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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