of these things. One of the problems with our tax system, this is across the whole piece, is that you start off with a simple proposition and then in order to deal with most of the things you might want to encourage or discourage or to deal with difficulties of individuals you add layer after layer of complexity. Capital Gains Tax when it started off life in 1965 was a single rate, it remained at 40% for a long time which I think most people would now say was far too high. What I am wary about, as I said to the CBI and others when I met them this week, of course I am happy to talk about details but what I do not want to do is reinvent all the complexities so you end up where you started because I do not think that is the right thing to do.

Q293 Mr Dunne: Chancellor, on 4 July you said to the Financial Times, "I think we should be very, very wary indeed of a knee jerk reaction or a reaction to a day's headlines into making a tax change that could result in unintended consequences and undesirable consequences".

Mr Darling: This is in relation to private equity.

Q294 Mr Dunne: It may have been.

Mr Darling: It was.

Q295 Mr Dunne: Did you intend to make second home owners and holders of substantial personal private portfolios winners for this tax change for business and how many of them have you calculated that there are?

Mr Darling: In relation to the comment which I made, that was relating to private equity, but it is a generalised comment which could very well apply to other taxes as well. It comes back to the point I was making to Mr Brady, I am very attracted towards trying to simplify the tax system, whenever you do that and once you have systems about what is good, what is bad, what you want to encourage, what you want to discourage and so on, of necessity you start to introduce a whole series of complications. The advantage of a single regime is that it is simple, it is easy to understand. I am told that something like 75% of people who pay CTG at the moment need an accountant to work out what their liability is because of indexation and all these things. In relation to property generally, I also said in the PBR that one of the things we are going to consult on is how we can better help first time buyers who were again identified by the bank this morning as people who we need to do something about.

Q296 Mr Dunne: You might like to look at some proposals for stamp duty for first time buyers.

Mr Darling: I always like to say, I will look at all the options before coming to a sensible and affordable decision.

Q297 Mr Dunne: Can I ask you whether you calculated how many losers there would be from these changes to business taxation?

Mr Darling: When we look at the thing, we know where the tax taper comes from and where money is not collected. I accept whenever you change things there will be some people who will gain and some people who will lose. I think the challenge before us is to try and get a simpler tax system, which is a prize worth pursuing.

Q298 Mr Dunne: I take it that is a no, you have not actually worked out how many people would be benefiting?

Mr Darling: It is very difficult to work out how many people precisely would be better. There are 260,000 CTG payers at the moment, so that gives you some idea. Remember, unlike income tax which is payable every year, many people only pay Capital Gains Tax once in a lifetime.

Q299 Mr Dunne: Last week your new minister for Trade and Industry, Lord Jones, was quoted as saying to a business audience in Bolton ---

Mr Darling: I thought it was yesterday.

Q300 Mr Dunne: It only came out yesterday but it happened last week. He said, "I have learned that medium sized businesses in particular think this is a terrible thing ..." referring to the Capital Gains Tax changes "... I want to understand your questions and concerns and I promise I will relay what you have said to the Chancellor in private". What has he told you about the reaction of business?

Mr Darling: He has not actually got around to having that private conversation with me yet but I am looking forward to having it.

Q301 Mr Dunne: I hope you will then widen your response.

Mr Darling: I look forward to my regular exchanges with Lord Jones.

Q302 Mr Dunne: You have already referred to your meetings with business leaders on Monday.

Mr Darling: Yes.

Q303 Mr Dunne: Had they been consulted prior to the introduction of these changes to the tax structure or not?

Mr Darling: No. As I said in reply to the Chairman's question, I think there is a distinction between a new tax like the tax on flights as opposed to Air Passenger Duty and a proposal in relation to rates where the Government does not always consult.

Q304 Mr Dunne: I accept that is the case in relation to rates but in relation to tax simplification of such a significant structure, as has been proposed here, it would be normal, would it not, for the Treasury to consult those likely to be affected?

Mr Darling: Sometimes the Treasury consults on these things and sometimes it does not. In this case we have in effect given people six months' notice of what we intend, so the changes cannot come in until next year, it also needs legislation. There are many cases, as you know, where the Chancellor stands up in the House of Commons and says, "From midnight tonight this, this and this is going to happen". It is not always the case that it consults on changes of this sort.

Q305 Mr Dunne: Having now listened to their concerns, are you considering introducing a relief for small businesses to restore your predecessor's aims of providing an incentive for enterprise in this country?

Mr Darling: I set out what I intend to do and I have also made it clear that of course any Chancellor would want to listen to what people have got to say. I think simplification is a prize well worth pursuing. I am reminded that my predecessor but two or three, the noble Lord, Lord Lawson, did not consult on his CTG changes. I do not know if that helps you or not?

Q306 Mr Dunne: When you look at the round of business changes that you have introduced, you have to come away with the impression that one of the other aims of your predecessor was to encourage long-term investment. You seem to be encouraging short-term investment.

Mr Darling: I am very much in favour of encouraging long-term investment. When you look around the world at the 18% rate I believe that it is competitive. I think, also, a lot of people when they set up a business do not immediately think Capital Gains Tax of course is a consideration and something to take into account. I want to encourage people to take a long-term view, that is why we do spending three years' ahead. A crucial thing which encourages people to take a long-term view is to have a stable economy with low interest rates and low inflation. Everything we do is driven towards achieving that end.

Q307 Mr Dunne: One of the consequences of the proposals you have introduced now is that individuals who have saved to buy shares in their company, and had the opportunity to crystallise some of those plans between now and the end of April, will be actively encouraged to sell the shares which arise as a result of the exercise of options. I can give you one particular example of a Footsie company which has a plan maturing in January which has told me that 70% of the employees who have saved into that scheme will have a gain in excess of their Capital Gains Tax allowance and it will be in their financial interest to sell their shares. Surely that, if it is illustrative of a wider problem, cannot be a very sensible measure.

Mr Darling: I am not sure how many employees who have shares will be in the happy position of having an annual gain in excess of 9,200 every year, though it may be. I do not know which company that is. I still believe that having a single rate, having an easier to understand tax system is a significant prize. Of course in relation to incentives to encourage share people, we already have a number not just for the tax system but also in relation to the money that Government spends as well. I do want to encourage people. If you look at the start up rate in this country of businesses, it has gone up, is it 700,000 SME businesses in the last ten years. It is terribly important that we do that. I maintain that one of the things which will help in the long-term is to have a simpler tax system.

Q308 Mr Dunne: I wonder if you will have any discussions with the representative body for those who look after employee share schemes, Proshare, before you introduce this measure? They have written to the Committee this morning to tell us, "As the collective voice for the all employee share plans' industry, we are concerned by the potential impact of the Capital Gains Tax simplification recently announced by the Chancellor". It is another major industry-wide body which thinks this does not make sense.

Mr Darling: I am more than happy to hear from Proshare, an organisation which I know, as and when they care to get in touch with me.

Q309 Mr Dunne: I will forward the note.

Mr Darling: I think they know where we live! I am sure they will be in touch.

Q310 Mr Dunne: I have a final question about numbers, to do with the changes you are proposing for taxation of non-doms.

Mr Darling: Yes.

Q311 Mr Dunne: There was a recent answer to a Parliamentary Question answered by the Minister, Jane Kennedy, who indicated that for 2005-06 the number of non-doms estimated at that time was 114,000. She has made clear there are more returns to be processed. Can you confirm to us that the number of 114,000 non-doms is in fact a running total and not a fixed estimate?

Mr Darling: I think that is the number of people we think there are. My recollection is it may have gone up to 115,000. I think it is 114,000.

Mr Neale: These numbers are based on self-assessment tax returns so they will be based on HMRC's latest self-assessment tax return numbers.

Q312 Mr Dunne: Those will not have been completed yet for that tax year?

Mr Darling: Which tax year?

Q313 Mr Dunne: For 2005-06?

Mr Neale: The great majority will have been, yes.

Q314 Mr Dunne: Can you estimate whether we can look forward to an increase in that number potentially?

Mr Neale: I think it is very unlikely that it will grow at all substantially. There may be a few outstanding returns.

Mr Darling: Can I help you on that. These are the latest figures I have got. In 1996, there were 68,000. Perhaps if I look at the more recent years, from 2000, it was 106,000, then 111,000, then 110,000, then 111,000, then 115,000, then 114,000. It will change but it appears to have been fairly static, at least for the last seven or eight years.

Q315 Mr Dunne: Chancellor, do you have the estimate which was made in August, which will be the comparable figure to the 114,000?

Mr Darling: I am not sure when these figures are. They are October.

Q316 Mr Dunne: There has been no increase on the August figure until October?

Mr Darling: There may have been some but just looking at those numbers, they seem to be hovering around 114,000/115,000 which means that you may get 1,000 either way but there would not be another 50,000 or 100,000, I do not think.

Q317 Mr Simon: That is clear enough.

Mr Neale: These are self-assessment tax returns but the majority of those are in for 2005-06.

Mr Darling: I appreciate the point you are making but there comes a point where the numbers look to me to be fairly settled.

Q318 Chairman: Can you drop us a note on that, Chancellor.

Mr Darling: I will happily do that but, as I say, the numbers appear to have gone down in the last year rather than up.

Chairman: Please give us a note.

Q319 Mr Mudie: CGT, pulling out CGT, the taper relief on a phased basis, why would that move so desperately away from simplicity?

Mr Darling: Any complexity you introduce into a system, whether it is a taper or any other allowance, necessarily adds to complexity. As I said earlier on to Mr Brady, the minute you start off the tax and you add the bits you get into all sorts of difficulties.

Q320 Mr Mudie: I understand that. Are you saying to this Committee that your firm view sitting here is that it would be wrong on simplicity grounds? If you are intending - and you are intending - to take out taper relief, you could not consider it on a phased basis which allowed people to take a decision, not in the next six months but maybe in the next five years?

Mr Darling: By definition any complexity or qualification you put in a simple concept adds to its complications.

Q321 Mr Mudie: Okay. Can we have a note.

Mr Darling: I am not arguing complexity is wrong. You see the Benefits System, complexity is one of the things which springs to mind but there is room for it.

Q322 Mr Mudie: Your three carrots for the deal were simplicity, which you have dealt with, sensibility and affordability. Well, the industry can argue the sensibility of it, and we introduced it, I think it is very successful. It comes down to affordability. I think we asked for figures when we met your officials on what was the particular cost of taking taper relief out.

Mr Darling: You are about to get that note.

Q323 Mr Mudie: Do not worry.

Mr Darling: Do you want to know what it is.

Q324 Mr Mudie: If it is small it would be wonderful, Chancellor.

Mr Darling: It is a long note. I will spare you the abolition of the kink test for assets held at 31 March 1982 but basically the cost of the taper this year is 6.3 billion.

Mr Neale: The cost to the Exchequer.

Mr Darling: To the Exchequer, yes, in tax foregone.

Q325 Mr Mudie: How much did you say, 6.3 billion?

Mr Darling: Billion.

Q326 Mr Mudie: Billion?

Mr Darling: Yes.

Mr Neale: That did not exist, 6.3 billion more revenue.

Q327 Mr Mudie: Once Mr Neale starts it is impossible to stop him. Wonderful. Chancellor, it cannot be on affordability because this measure next year is 350 million, goes up to 750 million. It is not affordability is it.

Mr Darling: I have never thought to argue that.

Q328 Mr Mudie: Fine. So it is sensibility and simplicity and we are not sure how simplicity would be harmed by this one measure. Okay. Can I move on quickly to two other matters which I raised with Andy the other day. Child poverty. You have inherited a target which I do not see in all fairness to yourself as Chancellor you can meet. In nine years you have taken 600,000 children out of poverty. With measures in the last year we could say there are an additional 300,000 in the pipeline, they may not come right but we will give you those three; that is 900,000 in nine years. Your target would force you to do 800,000 in three years. Is this an opportunity for you as a Chancellor to say, "I think the target is something which might need to be re-examined."

Mr Darling: Let me say to you, Mr Mudie, it is a target, as you know, the Government has been pursuing. It is a target that I am determined to pursue as well. I think we are the only government, I think we are probably the only political party, which has said that we want to abolish child poverty in a generation and halve it. Obviously when you are pursuing relative poverty it becomes more difficult because relative poverty is a much more difficult thing, by definition, especially in the growing economy to achieve. I am determined to do my level best to carry on pursuing that target. Before 2010 we have possibly two Budgets and two Pre-Budget Reports. I know a Pre-Budget Report is not a Budget but I would like to pursue it because I think it is a prize that is really immense. It matters and it is at the core of everything we believe in.

Q329 Mr Mudie: Absolutely. The IFS said it would cost 3.8 billion and I do not know the figure we are putting in, it is a very small figure this year, I think it is 30, 30, 30, I am not sure, Mr Macpherson nods so it must be right. Without the Cabinet saying, "This has got to be a priority for resources" you have an impossible task. We looked at the Comprehensive Spending Review and we could not see any expenditure in there which would allow you to get anywhere near that target.

Mr Darling: We were discussing the last Pre-Budget Report and I am not yet in a happy position discussing the next Budget with you yet. All I can say to you, Mr Mudie, is that I and every other member of the Government are committed to doing everything we can to reduce child poverty. How we do it, as you know there is a combination of spending money, crucially helping people into work, I want to do it because I think it is something which is pretty central to what we are about.

Q330 Mr Mudie: We are failing if we do not put the resources in. We can have the commitment but if the resources are not there ---

Mr Darling: Absolutely. We have to ask ourselves at every Budget and every Pre-Budget Report, what can we do.

Q331 Mr Mudie: Another vulnerable group I raised with Andy the other day was the elderly. You and every politician knows that home care, for example, for the elderly and the disabled is almost non existent unless you are severe or critical. The Comprehensive Spending Review puts 190 billion in over three years. The total Government expenditure over those three years at current prices would be 1,770 billion and our priority to extend social care to the elderly is 190 billion over three years.

Mr Darling: That is not the whole story though. You are right, that is a specific grant but also the Government gives substantial sums through rate support grant to local authorities, a lot of whom provide help.

Q332 Mr Mudie: No, they do not. Two thirds of them already will have set the bar so you cannot even apply.

Mr Darling: If you look at how care for the elderly is provided, part of it is provided directly, and I appreciate whenever you have a local authority by definition they have to take a decision as to where exactly to spend their money. Since you have mentioned the poverty, we have taken nearly 2 million pensioners outside absolute poverty and just over a million out of relative poverty so we are making some progress there. I readily accept, one of the big challenges for us all in the country is long-term care. This is a combination of grant and also money that comes from local government.

Q333 Mr Mudie: I want to put it down again as a marker. The Wanless Report for the King's Fund, Joseph Rowntree have produced a report, your own Social Care Commission have said we neglect our elderly in this field. The Wanless Report put long-term proposals. The most we are doing, despite those being 18 months old, is put in a Green Paper, there are no funds for the next three years so the vulnerable elderly are going to have to look to you after three years to find funds to extend the care to them. Do you not think that is unacceptable?

Mr Darling: There is 190 billion which you referred to.

Q334 Mr Mudie: Over three years.

Mr Darling: Yes.

Q335 Mr Mudie: A budget of 1,770 billion.

Mr Darling: It is not just local authorities but also NHS care as well. The 190 is not the whole picture.

Q336 Mr Mudie: No, but with the greatest respect the money which comes from the Health Service is aimed, the same as the local authority money now, increasingly at the serious and critical. I gave Andy an example: a 93 year old war hero living on his own, in a wheelchair, who got one hour a week from the local authority, now he has had it withdrawn. A 93 year old being looked after by an old lady, an 83 years old, living next door. That is the situation out in the country and unless we put resources in they will continue to be neglected.

Mr Darling: That is presumably Leeds City Council, is it?

Q337 Mr Mudie: No, this is across the country.

Mr Darling: No, I was talking about the example. I thought the example might have been a constituent or someone like that. The person you were referring to?

Q338 Mr Mudie: Yes, but they are only following the rest of the country. They are saying, "the Government will not give us money so we cannot spend money on it".

Mr Darling: Except the Government does give local authorities very substantial sums of money and, again, this year, for the next three years, they get a real terms increase. Government can do so much through centrally directed funds but also it can reasonably expect local authorities who have a great deal of responsibility in this area also to make funds available.

Q339 Mr Mudie: Chancellor, with a great deal of respect, you are saying that from Government; local authorities are saying the opposite back, and you are both colluding to turn your attention away, not face up to the heavy responsibility that we used to take for granted in our communities, that elderly people, who are not severe or critical, who are old or vulnerable, are getting no help. They are not even able to apply because the criteria is increasingly being set to block them off. Who do they look to?

Mr Darling: You could argue, although I can see huge difficulties, that care for the elderly ought to be a national responsibility rather than a local one but it would be very difficult to do that given that so much of the service is provided by either the council or voluntary organisations or other people who are locally based. I know in local authorities - I used to be on a local authority once, like you did - the cry that there is never enough is one that one hears from time to time. What I can say to you is 190 is not the whole story, we have tried to give local authorities the money to do that.

Q340 Mr Mudie: I am happy if it is lodged and you will have a look at it because it is a growing and serious problem.

Mr Darling: I understand precisely the point you make, yes.

Q341 Mr Fallon: Chancellor, just coming back to the CGT problem. Your defence of simplification would surely be more credible if you had not introduced the taper relief in the first place. Mr Brown in his March 1999 Budget said: "Our Capital Gains Tax reforms will reward committed long-term investment. For the first time Britain now has a long-term rate of only 10%." I understand your case for simplification, would all this not be more credible if you had not introduced it in the first place?

Mr Darling: We introduced it, you may recall, Mr Fallon, because the prevailing rate was 40% up until we formed the Government in 1997 and in addition to that, mainly because of the economic turbulence of the 1980s and 1990s, one of the big problems that people complained about was instability and the whole culture was very short-termist. We introduced that regime, it was the right thing to do, I was in the Treasury at the time when it was introduced right at the start. However, it also makes sense from time to time to look, as we do, to all tax regimes and say, "What is best for the future?" As I said to Mr Dunne, before he left, I am very enthusiastic and keen to encourage people to take the long-term. The economic climate against which people now plan is completely different from what it was 10 years ago but I think it is also right to ask ourselves at each and every stage whether or not the tax system is the right one. Nothing we do precludes changes at any time in the future on any tax.

Q342 Mr Fallon: Okay. You do see the problem of people who are inside the current two year window. When you said to the business leaders on Monday, and you said again today, that you are prepared to talk in detail about this, does that mean you are prepared to rethink the taper relief?

Mr Darling: What I said to them was that I think the prize of simplification, the gains that you get from that are very, very important. They raised a number of specific items, and as they said it was a private meeting, I am not proposing to go into them today, and I said of course I will work with them there. I repeat what I said earlier on, the more complexity you add back into the system the more you will get back to where you started from. I fully accept when people talk about simplifications it is sometimes in the abstract rather than in the particular, I do think it is something that is well worth pursuing.

Q343 Mr Fallon: I understand that, I just want to be clear where you are in policy terms. Are you ruling out now any rethink at all of the taper relief?

Mr Darling: I said when I spoke to the people, the CBI and the others, that I will work with them. I am very enthusiastic about putting in place a simple tax system that I believe is competitive, that has the individual allowances which I referred to earlier, I think that is very, very important.

Q344 Mr Fallon: What is the answer to my question? Are you ruling out any rethink of the taper relief? Yes or no?

Mr Darling: I believe that a simple tax system is very, very important and I do not want to start reintroducing any complications. I said I would talk to the businesses about the detail in relation to that. I have got the opportunity to do that because this needs primary legislation but I really do not want to get into the situation where - and I must make this quite clear - we go back to where we were.

Mr Fallon: So "no"!

Q345 John Thurso: Can I return to aviation tax. Why did you decide to move to an aeroplane tax from Air Passenger Duty?

Mr Darling: If what you are trying to do is to mitigate some of the environmental damage done it makes sense to accept the fact that a plane which takes off empty or a plane which takes off half full causes almost exactly the same amount of damage in terms of CO2 and greenhouse gases. By having a tax per plane it will encourage companies to fill up their planes and therefore be more efficient, and I think that is a better way of doing it.

Q346 John Thurso: The primary motivation is to achieve the environmental objective?

Mr Darling: Yes.

Q347 John Thurso: APD currently raises about 2 billion, due to go up to about 2.1 and the table says that the new tax will raise a further 500 million. Is it fair to say that 2.6 billion or thereabouts in 2008-09 is thought to be roughly equivalent to the environmental cost?

Mr Darling: If you look at the range at the moment, it was thought that the environmental cost in 2000 was 1.4 billion, so on that view we are raising rather more than the cost at the moment. We think it will rise to about 4.8 billion. We are not doing it pound for pound. Very few people would argue that we should be putting the tax up to that rate at the present time but it is just a recognition that aviation - which enjoys some benefits which others do not, for example because of the Chicago Convention of 1944 it is not taxed in the way that other fuels are - should make its contribution. I think it is better that you do it per plane rather than per passenger.

Q348 John Thurso: I happen to agree with you. On that basis, will cargo planes be included?

Mr Darling: Freight will be included, yes. Cargo freight, yes.

Q349 John Thurso: There is freight which travels in passenger planes which obviously gets included and there are aeroplanes which have no passengers, they will be included?

Mr Darling: Yes, anything which takes of. It is a question of what is in it.

Q350 John Thurso: On that last one, anything which takes off will pay. At the moment there are exceptions to that which are the lifeline routes to the islands particularly. Will they now pay a tax which they do not pay?

Mr Darling: As I said right at the start on this, we are consulting on this tax and one of the things I am aware of is the lifeline services. There are air ambulances and other issues like that. As you are well aware, I am well aware of the difficulties of some of the lifeline services.

Q351 John Thurso: One more question, if I may, which is on the Nuclear Decommissioning Authority. You will know very well why I have an interest in this.

Mr Darling: I do, yes.

Q352 John Thurso: The Nuclear Decommissioning Authority have asked, I understand, the Treasury to agree their socio-economic policy, what they wish to do in policy terms as part of their spending review settlement. Did they ask and has the Treasury agreed?

Mr Darling: I know that they have asked.

Q353 John Thurso: You know them?

Mr Darling: Of course I know them. I cannot tell you offhand whether it has been agreed. Has it been agreed yet?

Mr Hughes: We supplied the NDA with 4.9% real growth in their budget over the spending review period. That, together with their commercial income, was to take forward the work they do against hazardous areas for decommissioning, including work that has socio-economic benefits as well.

Q354 John Thurso: The policy statement they wished you to agree to was to allow them to top slice their savings to spend on socio-economic regeneration in the areas they are responsible for and they felt they needed the Treasury to agree to that.

Mr Hughes: We operate a devolved system where they get a budget, they have a set of objectives they want to achieve.

Q355 John Thurso: You will not stand in their way if they wish to make perfectly proper investments in that way?

Mr Hughes: The budget we have given them is enough to do the work they want to do on decommissioning as well as the work which has wider socio-economic benefits.

Mr Darling: Mr Thurso, let me just double check. Sometimes the Treasury standing in people's way is interpreted in different ways depending on where you happen to be standing. I think the point which Richard makes is that we have given them quite a good settlement but let me just check. There may be things which they want to do which they would put down as being part of their social duties which others might say may not be. Let me check and I hope we can sort it out.

Chairman: Excellent constituency question, John.

Q356 Mr Simon: The 30,000 annual charge for non-domiciled, did you think of fixing it for five or seven years so that people choosing to opt-in to staying with their talents in this country know at least that it is not a charge which is going to significantly increase year on year? It is not going to be 50 next year and a hundred the year after.

Mr Darling: I will look at that. At the moment, as you know, because it is a new thing, we are consulting on how it might work. We wanted to exempt people for the first seven years because there are a lot of people who come to this country to work who come and go and they are not changing their domicile at all, they are Americans or Australians or whatever, but once you have been here for seven years we think there comes a time when you ought to make a contribution to recognise the fact that this is to all intents and purposes your home. I have not reached a view, whatever the charge is, on how long it will prevail on. That is one of the things we will no doubt want to take up in the consultative exercise.

Q357 Mr Simon: Business people privately have said to me, "Actually it was not a bad PBR at all but we do not think we can say that publicly". Why do you think you have taken such a battering from business publicly?

Mr Darling: This is in general. I am not claiming for one moment that people do not have reservations about various bits and pieces but generally people believe we are doing the right thing, both in terms of the economy and the measures we are taking. Again, in my experience, most business people tend not to speak out if they are happy, they do tend to speak out if they are not.

Q358 Mr Cousins: I was going to ask you, Chancellor, about the state second pension. The Government does not explain it very well, no-one understands it, it is one of the best pension deals that anyone has ever offered but there was a linkage between the restoration of the link of the basic pension with earnings and the cap on the earnings related component of the state second pension. As you know, many people were advised, quite rightly, to switch back into the state second pension. In a bit of small print you have changed that to the disadvantage of large numbers of people and there is now a disconnect.

Mr Darling: Let me try and explain. This is a consequence of the Adair Turner recommendations which, as I understand it, had all-party support in the Commons. One of the things that he recommended as we move towards the restoration of the earnings over the basic state pension of 2012 or thereby was that the state second pension should become flat rate. At the moment you carry on accruing benefits. That was his recommendation. The changes that I announced in the Pre-Budget Report, which would come in in this year's Pensions Bill, were anticipating that because otherwise what would happen is there would be an unexpected windfall to higher rate tax payers as a result of the changes made in the upper earnings limit. I should say nobody has had the benefit of this yet because it has not come in yet. It is a change we are making in order to stop something happening rather than taking something away from people.

Q359 Mr Cousins: There was a linkage between the date at which the basic state pension was going to be linked to earnings and the imposition of a cap on the earnings related component of the state second pension. That linkage has now gone. One will happen next year, the other will happen in 2012. Chancellor, are you going to re-link them by bringing in an earlier date for the linkage of the basic state pension to earnings?

Mr Darling: We do not plan it at the moment but the problem we would have had is that if we do not make this change now, we would be in a position where higher rate tax payers would be getting this benefit which you would then have to take off them if you did it a year later or two years later and that seems to me to be undesirable. The change that we are making is, I believe, entirely consistent and consequent on the Turner proposals which, as I say, most people had backed. If I let it run for a year and these payments start getting made then the effect of the legislation would be to take off people what they are getting and that is not an ideal position to be in.

Q360 Mr Cousins: Does this mean that the Government is considering an earlier date for the introduction of a link to earnings for the basic state pension?

Mr Darling: Not at the moment.

Q361 Mr Cousins: Not at the moment?

Mr Darling: No.

Q362 Mr Cousins: The mind of the Government is not closed to that?

Mr Darling: The mind of the Government is never closed on anything, except where stated otherwise! Mr Cousins, you are asking me a fair question, have we made a decision or are we considering it, the answer is not at the moment.

Q363 Mr Cousins: That is fair enough, that gives us something to go at. After all, I am the kind of person who when I hear there is all-party agreement I do start counting the spoons. Can I bring you to Crossrail, a different topic. Crossrail of course is included in the comparable expenditure assessments for the Barnett formula.

Mr Darling: It is, yes.

Q364 Mr Cousins: So Scotland gets a Crossrail bonus.

Mr Darling: In the same way as if we were building the M6 it would, yes.

Q365 Mr Cousins: So the extra 5 billion for Crossrail gives Scotland, over the period of construction, another 500 million which will reappear in more free care, more free prescription charges and all the rest of it. How are you going to deal with that issue?

Mr Darling: As far as Barnett is concerned, it means that any comparable expenditure gets its Barnett consequences.

Q366 Mr Cousins: Is a bonus.

Mr Darling: But it would apply whether it was Crossrail ---

Q367 Mr Cousins: Or the Olympics, there is an Olympics bonus.

Mr Darling: No, there is not. The Olympics is not.

Q368 Mr Cousins: The Olympics is not?

Mr Darling: No.

Q369 Mr Cousins: Crossrail there is?

Mr Darling: Crossrail is but the Olympics is not. It is true that if we built another crossing across the Tyne or we upgraded the A1 to Newcastle ---

Q370 Mr Cousins: But you are not going to do that.

Mr Darling: --- there would be a Barnett consequence.

Q371 Mr Cousins: But you are not going to do that.

Mr Darling: I know you have strong feelings on that subject.

Q372 Mr Cousins: I am not saying I do but you are not going to do that.

Mr Darling: To my mind, if you have got Barnett then you have to apply it, you cannot pick and choose where you apply it. The Government's policy is that there is the Barnett formula, it does apply and it therefore has to be implied consistency. I do not think we can pick and choose as to which bits it applies to and which bits it does not.

Q373 Mr Cousins: Absolutely, but you will accept there is an issue, and you have mentioned the North East of England, I did not, you have mentioned it, it is very much an issue in the North.

Mr Darling: I know it is.

Q374 Mr Cousins: Because there is a great slug of money going for Crossrail in London and then there is a Crossrail bonus that goes to Scotland that reappears in free prescription charges, free home care, free everything else, extra grants for heating, abolition of the graduate endowment in Scotland and it reappears just over the border. How are we going to deal with that issue?

Mr Darling: As I said to you, the Barnett formula means that there is an automatic consequential expenditure for Scotland, Wales and Northern Ireland. It is open to any government of the future to decide to do something differently. Our Government's policy, as stated in our manifesto, is that we will continue to use the Barnett formula and that is why we have applied it to the expenditure in this year's spending review.

Q375 Mr Cousins: Since you have raised the North East of England yourself, I was not going to but you did ---

Mr Darling: I would be surprised if you did not.

Mr Cousins: I had not and it was not my intention to do so but, since you have raised it, when is there going to be a North of England bonus so we can have free home care and free prescription charges?

Mr Breed: Or Cornwall.

Q376 Mr Simon: Or the West Midlands.

Mr Darling: The Barnett formula, as I say, was part of the Government's commitment in the manifesto and I think it was in other political parties as well. However, someone has just drawn it to my attention that we are spending quite a lot of money in the North East. The Tyne & Wear Metro, which I remember only too well, for example, is one beneficiary of that. I entirely take your point that we need to make sure that Government expenditure is focused where it is needed and in particular one of the things we need to focus on is the need to improve the growth in the North East of England and other areas as well.

Q377 Mr Love: In a meeting last week it was clarified under the Barnett formula although the increment for public service is exactly the same in percentage terms in different parts of the country because of the way it operates, the percentage increase in Scotland appears to be less than other parts of the country, I hope as a Scottish MP you will explain that to your colleagues, that they are not getting less than the rest of us.

Mr Darling: They most certainly are not. This is the point that Mr Cousins was making, that they are getting exactly what they are entitled to. The Nationalists now have double what Donald Dewar had seven years ago and it is about time they started to deliver on some of the promises they made.

Q378 Mr Love: Absolutely, and I hope that message will get home to them. Can I bring you back to private equity and Capital Gains Tax. You said earlier on that the changes in Capital Gains Tax were not principally targeted at private equity. Does that mean you still have under consideration in the Treasury other changes directly related to private equity?

Mr Darling: No, I set out the proposals I have in mind. It is self-evident that in any Budget or Pre-Budget Report, it is open to Chancellors to pursue matters or not pursue matters as may be. If you are asking me, are we about to announce something else, no we are not.

Q379 Mr Love: Meeting the aspirations of the British people on page 64, paragraph 4.59, I will read it out, the final sentence says: "The Government remains interested in wider aspects of the ways in which those involved in the private equity and other industries are rewarded, including the application of the legislation on employment related securities, in the context of the need to ensure that the tax system as a whole is fair and sustainable". I would not consider that to be simplification of the best order in the way it is presented but that sounds to me as if there is still some consideration.

Mr Darling: It follows on from what I have just said. At any Budget or Pre-Budget, we look at a whole range of tax matters and the circumstances will change from time to time which will determine whether or not we think it is appropriate to take action. I thought you were asking was there another tranche of stuff I was about to announce and the answer to that was I was not. I made it clear whatever I do will be in Pre-Budgets or Budgets.

Q380 Mr Love: What I was really asking was, we are currently undertaking an investigation into private equity.

Mr Darling: I know.

Q381 Mr Love: We have just done an interim report. We will produce a final report. We just want to know that will be considered carefully, perhaps including - I do not know whether it will include - suggested tax changes which address the issues of fairness.

Mr Darling: Of course I will consider anything that the Select Committee wants to recommend.

Q382 Mr Love: Sorry to jump around but at the end most of the other questions have been asked. We received an interesting report from the IPPR which suggested that there had been an increase in the number of working households with children living in poverty.

Mr Darling: Yes, I saw that.

Q383 Mr Love: Which came as quite a surprise to us because we thought the make work pay priorities were delivering for people who were in work. It was suggested to us that this related to the restraint of wage increases at the lower end of the market compared with higher up the income scale being greater than the increases in the national minimum wage and tax credits. Is that a concern to you and will that intensify the difficulties, as Mr Mudie said earlier, about delivering on our child poverty targets

Mr Darling: Two things. One is I do not think we fully understand how IPPR have reached the conclusions that they have.

Q384 Mr Love: You do not think they are accurate?

Mr Darling: It may be the usual thing they have done on a rather different basis from us. I have asked Treasury officials to talk to IPPR to see what assumptions they are making and how they reach this conclusion because it is quite important to know whether we are talking about the same thing. In relation to poverty, I think we touched on this earlier on, one of the things we have done since the late 1990s is quite deliberately chosen to increase the incomes on low pay. Other measures to make were payments in respect of children which has resulted in there being a reduction in child poverty and a greater opportunity for people, and we will continue to do that. The minimum wage is part of that too, of course.

Q385 Chairman: Chancellor, the issue of sale and lease back schemes was brought to my attention in the summer and I have written to you on this issue. This allows home owners to sell their houses at a discount price to companies who then give them a short assured tenancy. Quite a number of vulnerable people have found themselves out on the street as a result of that and something needs to be done. I have written to you, the FSA and the Office of Fair Trading and, indeed, I have also written to the Advertising Standards Authority, because a lot of this advertising seems to be misleading. If you do not have any answers today for me, is it an issue you could look at?

Mr Darling: I do not but I will certainly come back to you as quickly as I can.

Q386 Chairman: Okay, well somebody has not passed my correspondence on to you.

Mr Darling: I am afraid you are right on that but I will look into it when I get back to the office.

Chairman: Okay, Chancellor. Can I thank you for your attendance today. It has been a long session but it has been very helpful to us.