Office of Tax Simplification

Debate between Liam Byrne and David Gauke

Tuesday 20th July 2010 Commons Chamber

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on the structure and approach of the Office of Tax Simplification.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I am grateful for the opportunity to update the House on the establishment of the Office of Tax Simplification, further to the written ministerial statement that I laid before the House this morning.

The need for simplification in the UK tax system is clear. The quality of our tax law is a major determinant of our economic competitiveness. A complex tax system creates uncertainty and instability, which sends the wrong signal to international businesses looking to invest in the UK and so damages our economic growth. A complex tax system also means that businesses end up spending more time dealing with their tax affairs and less time on their core business. That can be particularly burdensome for smaller businesses.

We set out our proposed approach for reforming the tax policy-making process in a discussion document that was published alongside the Budget last month, but as well as reforming the way in which we develop new tax law, there is also significant work to be done to correct the mistakes of the past by reducing the complexity in the British tax system. That is where the Office of Tax Simplification comes into play.

In his Budget statement of 22 June, my right hon. Friend the Chancellor confirmed our plans to establish the Office of Tax Simplification. Today, we have done so. The OTS will advise Treasury Ministers on delivering a simpler tax system, drawing together expertise from throughout the tax and legal professions as well as from business and other interested parties, to provide advice on options for addressing existing complexity in the tax system. Its objective will be to reduce the burden of compliance for both businesses and individuals. The OTS will do that by advising the Government on where, in its expert view, the tax system is too complex and could be simplified, and by conducting inquiries into complex areas of the tax system, gathering evidence and suggesting options for reform.

The office will publish a report on each of its inquiries, detailing the evidence that it has collected, the views of interested parties, its analysis of potential reform options and proposals for simplifications. Either the Chancellor or I will discuss the findings of each report with members of the OTS board. The first such inquiry will be a review of all reliefs in the tax system. The OTS will review the full list of reliefs and identify those that should be repealed or simplified to create a simpler tax system. The second review will focus on simplifying the tax system for small businesses and the specific question of finding a simpler alternative to IR35.

The OTS will be led by an externally appointed and unpaid chairman and tax director, who will be supported in undertaking their duties by a secretariat of civil servants and private sector secondees. The chairman and the tax director will have complete control over forming the OTS’s judgments and will be accountable to Parliament for their advice. Michael Jack will be the interim chairman, and John Whiting has agreed to be the interim tax director. Together they will lead the establishment of the OTS and the reviews that it conducts in its first year. Over the summer, John Whiting will lead the appointment of the permanent secretariat, so that the first reviews can begin by early September. He will also establish committees over the summer to steer the OTS’s work and ensure close consultation with all interested parties. The committees will include experts from the tax and legal professions, the business community and other interested parties.

Making the right reforms to the tax system will help to pave the way for bringing more international business to the UK, which will give our economy the boost that it so urgently needs in the years ahead. We commend the creation of this body.

[Mr Byrne]

I am grateful to the hon. Gentleman for his statement. He will hear this afternoon that there is wide-ranging interest in the questions that he has raised, which is why it was all the more unacceptable that the statement was delivered at a press conference before it was made to Members. That, I am afraid, is becoming a pattern of behaviour. First, £6 billion of spending cuts were announced in the Treasury courtyard rather than in the Palace of Westminster. Then the approach to the spending review was announced in a press conference, not in this Chamber. Then reforms to the institutional arrangements for bank regulation were briefed to newspapers before the House was told. Then plans for a bank levy were outlined in a speech in the City, not from the Treasury Bench. If we wanted a timely reminder of the importance of the first debate to be held on business nominated by the Backbench Business Committee—on information relating to statements—the hon. Gentleman has just given us one.

Let me turn to the substance of the hon. Gentleman’s announcement. From all parts of the House this afternoon he will hear an endorsement of the principles of a simpler tax system that allows people to focus on their business affairs and profitability. He will see, too, an endorsement of the use of outside experts; that is nothing novel. But will he confirm the answers to a couple of questions about the office’s scope? If he is all for simplification, will the Office of Tax Simplification be advising him on his proposals to complicate the tax system by introducing a marriage tax allowance, all for the sake of sending an ineffective £3-a-week signal about his party’s views on what a family should look like? Will the office be advising the Chancellor either to advance or to drop those plans, and if so, on what timetable?

Can the hon. Gentleman tell us whether the Office of Tax Simplification will be advising him on dropping the measures announced in the Budget to increase the number of people facing marginal deduction rates of more than 90%? And if he is all for simplicity, why is the Treasury briefing that it wants a more complicated stamp duty system in connection with energy conservation in housing?

Secondly, there are a series of questions to be asked about the nature of the new beast that the hon. Gentleman has told us about this afternoon. We have heard a lot of talk in recent weeks about the Chancellor’s push for a bonfire of the quangos. Can the Minister tell us how much the new office will cost? Can he promise us that this is the last quango that the Treasury will announce this year? Can he tell the House how Mr Jack was appointed, and whether his appointment is fully in line with Nolan principles? What reassurances can the hon. Gentleman give the House this afternoon that, unlike the Office for Budget Responsibility, the Chancellor’s last independent creation, this office will not release its reports to help the Prime Minister get through a sticky Prime Minister’s Question Time?

Simplification is a good thing, and I am sure that the whole House will welcome the thrust of the hon. Gentleman’s proposals. But I am afraid that today’s announcement sounds rather more like an attempt to grab headlines than like real evidence of a push to improve legislation—legislation that is the responsibility of this House.

[Mr Gauke]

I do not know whether the right hon. Gentleman requested an urgent question because he had prepared a speech and had forgotten that this development was announced in the Budget on 22 June. The creation of this organisation was not only in the Conservative party manifesto and the coalition agreement; it was also announced to the House on 22 June by my right hon. Friend the Chancellor. Today we have announced the appointment of two distinguished individuals to perform the task that we have already set out. The misplaced outrage from the right hon. Gentleman is extraordinary, particularly given the record of the previous Government in this regard.

I am pleased that the right hon. Gentleman recognises, at last, the need for a simpler tax system and for outside experts to be involved in the tax system. We think that an important point; we have to make use of the expertise in the tax and legal professions, and the OTS is but one example of how we will do that, along with the creation of a business forum and a tax professional forum. All that will add to the sense of co-operation that exists in our tax system and the sense that the system can become an asset, not a liability—as, sadly, it had become under our predecessors.

The purpose of the OTS is to look at the stock of tax law—the thousands of pages of tax law in this country, which has the longest tax code in the world. It is an attempt to examine the existing tax code to make recommendations for simplification. All decisions will be made by Ministers accountable to the House. Parliament will continue to make tax law, but clearly the use of independent experts and publication of their recommendations and analyses will be a useful addition to our tax system.

The right hon. Gentleman asked about the appointment process. These are interim appointments; we believed that it was important to establish the OTS quickly. The appointments will be there for 12 months, at which point we will go through the usual process of appointment for permanent appointees. In that 12-month period Mr Whiting and Mr Jack will add a great deal to our tax system, will establish the OTS—[Interruption.] In spite of that attack on the appointees, John Whiting, for example, has advised Opposition parties, including the Labour party in the past few weeks. These are well-established individuals. Michael Jack was a distinguished Minister in this area, who established the tax law rewrite project, and we think that that is useful experience.

As for the cost, I know that the view of the Labour party in government is that quangos must always cost a great deal of money—but Mr Jack and Mr Whiting are not being paid for this. The cost of the secretariat will be paid out of existing Treasury and Her Majesty’s Revenue and Customs budgets. This is good value for money, it will be a good contribution to our tax system, and we are very proud to announce it.

Finance Bill

Debate between Liam Byrne and David Gauke

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

I am grateful to my hon. Friend for that intervention. As he knows, with this Budget we have set out more distributional analysis than any previous Government have ever done before. On the VAT increase, I say to him that all tax matters are kept under review. He has a fine reputation for finding opportunities to raise particular points in Parliament, and I am sure that he will do so on this matter. I am sure that there will be opportunities for him, and for other hon. and right hon. Members, to raise these matters in future. For the moment we have put in place an increase in the VAT rate. We cannot make any promises to change it, and it would be dangerous for us to do so, given some of the points that we debated in Committee; a promise of a VAT cut in future is likely to result in a deferral of expenditure. However, this is an ongoing debate and I am sure that he will contribute to it fully, just as he has contributed to this debate fully over the past few days.

We believe that this Budget has been demonstrated to be a progressive Budget that deals with the deficit fairly; all sections of society contribute, but the richest pay more than the poorest. I also have to make the point to the House and to my hon. Friend that, of course, we should not look at the VAT increase in isolation, because it is part of a wider package that ensures that the most vulnerable in society are protected. It is also worth making the point that during these days in which we have debated this matter we have learned that support for the VAT increase was more widely spread than we ever realised. With exquisite timing, we learned from Lord Mandelson that the previous Chancellor wanted to raise VAT.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

rose—

[Mr Gauke]

I give way to a member of that Treasury team.

[Mr Byrne]

Before the hon. Gentleman leaves the subject of VAT, can he clear up one problem that I came across in the Red Book? The scorecard for the Budget says that about £8 billion will be raised in taxes by 2014-15, yet the Office for Budget Responsibility forecast in the back of the Red Book says that only £3 billion in tax will actually come through the door. Why is there a £5 billion difference?

[Mr Gauke]

I am not quite sure where the right hon. Gentleman’s analysis is coming from. I am not aware that there is any discrepancy of the sort that he describes.

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[Mr Byrne]

rose—

[Mr Gauke]

The right hon. Gentleman is eager to help me. I am sure that this will be a helpful contribution.

[Mr Byrne]

The matter can be cleared up very quickly. The scorecard on page 40, with which the hon. Gentleman will be enormously familiar, states that the “total tax policy decisions” will result in £8.230 billion being received in 2014-15, whereas table C12 on page 101, which shows the OBR forecast, says that only £3.1 billion in receipts will actually come in. Why is there a difference between what is on the scorecard, which is a little more than £8 billion, and what is in the OBR forecast for the money that will actually be raised, which is £3 billion?

[Mr Gauke]

The right hon. Gentleman appears to be raising a perfectly fair point. The OBR was heavily involved in calculating the numbers for the scorecard, so I suspect that there is a perfectly innocent explanation and I will endeavour to ensure that he receives it before this debate reaches its conclusion.

[Mr Byrne]

Is not the answer very straightforward? Is not the answer that the Budget depresses growth so much that tax receipts will actually be down, so even though the scorecard sets out a series of measures that should, in theory, raise the amount that it sets out, the OBR, understandably, knowing that growth is depressed, has set out that far less money will actually come through?

[Mr Gauke]

If that is the point that the right hon. Gentleman is getting at, I must point out what the OBR made very clear in the Red Book. That point is that it is misleading to make a straight comparison between the growth figures that were projected on the basis of market expectations of interest rates, which were lower as a consequence of the anticipated fiscal tightening that this Government promised to deliver and that we have delivered, and the forecasts that do not take that into account. That is a point that we have gone over a number of times. The OBR said that such comparisons were potentially misleading, so if that idea is what is driving the right hon. Gentleman’s queries, I must point out to him that the OBR would not accept that.

[Mr Gauke]

My hon. Friend might well have the answer. One point that we learned from Lord Mandelson in the course of his much-loved memoirs is that the then Chancellor, who is now shadow Chancellor, apparently accused the then Prime Minister of having a “ludicrously over-optimistic” view of what the growth forecasts would be and about

“Britain’s ability to support such a large and expanding deficit.”

That might well be the explanation.

[Mr Byrne]

rose—

--- Later in debate ---

[Mr Gauke]

I shall let the right hon. Gentleman, who was of course a member of that Treasury team, intervene. Perhaps I should ask him whether he supported the proposal to increase VAT advocated by the then Chancellor in 2009.

[Mr Byrne]

I rise with the ambition of being helpful to the Minister as he will not want knowingly or unknowingly to mislead the House. He will know that the OBR forecast on page 101 is a forecast of what tax receipts will come in on the basis of the Budget set out in the Red Book. These things are entirely consistent with each other and the forecast has nothing to do with previous Budgets or previous OBR estimates. Will he confirm that for the House?

[Mr Gauke]

The fact is that the big risk to growth for this country would have been if we had done nothing about the deficit. If we had tried to ignore it, we would have found ourselves having our credit rating downgraded, as has happened to Greece, Portugal, Spain and now the Republic of Ireland, and we would have faced a contagion of sovereign debt. We have taken the necessary actions to ensure that growth is secure and the fact is that the OBR projections have far greater credibility than the previous Government’s—we have learned about how political they were in making their growth forecasts. Our growth forecasts have credibility. Our public finances have a credibility that they did not before. We can be proud of that.

As we have heard, the previous Treasury team believed that an increase in VAT was necessary and that was only blocked by the previous Prime Minister. One can hope that the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), has seen the error of his ways. I noticed that he did not feature in the Division Lobby opposing the VAT increase—perhaps we have persuaded him, after all, that his views on VAT were unwise. We have succeeded where the shadow Chancellor failed.

We have heard legitimate concerns about how the most vulnerable in society will be protected, but we have sought to provide such protection in the Budget. For example, we have committed to the uprating of the basic state pension through a triple guarantee of earnings prices or 2.5%, whichever is highest, from April 2011. We have taken steps to increase the child tax credit.

Finance Bill

Debate between Liam Byrne and David Gauke

Thursday 15th July 2010 Commons Chamber

[Mr Gauke]

What I can say is that given how IPT is currently structured and where it is levied, it does not apply to long-term insurance; the conclusion to be drawn about something that falls within the definition of long-term insurance is fairly logical.

However, in respect of the types of insurance that are affected, insurers have the right to respond to the tax as they see fit. They are not obliged to pass on IPT through higher premiums. [Interruption.] We recognise that many insurers will pass it on to their customers through higher premiums, but I will not be dragged into the detail of the amendment tabled by the hon. Member for Nottingham East (Chris Leslie).

The question was asked whether further regulation should be imposed on insurers, making them display prominently how much is being paid in IPT. Unlike VAT, IPT is a tax on insurance, so there is no obligation to pass it on or to recover it for businesses. We do not think that that would be appropriate. Insurers are, of course, perfectly free to display the IPT rate on documentation, and many do so. Requiring them to do so, however, would be burdensome and unnecessary.

[Mr Byrne]

Will the Minister remind the Committee of something? On the two or three previous occasions when IPT has been increased, how much of the increase was passed straight on to consumers?

[Mr Gauke]

I am not denying that we expect the increase to be passed on predominantly to consumers; we expect that the bulk of it will be. The analysis of VAT, another indirect tax, shows that two thirds tends to be passed on straight away and that much of the rest is passed on over the following 12 months. However, it is not always possible to predict and it partly depends on the level of competition.

--- Later in debate ---

[Mr Gauke]

I am grateful to the hon. Gentleman for underlining an earlier point that I made—that it is not necessary to introduce regulation in this area. As I say, we anticipate that it will be passed on, but it is not mandatory. I am not denying that position.

Despite these modest impacts, the IPT rate increases will contribute more than £450 million a year to reducing the deficit. As I said, such decisions have been forced on us by the economic circumstances that the UK finds itself in, and they have not been taken lightly. We are confident, however, that this modest rise in IPT, which leaves the main rate of the tax significantly lower than that of many of our European competitors, is a means of raising much-needed revenue that will not have a significant impact on households, businesses or the insurance industry.

[Mr Byrne]

The Minister is making an argument about choices that are made in order to increase revenue, but I think the Committee is struggling to understand the reason for the increase in the standard rate of IPT. Other choices were available. Why have increases in cider duty been withdrawn, for example, while new taxes are being introduced on insurance?

[Mr Gauke]

The central point is that the country is in a very difficult position as regards the public finances. I hope that the shadow Chief Secretary is grateful for the fact that I have got this far through a speech without once referring to his letter. With another intervention, I may be tempted to do so. We have made a series of judgments. If he thinks that cider duty is the way to reduce the deficit, I suggest that he is somewhat mistaken.

Amendment 18 would exempt personal health insurance from the increase in the standard rate of IPT, and amendment 19 would do the same in relation to motor insurance. In effect, that would mean creating a new reduced rate of IPT that applied only to private medical insurance and motor insurance. Of course, the Government recognise the value of these types of insurance and, indeed, of insurance more generally.

I assure my hon. Friend the Member for Christchurch that we do not disapprove of people taking out private medical insurance—that is not something we wish to prohibit, either in law or by imposing enormous costs on it. In health policy, our focus is of course on improving the national health service, and we have this week set out important proposals on improving the quality of the health service and reducing expenditure on bureaucracy. We are also, as a Government, protecting the NHS from spending cuts, which is not, as I understand it, a policy endorsed by Labour. The purpose behind this tax increase is clearly to raise more revenue—it is not an attempt to try to dissuade people from taking out private health insurance.

Oral Answers to Questions

Debate between Liam Byrne and David Gauke

Tuesday 13th July 2010 Commons Chamber

[Mr Gauke]

The fact is that the deficit has to be reduced, and VAT is one of the few levers available to the Government to do that. Any sensible Government would consider it; and indeed, given the circumstances we are in, any Government would do it.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

When the Chancellor rose to give us his Budget a few weeks ago, he promised that he would give it to us straight. He somehow forgot to tell us that Britain’s pensioners may face an £8 billion VAT bill over the course of this Parliament. Given that neither Government party has a mandate for introducing VAT increases, does the Minister agree that, at the very least, this House deserves a report on the impact of VAT on pensioners before the increase comes into effect?

[Mr Gauke]

We have provided more detail of the distributional impact of this VAT rise than the previous Government ever did or would have done had they increased VAT last December. The fact is that this Chancellor—like this Treasury team—has the courage of his convictions to do the right thing, unlike his predecessors, who neither pursued the policies they believed in nor had a leader they believed in.