Select Committee on Treasury Minutes of Evidence



Examination of witnesses (Questions 160 - 179)

THURSDAY 15 MARCH 2001

MR GUS O'DONNELL, MR NICHOLAS MACPHERSON, MR ADAM SHARPLES, MR ALEX GIBBS and MR CLIVE MAXWELL

Chairman

  160. Just on agriculture, have you taken a view yet of the likely impact of the foot and mouth epidemic on, firstly, public finances and, secondly, on the economy as a whole?
  (Mr Sharples) There clearly are some immediate costs in the statutory compensation to farmers for the destruction of livestock that are immediately affected by foot and mouth disease. The latest estimate is those costs are something like £40 million for the animals that have been destroyed so far. There may be some additional costs beyond that and clearly, at this stage, it is difficult to forecast precisely what the final bill will be.
  (Mr O'Donnell) In terms of the economy as a whole, certainly foot and mouth disease has potentially serious implications for specific sectors like livestock and related areas like tourism because of the knock-on effect but, in terms of overall macroeconomic effect, livestock, arable products, forestry and fishing account for slightly more than 1 per cent of GDP and less than 2 per cent of employment, and as regards leisure-related expenditure about 20 per cent of that is in the countryside. So 80 per cent of leisure spending is not countryside-related which gives you some idea of the orders of magnitude.

  161. We now turn to the micro issues. If I could ask you one general question, we have suggested in our previous reports that we would like to see at least more announcements in the Red Book of the results of evaluations of micro policies. I am not sure that there are any in particular in this Red Book or, if there are, perhaps you could point them out to us.
  (Mr O'Donnell) The Red Book is getting longer and longer every year.
  (Mr Macpherson) A good example of where there is going to be a lot of evaluation is the whole tax credit agenda. At the time the working families tax credit was introduced in October 1999, the Inland Revenue decided to embark on a very significant evaluation programme building on the sort of programmes in place already at the DSS. There are lags in this process. First, the policy comes into effect. Then you want to analyse how it is affecting people. That requires surveys and a lot of analysis. In my Treasury experience, I think there is a commitment now to more and higher quality evaluation—that has been reflected in the New Deal—than ever before. So I would ask for a certain amount of patience. A lot of these results will only really start emerging through 2002 and beyond.
  (Mr Gibbs) There are a couple of others that are probably worth mentioning in this context. One is the enterprise investment scheme and the Venture Capital Trust, where the Inland Revenue are commissioning external research. This is mentioned in the Red Book, paragraph 3.53. Five bidders have been asked to tender. A one year contract for an evaluation of the policy is going to be offered before the summer recess. The Revenue have also been collecting data on ISAs. In July 2000, there was an NOP survey of ISA holders which provided quite a lot of information on the pattern of take up and some early indications of ISA additionality. That was fed into the report on savings which was published at the time of the PBR. As a third example, the Revenue again are part funding a survey with the Charities Action Foundation and the NCBO of giving to charity in order to evaluate the impact of the Budget 2000 measures which changed the charity giving regime. As with the ones that Nick referred to, it is still early days on that. That will be reported further in due course.

Mr Fallon

  162. When we had the hearing on the Pre-Budget Report, the director of budget and public finances was Colin Mowl. Is that right?
  (Mr O'Donnell) Yes.

  163. Where is he now?
  (Mr O'Donnell) He is still director of budget and public finances but what we wanted to do today was, because the Budget announced significant environmental measures brought along environmental and transport tax—

  164. Who is in overall charge of the Budget?
  (Mr O'Donnell) The Chancellor.

  165. Of the five of you.
  (Mr O'Donnell) I am in charge of things like fiscal framework, fiscal judgments, advice for those to the Chancellor.

  166. I have a question about the presentation of the Budget. This year you only published with the Budget the press notices. The Budget notices were not provided for the House or for Members of Parliament until the Paymaster General was forced to provide them the following day. Why was that?
  (Mr O'Donnell) We decided to put all of the press notices on the web. Being in the forefront of knowledge management, we assume that makes them available very rapidly to all. We have a commitment to transparency and we want to make it apparent, so we produced one overall press notice which went in the packs that went out to people and all the other individual press notices are available on the web.

  167. I cannot recall a Budget where the press notices were not available to Members of Parliament on the same day in the bundle.
  (Mr O'Donnell) This is because we are moving forward.

  168. Moving forward cannot be denying Members of Parliament information.
  (Mr O'Donnell) Members of Parliament can get all the information they want from the web. It is all there.

Chairman

  169. Your web was not working.
  (Mr O'Donnell) There is a problem about precisely how many people hit it at the same time.

Mr Fallon

  170. Before we come on to the web, you changed the policy. Usually, you provide all the press notices the minute the Chancellor sits down. This year you did not do that. You concealed the press notices. They were placed in the Vote Office the following day which rather conveniently delayed the discovery of things like VAT on spectacles.
  (Mr Gibbs) I think it is the case that it was not the press notices which were—

  171. The Budget notices.
  (Mr Gibbs) The Budget notices are an innovation this year. In previous years, Customs and Excise have pursued a policy of issuing press notices accompanied by technical detail and Budget notices. We have extended that to the Revenue this year, so the technical detail went into the Budget notices. They have not been produced by the Revenue before. Because this was the first time they did it, they were issued on the same basis that Customs ones have always been issued, which is to make them available on the web, but they were made available in the library of the House following the request that this should be done. The spectacles measure is not a Budget measure at all. I do not think it would have been featured.

  172. Do you think this is satisfactory? Do you expect MPs in the middle of the Budget debate to go off and start printing all this stuff out? In previous years, it was all made available in the Vote Office.
  (Mr O'Donnell) As we move forward, I would expect the use of the web to be something that we will try and develop more and more, trying to make information available more widely, more quickly.

  173. Are you going to look at this again next year, because you have changed the policy this year. Members of Parliament did not have all the Budget notices on Budget day.
  (Mr O'Donnell) It is something that we will certainly look into.

  174. What about the website itself? Obviously everybody is going to want to get into it. How are you going to make sure next year that it does not break down?
  (Mr O'Donnell) It is to do with the various servers and there are peak load problems which we will again look into.

  175. You did not foresee them?
  (Mr O'Donnell) We have tried to make this information available. We have been assured that these problems will not recur, but it is something that we need to look into again.

  176. You forecast everything else in the Red Book. It would not be too difficult to forecast that quite a lot of people might want to see the web on Budget day.
  (Mr O'Donnell) Indeed, and we will try and meet that demand.

  177. Let us have a look at some of these personal taxes. You do put in the Red Book a boast that the direct tax burden on a single earner family has fallen to its lowest level since 1972. Given the huge switch from direct to indirect, how useful is that? Should you not tell us about the overall burden or the indirect tax burden?
  (Mr Macpherson) The direct tax burden is something which is in a sense incontrovertible. For a given level of income, you can calculate what direct tax will be on the basis of personal allowances, national insurance limits and child benefit. There is a real methodological problem about calculating what the level of indirect tax will be for a specimen household. This is because household spending patterns vary hugely. For example, two thirds of households do not smoke. What is then a specimen degree of smoking? What the Red Book does though is provide detail on the effect of duty changes on, for example, a litre of fuel or a packet of cigarettes or a bottle of wine. It is possible for people to devise their own specimen calculations and indeed people do. You can claim that a specimen household smokes 400 cigarettes a day and you can get a certain result, but what is clear to us is that there is no basis on which you can average out these indirect tax changes and the Red Book is very clear that, when it does refer to distributional effects or tax ratios, this is on the basis of direct tax and benefit changes.

  178. Is it not rather likely that, if the indirect tax burden had fallen, you would find a way of telling us?
  (Mr Macpherson) It is funny you should say that because this Budget cuts the indirect taxes in a number of areas. For example, in relation to petrol. Also, alcohol duties were frozen. There is no real increase in the duty on cigarettes. The duty was simply revalorised. It would have been nice to be able to demonstrate what sort of effect that was having on specimen households but we could not because of these very real, statistical problems.

  179. It is not that the indirect tax burden has gone up; it is just too difficult to calculate the effect on particular, different groups?
  (Mr Macpherson) It is too difficult. It may be that over time people can develop some new methodology, but we have not found one yet.


 
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