Budget 2011 - Treasury Contents

Examination of Witnesses (Questions 189-240)

  Q189 Chair: Good afternoon. Thank you very much for coming. As you know, we as a Committee have produced a report on principles of taxation. Perhaps I can begin by asking all of you whether you agree with its main conclusions, or whether we got it wrong.

  John Whiting: I think, Chairman, that I agree with your conclusions. You have come up with some well stated points and principles. To pick out a few, you talk about things like the pace of change being something that one needs to control, and about fairness being a principle. You also look at the growth sector and at trying to have a tax system that is competitive. They all resonate very well with me. I think you also go on to talk about the need for certainty, predictability and stability. They are all important features in a tax system.

  Q190 Chair: Does anybody disagree with any of that or want to add anything of substance before we get on to some tougher questions?

  Frank Haskew: No, we would certainly concur with that. The Committee has set out some very important principles that echo the 10 principles that we have had for many years.

  Chair: I am glad that we have got it right for once.

  Robin Williamson: I would only add that it is important to apply these principles not only to the tax system in itself, but to the tax system in the way in which it interacts with NICs, tax credits and all the various DWP benefits, which can impact on the financial situation of low-income households. That was a recommendation made by this Committee four years ago.

  Q191 Chair: We have established that we broadly agree with those principles. Let us take simplicity: do you think that these tax measures, overall, simplify or complicate the tax system?

  John Whiting: I tried to do a little scorecard, because, as you would imagine, Chair, simplification is a major interest. I think that, overall, there is a good deal to simplify in this Budget. After all, the Budget picks up a reasonable volume of the OTS's recommendations on simplification. As the Chancellor said, 43 abolitions are proposed. When I heard that, I thought, "Gosh, I wonder where he got that number from," because it seems to get you down below the magic 1,000 reliefs—it got us down to 999. Of course, 10 or 11 more reliefs are introduced in this Budget, so it has gone back a bit. We are abolishing some legislation, but it is clear that there is a heck of a lot more legislation coming in. I think the trend is towards simplification, but it is not exactly a simple one-way street. It's quite a hard struggle.

  Q192 Chair: We have been told that 100 pages of tax code have been removed. How many do you reckon have been added?

  John Whiting: It remains to be seen before we see the Finance Bill. The draft of the Finance Bill that was published in December—admittedly, that is Bill and notes—amounted to 532 pages.

  Chair: That doesn't sound like good news.

  John Whiting: Obviously, the notes don't count, but I would guess that the Bill, which will be published in a few days' time, will be comfortably in excess of 100 pages.

  Q193 Chair: So the tax code has grown as a result of this Budget?

  John Whiting: I would think it is still growing.

  Q194 Chair: So we have cut the rate of increase?

  John Whiting: That might be one way of putting it. It is like all those graphs that are still sort of peaking. Of course, the length of the code is only one measure. If you can at least read it easily and understand it—

  Q195 Chair: We can't judge that until we have it.

  John Whiting: No, but anybody who looks at a disguised remuneration draft will be scratching their head as to what it all really means.

  Q196 Chair: So you think it might have got worse?

  John Whiting: One points to the disguised remuneration because that is a particularly complex thing trying to tackle a complex area, but when, on one reading—if I'm allowed to say this—it could affect MPs and their expenses and how they are assessed, you begin to wonder whether we are getting over-complex rules and not really thinking them through properly.

  Chair: That is pretty clear evidence.

  Frank Haskew: I think, again, that I would pretty much concur with what John has said. You have to look at this as more of a direction of travel, and if you look at it in that way—I think I would agree with you that we're talking here about rates of change—it's very difficult to go overnight to a simple tax system. It takes time, and it requires a lot of consideration. So, I think that what we're seeing is a direction of travel that's going the right way, but I think that John is probably right and I suspect that the volume of tax legislation will be higher at the end of this. But we're seeing the direction of travel, and John's excellent work in the Office of Tax Simplification is showing the way forward, but it will take time to see results come through.

  Q197 Chair: Still, the Chancellor claiming that he had removed 100 pages from the tax code and then our finding that we're probably going to be adding back more than that doesn't sound terribly good, does it?

  Frank Haskew: Well, if you look at it on the basis that if he hadn't done that we'd still have 100 more pages in the tax code, then we have made progress, and I think that we will see progress continue.

  Robin Williamson: Looking, again from the perspective of low-income households, at the tax and the benefits system combined, things are going to get more complicated before they get simpler. We've got the universal credit coming in, which will simplify things in terms of abolishing seven or eight of the main benefits and replacing them with one, so that there will be just one benefit to throw into the computation of household income rather than several—

  Q198 Chair: And you think that's doable.

  Robin Williamson: It's doable, but perhaps not on the time scale that is projected. It depends very much on the IT systems and how they function over the transitional period. But in the meantime, as a result of this Budget we're getting the rate of personal allowance increasing by leaps and bounds up to £10,000, which is prima facie a good thing. At the same time, we've got age-related allowances going up by RPI and the primary thresholds of NIC after 2012-13 going up by CPI. You've got these different indicators progressing at different rates and none of them really being linked to one another in any coherent way.

  John Whiting: Could I just give one example of this whole area of simplification versus length of legislation? We have an announcement in the Budget that we're going to have a statutory residence test; personally, and I think as a body, we think that that is a good idea, but it is undoubtedly going to add to the length of the tax code, because there isn't anything in the tax code at the moment to define residence. So, whether that ends up as 10 pages, or whatever—I don't know—it will add to the tax code, but I think that it will, in the long run, be a simplifying measure.

  Q199 Mark Garnier: Mr Haskew, I don't know if you were listening to the earlier session, but I've been asking the same question all the way through, so I'll carry on with you. The Government have set a great deal of store by having the lowest tax rate in the G7 and one of the most competitive in the G20. Do you think that this international comparison thing is such a big deal, or do you think that it's a bit of a red herring?

  Frank Haskew: Ultimately, of course, questions about rates are policy questions for the Government of the day. In our work in 1999 we indentified 10 fundamental principals, but one of those was competitiveness, and I think that there is an emerging consensus that the UK needs to have a competitive business corporation tax system. That is important going forward. What that rate will be and where you have it in the band is probably another question. The Government is going down a growth agenda and we have seen businesses relocate from the UK. When you add all that up, we clearly need to have a reasonably competitive tax system at the international level, to encourage growth into the UK.

  Q200 Mark Garnier: Can you expand on what you mean by "system" as opposed to "rate"? Obviously, we are talking a lot about the rate at 23%, but you are talking about a system. Do you want to expand on that?

  Frank Haskew: Yes, ultimately it is not, of course, just about the headline rates of corporation tax. A very important part is what investment incentives you have. For instance, in the UK we have capital allowances. That is all part of the mix, but the mix also includes the administration of the tax system, how people perceive that that is carried out and how difficult it is to comply with the tax rules. The general view is that the UK has been fairly uncompetitive in terms of the complications of the tax system and also, certainly, in terms of HMRC's efficiencies, which the Committee has an open inquiry into. When you add all the indicators together, there has been a view that the UK is not as competitive as perhaps it should be.

  Q201 Mark Garnier: John Whiting, to continue that point, the tax rate may be one of the most competitive in the G20, but is the tax system just far too complicated? Can you quantify how complicated we are in relation to the rest of the G20 and the G7?

  John Whiting: There are various attempts to try and get a relative measure. When I was at PricewaterhouseCoopers, we did a lot of work with the World Bank on the World Bank "Doing Business" guide—the Committee will be aware of the sort of results that the UK was getting out of that—and that emphasises that the rate is the shop window. I always liken it to the price of baked beans in Tesco or Sainsbury's, which perhaps attracts you in, but there's a lot more to it than that, because of the base that that rate is applied to. If you reduce the allowances, as Frank was alluding to, then the bill may be going up.

  When it comes down to it, I find that what businesses, large or small, most want is certainty. With OTS, as we went round and talked to, admittedly, smaller businesses, the big thing that came out more than anything else was, "Give us certainty. Let us know where we are." They wanted less change, because they wanted to know for certain how they would be affected by tax. That comes over very much on the international scene, too. If a business has certainty in terms of getting the rate, getting clearances from the Revenue, knowing that there will be no changes and knowing that the thing is fixed, cleared and done, all of that is a very major factor. It is that side that the UK has fallen down on in recent years.

  Q202 Mark Garnier: So, on that basis, the point that was made by the previous witness, Matthew Sinclair, about the movement of the CCA discount from 80% to 65% and back to 80% again is the exact—

  John Whiting: It is that sort of chopping and changing that is not good. It is far better to get some measures in and say, "That's it." A relevant thing here—not specific to corporation tax, but relevant to it—is about non-domiciled changes. The Chancellor promised changes, but he then said, "That's it for the Parliament." At least, therefore, we know that those are the rules for four or five years. People can work with that far better. A few years ago, we had moves on corporation tax to cut the rate and radically cut the allowances. That was not good, because that damaged people's investment plans.

  Q203 Mark Garnier: The report that PWC did with the World Bank put the UK and its system at number 16 in terms of competitiveness. That's not terribly exciting is it?

  John Whiting: When I was there, I think it was out of 183 countries, so in one sense it is pretty good—it's better than we seem to be doing at cricket, for example—but should we be aspiring to the top 10? I think we should. However, as with all ratings, you have to look at this with care. I think number one used to be the Maldives, because that system only had one tax payment in the year, and we're not necessarily going to beat them. A key theme with that rating is that the UK has slipped in recent years. It hasn't slipped that much, but it has just slipped, and that is partly because our system has stagnated, whereas others have made a big effort to try and improve.

  Q204 Mark Garnier: This is quite an important point. From what you see coming through in the Budget and the Government's general messages, do you think that they are doing the right thing to reverse that?

  John Whiting: Yes, I think they are. I think many of the changes on the core corporate tax system are good and the message is there—the talk of a framework that we're sticking to and the idea that there is a plan and it is long term. It is almost that the mood music coming out signals that the Government seem to have got the message on the need to communicate that we have a stable tax system that will not chop and change.

  Q205 Mark Garnier: I have just one final question. Mathew Sinclair suggested that our corporation tax policy should be much more aggressive. He suggested an approach that was closer to an Irish corporation tax rate over a six or seven-year period. Do any of you agree? Do you want to comment on that?

  John Whiting: My main point would be that, historically, we, as a country, have raised a lot more of our revenue from corporation tax than the Irish have. We have a much bigger base. Going back to my baked bean analogy, their policy was about cutting the price of baked beans to attract you in to do the rest of your shopping. I think it has been very successful.

  Q206 Mark Garnier: Could it be successful here?

  John Whiting: I think you would have to go very radically low. It is very interesting in the context that Northern Ireland is contemplating doing it. Personally, I think Ireland got the classic first mover advantage. A good thing would be to aim for a 20% rate—lower than that is a bit risky.

  Frank Haskew: Given that we are facing the biggest budget deficit in the UK's history, it is imperative that the Government secure their tax revenues and do not increase the risk of tax revenues being jeopardised in some way. Therefore, the UK Government need to be cautious in terms of their corporation tax rate. What is set out is certainly a direction of travel, and John is entirely right to say that one can ultimately probably see rates converging on 20%, but the Government have to be cautious at the moment.

  Q207 Mark Garnier: Mr Williamson, do you have anything to add?

  Robin Williamson: Not so much on the rate, but more on the regulatory burdens, particularly those faced by very small businesses or one-man or woman stores with perhaps a single employee or no employee at all, perhaps run by someone elderly or disabled. In this Budget, there is more of a relentless march towards online communication with HMRC than there has been before. That seems to run counter to Cabinet Office policy on digital by default, which is that nobody should be left behind, or at least that's part of it, and that Government services should be equally available to all whether they're online or not. That is all I would add. Allowances should be made. Of course it's convenient and makes administrative sense to move towards online communication as far as possible, but allowances should be made for parts of the country where there is no or very limited broadband access and for people who find it difficult or impossible for reasons of disability or cost to sign up to broadband.

  Q208 Stewart Hosie: The Government increased the supplementary charge on corporation tax on oil by 60%, from 20% to 32%. That brings in about £2 billion a year. In terms of the practice of changing tax rates and allowances thresholds, do you think that a swingeing increase like that should have been made with no discussion with the industry in advance?

  Frank Haskew: As we said at the beginning, tax rates are a question for the Government, but it is clearly important to have stability and certainty, and that goes back to the principles that the Government, this Committee and ourselves have outlined. I entirely endorse what John said—the message we always get from business is that the one thing they need more than anything else is certainty. "No surprises", was the mantra from people at the time, and it still is. When you measure it against that, you clearly have a surprise. Governments need to be careful about these sorts of tax increases that are made at very short notice with no consultation. It does go against our fundamental principles.

  Q209 Stewart Hosie: That is interesting because it also introduces volatility. This has put up the marginal rate of tax for some mature oilfields by up to 81%. I am not quite sure what the impact will be if the price of a barrel falls below $75 or rises above $90, but it has introduced a heck of a lot of volatility into the tax code for that sector. In more general terms, what would any tax practitioner make of an 81% marginal tax rate on a sector that was already growing, investing and exploring?

  John Whiting: I am old enough to remember 83% and even 98% income tax rates. It was not terribly constructive. It provoked a lot of people to ask, "Why should I bother?" That is the risk, metaphorically, with continually ramping the rates up on what is a mature situation. It is as if you are saying to somebody who has invested—I know enough of the oil business to know that it is a very long-term business—"Ah, that is looking very good. We'll have a bit more of that."

  Q210 Stewart Hosie: You make that comparison with the very high personal marginal tax rates in the 1970s. Based on that experience, if the sector was saying that this could seriously jeopardise investment, growth, jobs and exploration, it would not be a scare story in your view. Those sorts of rates would at least have an impact on investment decisions.

  John Whiting: I was talking to a businessman, not in the oil sector but in another sector, just before the Budget last week. He said, "Look I just want to know what the rates are. In many ways, I don't care what they are. Just tell me what they are and I will factor the figure into my investment. I will work out whether that will give me the return that I want, what prices I can charge and I will take my decision." That is what they want. The oil sector is exactly the same. Okay, it has to cope with a fluctuating oil price, which is another issue, but the big thing is, "Tell me what the tax rate is and stick to it." It is almost as if they are thinking, "Can I do a deal for this field for its lifetime? Then, when I come to do the next piece of exploration, let's talk about a new rate."

  Q211 Stewart Hosie: Let me ask you a philosophical question. Given that the Red Book of 2010 spoke about stability and a fair tax regime for the UK oil system, and given what happened in the Budget with a supplementary charge, do any of you believe that it is realistic now to expect Governments to live up to their promises of stability in taxation?

  John Whiting: I go back to Frank's comment about no surprises. I wonder whether that was discussed at all with the oil industry. I should imagine that there are a number of oil industry people asking similar questions. I know that there is the argument that the price has gone up and they make more money when the price is going up, but has the real impact been discussed and has it been done with full understanding? I would like to think that it was the result of a good dialogue, but I am not sure that it was.

  Q212 Stewart Hosie: No, I am not sure that it was either. I have one other question. It is not on oil, it is on the enterprise zones. The Government have set aside £80 million for 21 zones in 2015-16, which amounts to £4 million per zone, to compensate for the loss of business rates. For those enterprise zones to work, I have always taken the view that they would have required the extensive use of capital allowances, as was the case in the past. If we were to go down that route, what sort of capital allowance would you see as being the most beneficial to make enterprise zones work and work well?

  Frank Haskew: I'll have a crack at that first, and then perhaps John can have a go. I am old enough to remember the previous enterprise zones from the 1980s. It was a good scheme to start with, but by the end it almost always involved marketed capital allowances schemes, industrial buildings allowances, 100% in enterprise zones, guaranteed returns, and often funded by non recourse loans. It effectively became a marketed investment opportunity, almost to encourage speculation in property in those zones. When the property bubble started to burst, people lost a lot of money on them. So, from our side of the fence I am not necessarily sure that looking for enhanced capital allowances again is the right approach.

  John Whiting: Yes, and of course in those days we were giving allowances on buildings. We no longer give allowances on buildings. The simplest answer would be to go and accept 100% allowances at least on plant and machinery, in other words virtually taking the lid off the annual investment allowance, which might be the simplest way forward if you want to give an incentive through capital allowances.

  Q213 Stewart Hosie: That is a very interesting answer, and I will certainly look at that as an option. However, I want to probe one more time on this issue. Are you effectively saying that the old industrial buildings allowance system is not the sort of thing that you would want to return to, except that there is some evidence that it was hugely successful in getting that sort of capital investment going?

  Frank Haskew: The scheme came to an end and there was a general view at the time that 100% allowances for buildings probably wasn't the right way forward for a lot of those zones. Seeing it this time, the emphasis seems to be much more on manufacturing. Echoing what John said, there is probably more mileage for capital allowances in things like plant and machinery. If you are going to go down a capital allowances route, investing in the means of production is probably a better alternative.

  Q214 Michael Fallon: I will go back to tax simplification. John Whiting, you looked at more than 1,000 reliefs. Is that right?

  John Whiting: We identified 1,042. Then to give ourselves a manageable amount, given the number of our staff and everything else, we picked 155 to report on. That obviously leaves nearly 900 that we didn't look at, for one reason or another.

  Q215 Michael Fallon: What is the position now? The 40 reliefs that you recommended for abolition are being abolished. What about the remaining 110-odd that you looked at, and then the remaining 800-odd that you didn't look at?

  John Whiting: That is for further discussion. We looked at—

  Q216 Michael Fallon: I want to be clear about this, because the Budget says "The Government…intends to abolish only those reliefs set out below." Does that mean that they do not expect you to recommend further reliefs for abolition?

  John Whiting: We have a meeting coming up to discuss the remaining 800-odd reliefs that we put to one side. For example, we quickly identified that inheritance tax and capital gains tax have a raft of reliefs, and we suggested that it might be better to do things on what you might term a top-down rather than a bottom-up basis. But of the 155 reliefs that we put in our report, we assume that that is the decision on what is happening to those ones that we identified for abolition or improvement. Of course, with some we recommended improvements and indeed that has come through on the enterprise investment scheme, entrepreneurs relief and others.

  Q217 Michael Fallon: Sure. When you say that there is a meeting coming up, I just want to know who is in charge of all this. Are you directing the programme, or is it actually the Minister who is directing it?

  John Whiting: We are directing the programme, but we have completed the brief that we were given and given the Chancellor the report. We intend to sit down with the Chancellor shortly to agree the next stage of our work, which is coming up with our proposals. Naturally enough, however, we want to hear the Chancellor's views too.

  Q218 Michael Fallon: So he has to agree your work programme. Is that right?

  John Whiting: We are independent, but my stance is that if there is something that we want to do and the Chancellor says that he is not interested in it we will go back and have a think about that, because at the end of the day we are putting up recommendations that have to be taken forward by the Chancellor, so it's more productive to look at areas that he would be interested in.

  Q219 Michael Fallon: I see. So you are not systematically working through 1,000 reliefs?

  John Whiting: We did a quick cull on the 1,042; we identified 155 to look at in detail, which we have done, and one of the things that I want to pick up is what we are going to do about the other 800-odd. So, although I am comfortable that we have discharged our objective of giving a report on the reliefs, there are clearly a lot more we could look at. We could, for example, look at a lot of VAT, which we had put to one side, just to get to a manageable list, partly because it has such a European override. It would be very interesting to look at a lot of the VAT reliefs, but it might then get us into issues with Europe. Is that something we want to spend time on?

  Q220 Michael Fallon: Sure. You said "manageable"; you have how many staff?

  John Whiting: We have seven. If you add it up in full-time equivalents, including myself, it is probably less than six.

  Q221 Michael Fallon: So if you had the same number of staff as the OBR, you might have been able to do VAT reliefs and lots of other stuff.

  John Whiting: Yes. We could certainly do more. We might have put more strain on the Treasury, of course, and the parliamentary draftsmen, who might have to carry through the recommendations.

  Q222 Michael Fallon: I am sure they would cope. Mr Haskew, I want to turn to tax avoidance. I noted in the Chancellor's speech that he twice linked tax avoidance with evasion. Did you attach any significance to that? He coupled them together.

  Frank Haskew: Tax avoidance and evasion are often linked together, but of course they are completely different.

  Q223 Michael Fallon: But has a Chancellor linked them together in that way before?

  Frank Haskew: We have had linkages before, yes. I don't attach anything significant to that, because the words seem to be automatically linked.

  John Whiting: I think this Chancellor is beginning to see the difference far more than has been the case latterly. The fact that they are at least there means that evasion is getting, we think, a more equal degree of attention with avoidance, whereas arguably in recent years it has slipped below the radar screen somewhat.

  Q224 Michael Fallon: Just to come back to avoidance, the Chancellor said, "We are doing more today to clamp down on tax avoidance than in any Budget in recent years." Is that right, Mr Haskew?

  Frank Haskew: It would be fair to say that the Government have set out a very clear strategy in their approach to tackling tax avoidance. You probably saw that the Exchequer Secretary put out a discussion document on Budget day that set out quite a number of pointers.

  Mr Mudie: Could you speak up please?

  Frank Haskew: Yes. Sorry.

  Mr Mudie: This is valuable stuff and you mustn't let it be lost to the world.

  Frank Haskew: The Exchequer Secretary set out in that document a number of important areas that the Government are looking at. There was a four-pronged attack on tax avoidance that included, obviously, specific targeting of various tax avoidance schemes. There is also the study that has been announced in relation to the general anti-avoidance rule, which is being undertaken under the auspices of Graham Aaronson. That will report later this year and we will look to contribute to that work. It is also having a look at some particular high-risk areas of tax avoidance to see whether they might introduce further rules, or possibly principles-based rules there as well. So, when you add it all up it is quite a chunky tax avoidance programme.

  Q225 Michael Fallon: Do you welcome it? Is it bad news for your profession?

  Frank Haskew: We have always supported the Government in tackling tax avoidance through properly targeted tax anti-avoidance legislation. So to that extent, the Government have a perfect right to tackle those areas and we clearly welcome their steps to counter tax avoidance.

  Q226 Michael Fallon: So are you going to work with them on this programme?

  Frank Haskew: We have worked with the Government consistently on tax avoidance. For instance, on the disclosure of tax avoidance scheme rules in 2004, we were heavily involved in making sure those rules worked, and we continue to work with the Government. They have been refined virtually every year and we have been very involved in that process.

  Q227 Michael Fallon: So you are on the right side on this?

  Frank Haskew: As I say, we always support the Government in countering tax avoidance. The key thing, which again is picked up here in the Exchequer Secretary's report, is that we need rules that are properly targeted and don't place undue burdens on ordinary compliant businesses.

  Q228 Mr Mudie: I am not sure I caught that last bit, but they talk about prioritising the work. There is a great fear that the approaches are going to be directed at pay-as-you-earn and so on, and affect people out in the community, rather than at the big non-payers, avoiders or evaders. What impression do you get about where the emphasis is going to be?

  John Whiting: The good thing about this document on tackling tax avoidance is that there is a better strategy there. To pick up on some of the things that Frank was saying, in recent years there has been a heavy attack on avoidance, but it has been piecemeal and reactive rather than proactive. One of the things I like is that there seems to be a strategy and a plan looking at the high-risk areas, for example, and at how to tackle those. One of the results should be better-focused efforts.

  Q229 Mr Mudie: Sure, but how would you define high-risk areas? What do you think that is aimed at?

  John Whiting: That is a question you have to ask the Revenue.

  Q230 Mr Mudie: I should ask the Chancellor.

  John Whiting: Well, you have to ask HMRC what it thinks are the high-risk areas. To sort of reflect back one of your points, I would not say that the ordinary PAYE taxpayer is a high-risk area. They are far more at risk through HMRC errors, which I am sure Robin would echo.

  Q231 Mr Mudie: I think we went over that the other week. Do you think that the Chancellor has helped himself? Richard Murphy said that "Lawyers and accountants all over the country must be jumping for joy this afternoon." He pointed to a number of areas and said that the new charity rules "sound open to massive abuse." He then went on to say, "A new 5.75% tax rate on the treasury functions of large corporations in tax havens…will see corporate money flowing out of the UK faster than it will be possible to count." Do you think Richard's got something on those two matters?

  John Whiting: On charities, the first point is that that idea is going to be developed for introduction next year. I am quite sure that over the next year, rules will be developed to make sure it is not a complete giveaway. That starts you worrying about whether it is going to be so complex as to be unusable. It is an interesting idea; let's see how it goes. The corporate tax measure—let us put it into context—is trying to reform the CFC rules to get to a sensible working solution. I think we are getting to exactly that, and it has been through so much—

  Q232 Mr Mudie: It is a pretty generous rate though, isn't it? You get nothing and that sounds good. Is that what you mean?

  John Whiting: Well, there is a strong argument that 5.75% of something is a lot better than 23% of nothing.

  Q233 Mr Mudie: That's a view. I would rather that they paid their full whack.

  John Whiting: I don't think it will apply to something located fair and square as a tax haven. We are talking about operations in reasonable jurisdictions.

  Q234 Mr Mudie: That is something to come to another day. Let me ask you a last question while we have you—I hope that it's the last question. There has been a departure that is puzzling and worrying everyone concerning senior figures in HMRC conducting personal negotiations and reaching figures of settlement. I see the sense of that and what may have been delivered, but in your experience, is this a departure? Are you aware of whether it has been codified in terms of behaviour, reporting and transparency?

  John Whiting: That is a very good question.

  Mr Mudie: Thank you, John. It's not often you say that.

  John Whiting: Credit where it is due. There have always been negotiations over difficult areas between the taxpayer and the Revenue. If it is a big number or big issue it will get escalated. In my experience, some things went all the way up to the Board to be agreed at that level, although that would be extremely rare.


  Q235 Mr Mudie: But, John, even Dave Hartnett himself has said this is where he goes in, has lunch, looks them in the eye, says, "You'd better settle or I'll send hundreds of HMRC inspectors in," and they write the cheque there and then. That may have been said a bit tongue in cheek, but that seems to be the shape of it. That sounds like a new departure. Is it a happy one?

  John Whiting: Didn't Cardinal Morton have a version of that? It sounds like a variation on Morton's fork, back in Henry VIII's time. However, if it's to that extent, it strikes me as a bit of a new departure—a one-person agreement. As I said, my experience is that it went all the way up the tree. I don't know what Frank would say.

  Frank Haskew: It's clearly a difficult area. There clearly needs to be transparency and governance arrangements here. You are in bilateral or multilateral negotiations here, and people like Dave Hartnett have been working hard to come up with a good deal for the UK. But, clearly, there need to be governance procedures to make sure that what comes out is reasonable in the long term.

  Q236 Mr Mudie: Have you come across them? Do you think there are such things? I always worry about civil servants or councillors going into financial negotiations without a transparent, open and supervised method of working. You're not aware of such a system being introduced to safeguard officials?

  Frank Haskew: I can't say that I am, but we are still in quite early days on a lot of this.

  Q237 Mr Mudie: It's being going on for a while, hasn't it?

  Frank Haskew: Well, we're still in the early stages of coming up with a lot of these agreements. I think we will see more transparency in governance over time.

  Q238 Chair: Is there anything you wanted to add, Mr Williamson? You've looked slightly cut out of all these exchanges.

  Robin Williamson: Just something that occurred to me while John and Frank were answering the last point. There is certainly a lot to be said for saying that 7.5% of something is rather better than 23% of nothing. There are business reasons, obviously, for particular settlements at particular high levels. But coming back to the principle of fairness, these things look very odd and unfair, perhaps, to your average market trader, who might be pounced on and charged a 30% penalty for a mistake because, he is told, he has not taken reasonable care. People might even have a shot at charging a 70% penalty, arguing that whatever mistake he had made was in fact deliberate, and the market trader may not have the wherewithal to counter those arguments. Yet, we hear about settlements with much lower levels of penalty for very much higher levels of avoidance, evasion or whatever.

  Q239 Chair: John Whiting, I was a little perturbed by one of the answers you gave Michael Fallon. You effectively said you were negotiating with the Chancellor what you're going to look at. It would be of considerable interest to the Committee if the OTS provides us with details of the areas you think should be looked at, but which have been rejected by the Chancellor. That's a message we'd like you to take back.

  John Whiting: Obviously, bound up with this—Mr Fallon alluded to it—is the question of resources. We are trying to come up with a list of areas, and we've come up with some ideas based on our experience over the last six months of what people seem to think would be very helpful and on our own work. We've come up with a list, and we haven't got the resources to do everything on it, so it is quite reasonable that we sit down and ask which appeals to the Chancellor and which doesn't. I've got my own preferences and my own wants, but I don't want to do something that the Chancellor and his fellow Ministers have no interest in.

  Q240 Chair: I think it would be helpful if we had a look at your longer list.

  John Whiting: When we do it, I would be more than happy to write to you, Chairman.

  Chair: Thank you very much for coming today. I'm sorry it's been a somewhat abbreviated session and that we started late. If there are major points that follow from of what's been said or things you didn't have an opportunity to comment on at all, please come back to us in writing as soon as possible. Thank you very much.

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