Examination of Witnesses (Question Numbers
220-239)
RT HON
STEPHEN TIMMS
MP AND MS
RACHEL CLARK
24 NOVEMBER 2009
Q220 Chairman: The ISPs know who
they are?
Mr Timms: I think that practically
taxing the users of broadband will be a very, very difficult thing
to do.
Chairman: But the 50 pence levy that
you are proposing is to be hedged around with exemptions, I now
realise, which will make it horribly complex anyway and there
will be administrative costs of this programme and it will bear
down on certain specific groups and others will be exempt, so
that is going to be complex too. It is such a small sum of money
that we are having a row about, but it seems to me to be very
odd.
Q221 Roger Berry: If the benefits
of spending £1 billion over ten years are so self-evident
in terms of good for business, promoting economic growth, et cetera,
as you have suggested they are, then that itself will pay for
it, pretty close; and if not it is a very, very, very small amount
of money compared to the bigger issues that I absolutely agree
have to be addressed. I do not understand why the Government wants
to cause such angst about an unfair way of funding this, given
that we are talking about such a small amount of money in the
longer term, when the Government is convinced that it is worth
doing because it will bring substantial economic benefits. I think
it will bring substantial economic benefits but I just do not
know why.
Mr Timms: It is a modest levy
that gives assurance that the resources that are needed will be
provided and other mechanisms would not achieve it.
Q222 Lembit Opik: It seems
to me that the issue is actually a strategic one and it is not
really just related to IT and broadband. Many times my party has
talked about hypothecating taxes and the Government has opposed
it and said that is not the way you want to go. But you are here.
Obviously I am quite sympathetic to hypothecation but my concern—and
I think Roger's concern might be by inference—is what the
rationale is to reject hypothecation in a whole raft of things
even down to people who conscientiously object to paying, because
they are pacifists, paying for defence and so forth; but insisting
on it here, and as the Chairman has pointed out, in a way that
is not absolutely completely fair. So I wonder how that sits comfortably
with a Government that has tended to oppose hypothecation. Is
it because you feel that this way as a minister you can manage
a budget and you do not have to go into the normal rat race of
fighting for the funding, or is there another rationale for it?
Mr Timms: I think that the particular
circumstances of this case do justify a different approach and,
you are right, it is an unusual approach. But here we need a significant
sum of funding over the next few years to support a major investment
project which will be of substantial economic and social benefit
for the UK. Our judgment is that in this particular case, having
a very clearly defined levy which will generate that resource,
is the right approach to take.
Q223 Lembit Opik: If I go to
the Ministry of Defence do you think they might say to all the
people who conscientiously object to paying for the war in Iraq
that they could also pay a little bit less tax? Because the principle
is very similar.
Mr Timms: I think the principle
is different. That particular one raises a whole host of very
different issues. I think the problem with trying to do it from
general taxation at a time of fiscal consolidation is that you
would not achieve the confidence that it will be provided and
this way we can.
Chairman: The principle that you are
raising, Lembit, about hypothecation is hugely important. A precedent
is being set here which I think government has always resisted
in the past.
Q224 Mr Oaten: And it may not be
a bad precedent; there may be other models for it in the future.
I may have missed it—for how long does the levy last?
Mr Timms: We have not put a date
on the withdrawal of the levy; what we have said is that we think
we need £1 billion between now and 2017 to hit the 90% target.
One could take the view that at that point it should be withdrawn
or one could take the view actually that we would want to keep
the levy in place in order to generate funds for the final 10%
and that is a judgment to be made a bit later in the process.
Q225 Mr Oaten: But your figures,
presumably, know from how many individuals will be paying the
levy at which point you reach certain revenue-raising targets?
Mr Timms: Yes. We are assuming
that everybody with a phone line at the moment, other than those
on social tariffs, will be paying.
Q226 Mr Oaten: What I am getting
at is in three years' time how much money will you have raised?
Mr Timms: I think it will raise
between £150 million and £175 million per year.
Q227 Mr Oaten: But the intention
is that once it has done its job to remove the levy?
Mr Timms: Yes, I think that must
be the logic of having a levy for a particular purpose, that once
the purpose has been entirely completed—
Q228 Chairman: Hang on, income tax
was used to pay for one particular war, as far as I remember it,
and I think we still have income tax!
Mr Timms: We are talking about
decisions that are going to be made some years hence but I do
not think this levy could be used as a contribution towards general
taxation; it needs to be used for the purposes—
Q229 Chairman: You are such a nice
man, Minister! You are so nice!
Mr Timms: The point we can debate,
I think, is whether it should carry on beyond 2017 to contribute
to the cost of the final 10% next generation broadband.
Q230 Mr Oaten: My point is that if
we look at the principle of hypothecation there is a very big
difference between putting in place a new tax which is going to
fund a service for ever more or a one-off quick hit through a
levy. Which is this?
Mr Timms: It is more like the
latter than the former because once the investment has been completed
the purpose of the levy no longer exists.
Q231 Roger Berry: My point is not
about hypothecation—I actually think that the circumstances
for it are perfectly justified and the Government has done it
on a few occasions—it is the fairness of this and I do look
forward to seeing, as we have been promised, the analysis that
demonstrates that this 50 pence levy is not regressive because
it is a piece of work in which I shall take great interest.
Mr Timms: I am certainly happy
to set out the case for the fairness of the levy.
Q232 Chairman: It is an interesting
session. You will see that my colleagues are developing their
thinking as they are listening to your answers, so you are paying
a price for us being relatively thin on the ground today, but
you are doing very well. On to another taxation issue now, which
is rates, which is an extremely important question. I will not
take you through all the detailed arguments—I have them
here if you want them—but do you not think the fact that
we tax these things at all, fibre systems, discourages businesses
from laying the infrastructure that we need? I think that we are
only one of two countries in the EU that actually imposes a tax
at all. Why?
Mr Timms: We have a very long-established
system of rating which applies to all business establishments,
including, for example, mobile phone masts, and I think it would
be difficult to justify a carve out for this particular kind of
facility.
Q233 Chairman: You are setting all
kinds of precedents with this—the 50 pence levy is a precedent.
The Government is encouraging technology on one side and taxing
it on the other. It seems inconsistent to me.
Mr Timms: I would argue that it
is important in the tax system that we treat comparable things
in the same way and I think it would be quite difficult to say
that we should not in this particular case. Of course, if we did—and
here you might forgive me if I speak for a moment as Minister
for tax—there would be many other people who would say,
"My circumstances are rather similar, please do not tax me
either."
Lembit Opik: So on this very point,
pursuing the inconsistency point, it does seem to me that you
are willing to punish—not punitively—but financially
old technology that you want to get rid of, and then you want
to tax new technology that you want to attract. Would it not be
simpler and less of a precedent simply to say, "You can have
this rate free" because then you are providing a positive
incentive for what you want? If not, then I am at a loss to understand
why we have just spent ten minutes talking about hypothecation.
Chairman: As a temporary measure, just
to get us through to your objective, if necessary.
Q234 Lembit Opik: Carrot rather
than stick, effectively.
Mr Timms: As I say, at the moment
business rates apply to everything and I do not think that a good
case has been made for exempting this particular kind of facility
from a system which is extremely well-established and delivers
and works perfectly well.
Q235 Chairman: Let us not deal with
the exemptions, let us deal with the specifics. An article that
has been drawn to my attention in Computer Weekly says
that a 20-kilometre extension to a small network has a significant
effect on the valuation; but the same 20-kilometre extension to
a large network can be considered to be de minimis. In
other words, the way that the rating system works actually discriminates
against the smaller network.
Mr Timms: That is not an article
that I have seen. Is that a recent one?
Q236 Chairman: Yes, it is; October
29. "Business rates are killing Digital Britain"—Computer
Weekly, 29 October.
Mr Timms: I think it is a somewhat
misleading headline. I think what is important is that if there
are concerns and practical issues about how the rating system
works that the Valuation Office Agency is involved in discussing
and resolving them.
Q237 Chairman: But Stephen, there
have been concerns with the way that the rating system affects
telecommunications for years and years and years and the Valuation
Office has been spectacularly slow to make the changes necessary
year after year after year. I battled away at this—before
I was Chairman of this Committee I was making representations
on behalf of local loop unbundling and the rates' impacts, and
it is like banging your head against a brick wall because people
love raising taxes in the Valuation Office. They are not interested
in helping business; they want to raise taxes. Casual representations
to the Valuation Office will not work. You need to make a ministerial
decision and you are in a good position to do so because you wear
two hats. I could argue if I was being uncharitable—and
I would not to you because I like you—that you are a conflicted
minister; you are torn between your obligation to the Treasury
to raise taxes and your obligation to business to argue for low
taxes and then instruct a roll-out. That would be uncharitable.
I would say that you can use your influence at the Treasury to
get things done that other ministers could not.
Mr Timms: I agree with that point
and that one of the advantages of the way that my portfolio works
out is being able to make progress on the levy that we were talking
about earlier on. But I am in a position as well to talk to the
Valuation Office Agency and there may well be a need to do so.
What I would not favour is introducing exemptions or anomalies
in the rating system.
Q238 Chairman: I accept that, but
it seems that there is an anomaly here, that the big incumbent
provider gets all the benefits and the incomers get all the dis-benefits.
That is the way that the system appears to work at present.
Mr Timms: You are referring to
the article in front of you?
Q239 Chairman: And also to representations
that I have had over years from the telecommunications sector,
and this has been a constant problem. BT is a great organisation
in many ways, it does a fantastic job in many ways, but is the
monopolist, it is the incumbent and it will mount every argument
it can to protect its position and anything that BT says may often
be absolutely right, but we must always treat it with the utmost
suspicion—always. The presumption must be that BT is wrong
and you must satisfy yourselves that they are not. And on the
rating issue it is particularly important. Look, for example,
at the way that the BT business rates bill has dropped so dramatically
over the last few years. It may be that they have disposed of
lots of vacant telephone exchanges and actually there is a lot
less property out there being valued, but what we were very struck
by as a Committee two, three weeks ago—whenever it was—is
the fact that the drop in their rates bill to government of £190
million a year is coincidentally almost exactly the same as the
amount that the 50 pence levy would raise. So there may be a very
good reason for this because, again, the incumbents to BT have
a vested interest in making these points. But it is very odd—their
rates bill has collapsed while incumbents are facing huge rates
bills to extend their network.
Mr Timms: I think the strength
of the rating system is that it is based on objective valuations
about how much things are worth.
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