Broadband - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Question Numbers 220-239)


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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