Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum from the Chartered Institute of Taxation


  1.1  The aspects of this enquiry in which we are particularly interested are:

    —  The formulation of tax policy.

    —  The Treasury's relationship with the Inland Revenue and Customs & Excise.

  1.2  This Institute seeks to have an open and constructive relationship with revenue departments, in order to contribute as effectively as possible to consultation and the development of tax policy. We meet regularly with the Inland Revenue and Customs & Excise, on both a formal and informal basis.

  Until recently, we had very limited contact directly with the Treasury. We now have a regular annual meeting with a Treasury Minister and also have found Treasury officials willing to have informal meetings to discuss specific aspects of tax policy.

  1.3  Notwithstanding the relationships we have developed, and our role as the leading professional body in the United Kingdom dealing solely with taxation, we find the process leading to the development of tax policy to be opaque up to the point where a formal announcement (for example, of a consultative document) is made.

  We also find it difficult to comprehend fully the different roles of Ministers, the Treasury and other revenue departments in the formulation of tax policy.

  1.4  Tax policy, however it is formulated, has made the tax system increasingly complex over the last few years, with this year's Finance Bill running to a staggering 558 pages.

  1.5  Although we support the work of the Tax Law Rewrite project, we have consistently stated that the tax system is too complicated and that a major rethink is necessary of the whole system, and not merely of the legislative wording.

  1.6  In order to make the tax system as transparent as possible, the process of tax policy formulation needs to be set out in order that commentators and other interested parties have some idea of how the legislation they are dealing with has come into existence.

  1.7  Whilst the rates of existing taxes can be flexed in order to raise different amounts of revenue, merely introducing a new tax or tinkering with the legislation in a piecemeal fashion to raise additional tax creates uncertainty as to what are the objectives of the tax system.

  1.8  One of the issues which has concerned us for some time is the need to strike a balance between fairness and complexity. We believe that the policy objectives of Ministers can become obscured by the process of developing detailed legislation, and in particular that the natural concern of the revenue departments to guard against potential avoidance can lead to unnecessarily complex legislation which is over-burdened by anti-avoidance measures. Recent examples include the legislation on all-employee share schemes and corporate venturing relief.

  1.9  Tax policy formulation needs to be extensively debated in order that the resultant legislation, when first introduced, achieves its wider objectives, be they social, economic and/or other, of the Government of the day, is understood by its "customers" and is perceived to be fair without hindering commercial transactions.

  1.10  We reiterate our belief that the time is ripe for a Royal Commission on Taxation to address the whole function of the tax system and how a system can be introduced that ensures fairness between taxpayers and the State.


  2.1  The Chartered Institute of Taxation, the leading professional body in the United Kingdom concerned solely with taxation, was established in 1930 and received its Royal Charter in 1994. The Institute's primary purpose is to promote education in and the study of the administration and practice of taxation. Members of the Institute have the practising title of "Chartered Tax Adviser".

  2.2  Membership of the Institute is open to individuals from all disciplines who are competent and are qualified to advise on taxation matters. Entrance is through its associateship examination, from which members may advance to fellowship by thesis. An increasing number of members, which currently stands at 11,056, hold the Institute's qualification as their main professional qualification.

  2.3  The Institute deals with all aspects of direct and indirect taxation. The Technical Committee of the Institute is responsible for consulting with and making representations to government and revenue authorities on current and future legislation. A number of technical sub-committees made up of experts in their own fields report to the committee.

  2.4  The Institute is also the United Kingdom member of the Confédération Fiscale Européenne (CFE), the umbrella body for taxation practitioners in Europe. The CFE represents a total of over 150,000 tax advisers throughout the European Union. It has two main areas of activity: firstly to play a full part in the development and operation of tax legislation in the Union; and secondly to support the establishment and maintenance of the rights of tax advisers within the Union. The Institute has taken a leading role in both these activities.

12 May 2000


Memorandum from Mr John Garrett

  I wish to draw the Sub-Committee's attention to two issues. The first concerns the Treasury's competence in assessing the efficiency and effectiveness of public expenditure and in setting objectives for departments; the second, the Treasury's attitude to public and Parliamentary accountability as embodied in our state audit system.


  In the Comprehensive Spending Review of December 1998, the Treasury published some 600 Public Service Agreements (PSAs) with departments.

  The Prime Minister wrote, in a foreword to the Review, that "PSAs set out what we shall deliver" and that "PSAs also show how we will modernise and reform government". "PSAs are agreements with you", he concluded. The introduction to the Review said that PSAs set new kinds of targets and specific "end results". These targets were SMART: Specific, Measurable, Achievable, Relevant and Timed. In March 1999 the Treasury published a further 1,000 Output and Performance Analyses (OPAs) for departments: "the Government's Measures of Success".

  In April 2000 the Chief Secretary claimed that "PSAs are a unique innovation": and said that colleagues from other countries in Europe were "intrigued, and sometimes frightened, by our radical approach". These claims are far fetched. Public Service Agreements are no significant advance on Performance Budgeting introduced into the US federal government of 1948. They are primitive compared with the Management by Objectives routines described by the late SD Walker and me in a popular booklet for the Centre for Administration Studies in 1969 and introduced into public bodies in the 1970s. PSAs are even further behind Programme Planning (or Output) Budgeting (PPB) developed by the Rand Corporation of Southern California in 1961 and generally applied in the US federal government in 1965 and in a number of public bodies in Britain soon after. PPB emphasised the systematic analysis of spending programmes and the construction of measures of effectiveness for them.

  The targets and objectives of PSAs and OPAs are often inadequate and sometimes risible. The government simply cannot cope with 1,600 of them: it would be pushed to find the qualified analysts required to produce 50. The result is that many of them appear to be plucked from the air. One target for the Home Office is "to increase the number of criminal enterprises disrupted" (objective 4) "including the percentage of crime groups dismantled", whatever that means. Some are just not deliverable—the DETR has one objective to increase the number of visits to the countryside and another to reduce construction industry costs (how?). Some are not all that important: the DETR proposed to increase the percentage of undisputed invoices paid within 30 days of receipt. The Cabinet Office, at the heart of government, has a target for extending the coverage of new software for the Civil Service Pension Scheme. Who cares?

  The only target proposed by the Treasury for every department is to reduce staff sickness absence and its own key objective 11 is to introduce a robust system for measuring sickness absence. I don't think we wish to know that.

  This scatter-gun approach to objectives and performance indicators is just overwhelming. I think that the Treasury must impose some rigour into the process. It would also be valuable if select committees were invited to specify what they need to monitor the performance of the departments they shadow instead of having to put up with whatever the Treasury imposed on them. Certainly, there needs to be far fewer indicators, each identifying a key responsibility of a department, and each should specify who is accountable for achieving them. After all, civil servants are going to receive performance pay for achieving them, I assume. Some suggestions for targets that matter: the take-up of Social Security benefits; bathing water quality; levels of poverty and deprivation; access to public transport; the amount of investment fraud. . .

  In his speech of 4 April the Chief Secretary said he was going to review PSAs. The only specific point he made was that I had written that the selection of sickness absence as a key indicator was "unbalanced". That's putting it mildly.


  I have been writing critically for 30 years about the relationship of the Treasury to the National Audit Office (NAO) and Public Accounts Committee (PAC). The fact is that having been set up in the 1860s as an arm of Parliament, the NAO (then the Exchequer and Audit Department) was effectively taken over by the Treasury from the 1940s to Lord Fawsley's National Audit Act of 1983. I campaigned for years for that Act, believing that our state audit should have the powers, the independence of the Executive and the competence enjoyed by the state auditors in, for example, France, Germany and the USA. I believe in the fundamental constitutional principle that Parliament should have the right to audit the use made of every penny voted by Parliament. The Treasury has always opposed this principle.

  The 1983 Act still left significant areas of public spending outside the scope of audit: Training and Enterprise Councils and the voluntary housing sector (annual spend over £1 billion) for example. The absence of a guaranteed right of inspection in these and other areas of spending is an anomaly which, according to the Comptroller and Auditor General, "diminishes the accountability to Parliament of bodies in receipt of substantial funds". Now, the Government Resources and Accounting Bill, which introduces commercial-style accrual accounting in government, contains no provision for the NAO to have access to the large amounts of public money spent by private contractors (on, for example, the running of prisons) or voluntary bodies (eg in providing New Deal Training) or limited companies established by government, of which there are 200 (eg the Student Loan Company, Remploy) or public-private partnerships.

  To complete the circle, the NAO is refused the right to audit the objectives and performance measures of government departments, though the Audit Commission is required to do so for local government. The Treasury is using this bill to define new forms of spending as outside the scope of the NAO. This is a major defeat for Parliament. The Chief Secretary was examined on this point by the PAC in January and showed no awareness at all of the imminent damage to public and Parliamentary accountability.

  John Garrett is a consultant and author on the management of government. He was Labour MP for Norwich South from 1974-83 and 1987-97, serving on the Expenditure Committee, the Treasury Committee, the Procedure Committee, the Public Accounts Committee and the House of Commons Commission. He was a Treasury spokesman and spokesman on the Civil Service and Constitutional Affairs.

23 May 2000

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