Memorandum from the Chartered Institute
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
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
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 deliverablethe 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
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
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
23 May 2000