Examination of Witnesses (Question Numbers
100-119)
MR DAVE
RAMSDEN, MR
EDWARD TROUP
AND MR
ANDREW HUDSON
29 MARCH 2010
Q100 Mr Fallon: For example, you
must have made some estimate of the impact of the National Insurance
increase on jobs given that it affects employers. You must have
made some estimate of the impact otherwise you might have pitched
it much higher or much lower. Have you done such an estimate?
Mr Ramsden: As we have both stressed,
what we publish is our forecast and this is consistent with longstanding
convention. We publish the economic forecasts that take full account
of all the measures that have been announced in this and previous
fiscal events. What it is not possible to do is to go back and
pick out a particular measure that was announced at a previous
fiscal event and work out with the benefit of hindsight because,
as Edward says, the counterfactual changes each time. That is
not to say that outside bodies cannot do more of a partial analysis
based on microeconomic insights into what would be the effect.
I am just saying the approach we take, which is consistent with
a very longstanding convention, is that we publish post-measures
forecasts.
Q101 Mr Fallon: So there is no estimate
in the Treasury of the impact of the National Insurance increase
on jobs?
Mr Ramsden: I did not say that.
I just said that—
Q102 Mr Fallon: Is there or is there
not?
Mr Troup: It is worth looking
back at what happened last time NICs went up, that unemployment
fell. A rise in NICs is not inconsistent with a fall in unemployment.
It is also quite interesting that if you are trying to anticipate
what is going to happen that the British Chambers of Commerce
survey from February showed that less than 7% of businesses identified
workforce reductions as the main tool they would use to absorb
rate rise. It is not at all clear how businesses will respond
to this particular NICs rise at the time at which it comes in
next year.
Q103 Mr Fallon: You are suggesting
either it is neutral or it could indeed be positive?
Mr Troup: I am saying it is not
possible to say one way or the other.
Q104 Mr Fallon: But Mr Ramsden said
there might have been an estimate inside the Treasury. When I
said there was not an estimate, you said there was.
Mr Ramsden: I just was not ruling
out that there had been estimates at times. I am saying that consistent
with longstanding convention we have not published a pre-measures
and post-measures—
Q105 Mr Fallon: We see you have not
published it, but the purpose of these sessions is to probe behind
the stuff you have published to try to find out how it has been
constructed. You are saying occasionally you estimate it but this
time you have not. In essence, is that what you are saying?
Mr Ramsden: No, I am not saying
that.
Q106 Mr Fallon: So you have done
it?
Mr Ramsden: We have published
a huge amount of information which I am sure would also be of
interest to the Committee.
Q107 Mr Fallon: So you have done
an estimate or you have not done an estimate?
Mr Ramsden: I cannot give you
a clear answer on that. I just did not want to rule out that estimates
had been done in the past on a microeconomic basis at the time
policies were decided on. What I am saying is what we have published
is our estimate which takes account of all the efficiencies that
have been announced and all the tax increases that have been announced
and adding all those together gives you our growth forecast.
Q108 Ms Keeble: Quite a lot of commentators
suggest that the deficit will have to be reduced faster than is
currently planned and we will get the information about that after
the election. Have you done any preparatory work for any announcement
of that type?
Mr Ramsden: What we have done
is an awful lot of work to come up with the plans that we published
last week and which indeed take forward and show progress on the
fiscal consolidation path first announced by the Government a
year ago in Budget 2009. If I could just give you one example
because I think it is relevant to this debate. You have taken
a lot of interest in this in your report on last year's Budget.
If you look at Chart 2.4 on page 32 we set out there how many
years it is going to take to balance the cyclically adjusted current
budget. A year ago in your report you drew attention to the fact,
and the IFS commented on this, that the consolidation was over
eight years and in only four of those had we given any detail
and the other four years were these white blocks because they
were illustrative beyond the end of the forecast horizon. Now
we are in a position where the consolidation on this measure takes
a year less and we have given detail on five years out of the
seven. The Government's position is that that consolidation path,
which also has more detail underlying it than a year ago, we have
filled in the detail on 2014-15, we have given more detail on
efficiencies and also announced additional tax changes in 2014-15
in particular, represents the appropriate judgment.
Q109 Ms Keeble: If in about six weeks'
time a new Chancellor were to come to you and say, "Okay,
now take out the National Insurance Contribution increase for
anybody earning under £35,000", what would you say?
Mr Ramsden: What we have got used
to through the financial crisis over the last two and a half years
is to be ready for pretty much any kind of contingency that we
can think about. As is typical, our advice to any new government
at any time, whilst it is advice, would remain not in the public
domain and then becomes public at the time of the relevant fiscal
event.
Q110 Ms Keeble: But people need to
know what the options are and what things would look like because
people are thinking about what happens to their families, their
services and so on. If that happened, and the IFS has costed that
at about £6 billion, what would that look like in terms of
public sector spending cuts or would it have to be an increase
in value added?
Mr Ramsden: As officials we are
here to provide explanation on the fiscal event which has just
passed rather than to speculate on any kind of contingency in
the future.
Q111 Ms Keeble: If somebody says
to you now, "Take out the National Insurance increase",
what would the options be? You have all the figures, you have
worked on it and know what it looks like.
Mr Ramsden: We could work on the
figures under certain requirements for the current Government
but it would be for the Government to announce those figures.
Q112 Ms Keeble: I am asking as an
MP who is seeing that as one of the options that is being talked
about and I want to know from you, as the people who have got
your fingers on the figures and understand what they look like,
what that looks like in terms of either tax increases in other
areas, like value added, or service cuts. Or is it possible under
efficiency savings, which is the other option that is being put
up?
Mr Ramsden: I have tried to set
out what I understand to be the convention on this kind of thing.
You are seeing the Chancellor in the morning and I am sure you
will get an answer from him as a representative of the Government,
but I do not think it is appropriate for Treasury officials to
get into this kind of detail.
Chair: You want to keep your job, do
you not! I understand that. We are going beyond that line now,
we cannot get too political here.
Q113 Ms Keeble: I just wanted some
figures. I just wanted to know what the options were. On child
poverty you have pretty much said the original targets are not
going to be reached. Do you think there needs to be a revisiting
of the targets?
Mr Troup: The target remains for
2020 and I am sure you will have seen the document. At the moment
I do not think there is any case for revisiting the target. It
was always going to be, and it remains, a very challenging target.
This is a very difficult area of policy. As you know, a lot of
progress has been made, half a million children already taken
out of child poverty, and this document shows that another half
a million are projected to be taken out on policies that are already
in place. The Child Poverty Act is now law as of last Thursday
and the Commission will sit and the Act requires a national strategy
to be published within 12 months. The child poverty paper goes
a lot further than previously in setting out the various policy
instruments and tools towards meeting the target and that is the
path which the Government has set down.
Q114 Ms Keeble: So you would expect
the Commission to come back with proposals to reach the target
during the lifetime of the coming Parliament?
Mr Troup: The Commission is going
to come back with a national strategy and it is not for me to
say what the national strategy will be or what timing it will
be over, that is what the Act requires, which, as I say, was passed
last week.
Q115 Ms Keeble: I think last time
I asked you the figures had not been analysed. Have you got information
on the impact of the last round of changes which were on housing
benefit and council tax benefit?
Mr Troup: I am not sure I can
give you an actual breakdown of those changes but, as you know,
they contribute to the 500 and something thousand which are not
yet in the figures which will be taken out.
Q116 Ms Keeble: Have all those changes
been implemented smoothly and you have got the figures coming
out that you expected?
Mr Troup: I believe so, yes. I
do not actually have a breakdown for the number attributable to
those changes specifically.
Q117 Mr Brady: Mr Troup, what are
you hoping to achieve by your changes to pension tax relief?
Mr Troup: I think it has been
made clear to this Committee and the House previously that of
the total value of pensions relief, tax relief which has been
given through the tax and National Insurance system of something
like 26 billion, a very significant proportion, something like
a quarter of it, currently goes to the top 2% of pensions savers
under the current arrangements and the intention was to redistribute
that benefit so that there was a fairer share of the pensions
tax relief amongst those people who were saving for retirement.
I think it is worth noting in that context that even when these
changes are fully implemented, even those individuals, which obviously
is a minority of individuals, who are affected by the restriction
will still be getting basic rate relief which is worth about £20,000
to them whereas an average for a basic rate taxpayer is only £1,000.
The pensions tax system will remain extremely generous for the
better off, as indeed is inevitable with a contributions based
system, after these changes are implemented.
Q118 Mr Brady: There are a lot of
very clever officials in the Treasury. Was none of you able to
think of a simpler way of achieving that objective?
Mr Troup: Once you have taken
the decision to restrict the benefit of the relief by reference
to incomes, which Government has been quite clear they regard
as the fairest way to do this, it is inevitable that you then
have to determine income, and for those individuals, which is
now the majority, who are in defined contribution schemes this
is entirely straightforward. There is no real complexity in these
arrangements for anyone who is in a defined contribution scheme
or is making payments into a personal pension plan because the
amount of their income and their contributions can be measured
in pounds, shillings and pence. The complexity which arises is
for those individuals who are in defined benefit schemes where
the value of the contribution provided by their employer has to
be determined year-on-year and where it is not easy to say what
the value of a contribution is if you get one year increment to
your retirement benefit or your salary goes up and as a result
your retirement entitlement goes up. It was always inevitable
that once the explicit choice had been made to restrict this by
reference to the level of income there was going to be a degree
of complexity. I think the important thing is this does apply
only to a very small minority of employees and the vast majority
of employees are completely unaffected by this.
Q119 Mr Brady: Would you not achieve
almost exactly the same thing simply by reducing the cap on annual
contributions?
Mr Troup: You could do, except
if you are going to apply it to defined benefits schemes, you
are going to find quite quickly that individuals in not particularly
high paid jobs—the senior teacher, the senior hospital nurse
who gets a big promotion, the fire officer—get an annual
contribution equivalent to being promoted; if they are say 20
years into their employment, they get a £20,000 increase
in pay, and the value of that increment to their pension entitlement
is actually quite a lot. So if you do bring down the relief for
annual contributions, you would find that, contrary to what is
intended here, that people on relatively modest middle incomes,
or upper middle incomes, in public and private sector jobs would
be affected, and that was not the intention.
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