Global Economy
Lord Tyrie Excerpts(13 years, 4 months ago)
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Mr Osborne
I did meet Mickey Mouse in California, and he seems to be writing the Labour party’s economic policy at the moment.
Let me start with the areas where we agree. We agree that it is right for Britain not to join the euro—perhaps the shadow Chancellor will change the official policy of the Labour party in that respect. I would be very happy to offer him a briefing from the tripartite authorities on the contingency plans of the financial system. Obviously, they have to remain confidential, as he will understand, but I am very happy to give him that briefing.
On what the shadow Chancellor says about European countries being forced to reduce their deficits, I would ask him this question. Who is supposed to be lending those European countries the money that he talks about, in this imaginary world where they are not taking action to reduce their deficits? He voted against the decisions that we took to increase the resources of the IMF, and now he turns round and thinks that there is some magical body or some investors out there who are going to lend money to European countries that do not have credible deficit plans. It is completely for the fairies, as he puts it.
Let me talk about the US debate, which the right hon. Gentleman mentioned. He talked about deficit reduction in America and asked where I stand on the measured pace argument. Actually, I agree with the plan that President Obama set out at George Washington university. [Interruption.] Perhaps the Leader of the Opposition does not know what is going on in America at the moment, but actually, the President of the United States has set out a deficit reduction plan that is at the same pace and on the same scale as the one that we are pursuing in Britain. That is what the President has set out; it is his offer in the debate. Indeed, the composition of tax increases and spending reductions that he has put forward is the same as the spending consolidation that we announced last year, and is based on some of the ideas put forward by the bipartisan Bowles-Simpson commission, which we spoke to after the event. It said that it looked to the UK for inspiration for some of its ideas.
The shadow Chancellor says that there is a global economic crisis. He is right about that, and we agree, but it is caused by an enormous debt overhang. That is what all serious economists are saying at the moment. He is also right when he says that the Labour party needs a tough deficit reduction plan. I agree with him about that. Where is this tough deficit reduction plan? We have just spent two and a half hours listening to Labour MP after Labour MP getting up and complaining about spending cuts and the deficit reduction plan—they are all nodding their heads—but where is the tough deficit reduction plan that he promised? The shadow Chancellor is now almost alone in the world in making the argument that he makes. He talks about international leadership, but if he turned up at the G7, the IMF, the G20 or ECOFIN with his plans to borrow more and increase our deficit, he would be laughed out of that meeting. He is completely irrelevant to where the international debate has gone. I am afraid that he is living proof of why the public will never again trust the Labour party with their money.
Mr Andrew Tyrie (Chichester) (Con)
Does the Chancellor agree that the collapse in the credibility of the eurozone is a warning to any Government who flinch on dealing with the deficit? Is that not why he is quite right to stick to the commitments that he made a year ago to put the country on a course to greater stability? Does he not also agree, however, that the credibility of economic policy in the long run will depend on a fully developed strategy for improving the supply side of the economy? He talked a bit about that at the end of his statement. Will he say a bit more, and say whether he intends to publish a fully worked up improvement to the strategy for growth that he put forward at the time of the last Budget?
Mr Osborne
I completely agree with what the Chair of the Treasury Committee says about the credibility of the deficit reduction plan and how disastrous it would be in the current environment to weaken that plan. We would—within hours, I think—find ourselves sucked into the global debt whirlpool from which other countries are struggling to get out. I also agree with him that we need to do more to improve the supply side of our economy. That is hard work for Governments, and it means taking on difficult vested interests. We have seen the argument in the last few days about planning controls, where we are trying to make it easier to have economic development, and there are plenty of groups that pop up and oppose that. That is an example of some of the battles that we will have to have and win. I can confirm that we will be producing the second phase of our plan for growth at the time of the autumn forecast.
Oral Answers to Questions
Lord Tyrie Excerpts(13 years, 6 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
The Office for Budget Responsibility is scoring the value of most asset sales other than banks at zero in the forecast, on the grounds that it cannot estimate their value. Will the Chancellor provide every assistance possible to the OBR, so that an estimate can be incorporated in its assessment of long-run sustainability, which it is due to publish in three weeks? Is that not an early issue for the newly appointed non-executives to take up?
Mr Osborne
I am certainly aware that the Treasury Committee and the Office for Budget Responsibility are in discussions over privatisation receipts and other asset sales, but I do not think that it would be right for me to intrude in that discussion. I can give my hon. Friend the commitment that we will certainly provide the OBR with any information it asks for.
Oral Answers to Questions
Lord Tyrie Excerpts(13 years, 7 months ago)
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Mr Osborne
The shadow Chancellor shakes his head. I know that in government he tried to do everything to stop a credible fiscal policy being developed, and he is now doing everything in opposition to stop Labour developing a credible economic policy. Long may he continue to do so.
Mr Andrew Tyrie (Chichester) (Con)
The Chancellor will shortly publish draft legislation on financial regulation making the Bank of England the most powerful central bank of its type in the world. The word “Governor” simply does not do justice to the empire over which Mervyn King will shortly preside. What specific proposals does the Chancellor have to ensure full democratic accountability of the reformed Bank to both Parliament and the country?
Mr Osborne
I thank my hon. Friend for advance notice of his important question. Both the Governor of the Bank of England and the Government take the accountability of the Bank very seriously. Clearly the Bank will receive considerable new powers for its prudential regulation of our financial system and in its macro-prudential tools. We are looking at specific ideas for enhancing the Bank’s accountability, including to this House, but it would be appropriate first for me to appear before my hon. Friend’s Committee—I know that he has contacted my office seeking a date—and to await the Treasury Committee’s findings, so that we can listen to what it has to say before coming up with our confirmed proposals.
Finance (No. 3) Bill
Lord Tyrie Excerpts(13 years, 7 months ago)
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Danny Alexander
I will deal with the supplementary charge in more detail later, and the hon. Lady might want to come back to me at that stage, but I shall make some progress now, if I may.
An efficient tax system is not just about lower rates. To be competitive we must also look at how we tax, how that affects our businesses, and what has been holding them back in the past. The Bill legislates for reform of the taxation of foreign branches, as well as making interim changes to the outdated controlled foreign companies rules—a process started and consulted on under the previous Government. This will stem the tide of businesses leaving our shores for more favourable climes, and will ensure that the UK is an attractive place to locate and headquarter. This shows that Britain is once again open for business.
Mr Andrew Tyrie (Chichester) (Con)
Has the Chief Secretary had a chance to look at the six tax principles set out in the Treasury Committee’s recent report? Will he tell us whether he agrees with those principles, and if so, how the changes in the North sea tax regime accord with one of them—namely, that there should be certainty over time to enable businesses to plan?
Danny Alexander
I have looked at those principles. The Government will, of course, respond to the Committee’s report—along with other reports—in the usual way, but the principles seem very sensible.
In fact, this is among the Finance Bills on which there has been the most consultation in advance. I believe that 260 of its 390-odd pages were published in draft some months before its publication. [Interruption.] I am replying to the question asked by the hon. Member for Chichester (Mr Tyrie). We have taken on board some of the principles to which he referred, but the Government must be able to respond to economic circumstances with their tax policy. As I have said, one of the predominant economic circumstances that we face is the high price of fuel. The Government considered that in order to relieve motorists of some of the burden on them—which we felt was incredibly important—we should ask the oil industry to pay a little more tax in the form of a supplementary charge.
Amendment of the Law
Lord Tyrie Excerpts(13 years, 8 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
This Budget will be judged on whether it keeps us on course to tackle the deficit, and on whether it provides a strategy to improve the long-run performance of the British economy. I will mention a number of concerns about the growth strategy shortly, but first let me say that we all need to be clear about one thing: we as a country are living beyond our means, with £1 in every £4 we spend being borrowed. That overshadows everything else today.
Despite all the clash of party cymbals, the gap between the parties on the scale of the action required to reduce the deficit is not so big; at least two thirds of the adjustment had been signalled by the previous Chancellor in his Budget a year ago, and I regret that he is not in the Chamber at present. It was courageous of him to set out that deficit reduction plan and those spending cuts before the election, but he did it, and today the current Chancellor has stuck to his plans to sort out the public finances. That has taken courage too, and he deserves our full support, as he has done the right thing.
I want to make three further points on the deficit. First, the Government are not reducing public expenditure to dangerous levels. At 40% of gross domestic product by the end of the Parliament, it will be returned to broadly the same level achieved by Labour in 2008. None the less—my second point—the retrenchment will feel more painful from this time on. The consolidation in each of the next three years, at about £25 billion to £30 billion a year, is three times the amount implemented in the first year of this Government.
The third point I wish to make on the deficit is that the pressure to flinch will now mount and we simply must not do so, for at least two reasons. First, doing so would cost the country a fortune in higher debt service costs as markets lost confidence in economic policy. Secondly, doing so would mean that the spending lobbies would have a field day and once they smelt blood the Government’s economic strategy would be put severely at risk.
I wish to say a few words about the growth strategy. Today, the Chancellor announced a comprehensive new approach, containing many measures that we should welcome, not least the large list of deregulation measures he cited, the simplification of planning and the measures to improve access to start-up capital. On all those, it is essential that each part of the strategy is consistent with other parts of public policy. Individually, direct measures always sound attractive, but the test is whether they form a coherent strategy. On those grounds, I warmly welcome what amounts to a new agenda for tax reform to create the most competitive tax system in the advanced world. I particularly support the reductions in corporation tax, which will bring it down to 23% within a few years.
It is an absolute disgrace that the UK now has the longest tax code in the world. The complexity of the system is getting in the way of thousands of small businesses in our constituencies—these are the very people who can take us back to sustained growth. We must have a tax system that allows enterprise to flourish. A few weeks ago, the Treasury Committee published a report setting out the key principles that should underpin tax reform. I can summarise them briefly: let us have more simplicity, let us have more stability and let us have lower rates and fewer reliefs, where possible. I note that in this Budget the Chancellor has abolished 43 reliefs and got rid of 100 pages of the tax code, which is a huge step forward. Let us have less meddling in the tax system as well. The Chancellor appears to have set us out in the right direction and it will be for the Treasury Committee and others to judge whether his proposals match up to the principles set out in our report, which match closely what others in the tax advice industry have concluded as being the right way forward.
The Treasury Committee will also examine who gains and who loses from the Budget. Last year, the Committee demanded an unprecedented amount of detail on the distributional effects of the Budget and the Chancellor responded by publishing more information than had ever been provided by a Chancellor before—I commend him for that. This will be particularly important with respect to the plan to merge income tax and national insurance contributions. Successive Chancellors of the Exchequer have examined that beguiling idea closely and in the end rejected it, largely because it hits the incomes of certain groups in unexpected ways. Perhaps its time has come, and the Treasury Committee will take evidence on whether the time has indeed come to implement it. We should also examine a number of other proposals that may have long-term distributional impacts, among which is the encouragement of charitable giving with the sizeable extension of gift aid and the inheritance tax reliefs. I hope that the vast majority of us in the House welcome that too.
The Committee will also do its best to examine the coherence of some of the Chancellor’s other measures when set against wider public policies. I can best illustrate that by alluding to points made to me by colleagues in the House in recent months. For example, the Chancellor announced the creation of 21 enterprise zones, which must be designed carefully to ensure that they create jobs and increase overall activity. The risk with such zones will always be that they distort activity at the boundaries and add no new jobs.
Robert Halfon (Harlow) (Con)
I thank my hon. Friend for his thoughtful remarks. Does he not agree that the enterprise zones should be extended out of the cities and into towns such as Harlow, which has a strong scientific corridor?
Mr Tyrie
It just crosses my mind that my hon. Friend might have an interest in Harlow. The crucial issue is that if we are to create areas that have special reliefs, we must not inadvertently end up merely moving activity around the country while adding nothing to the overall welfare of UK Inc. That involves a difficult judgment and we need to look extremely carefully at it.
Jonathan Evans (Cardiff North) (Con)
My hon. Friend will have heard the Chancellor say that discussions will take place on the position in Wales and Scotland. If the Welsh Assembly were not to follow this policy, the existence of an enterprise zone in the Bristol area might result in that very relocation to which my hon. Friend refers.
Mr Tyrie
I note what my hon. Friend says and think that careful account needs to be taken of those points.
Another area in which it is important to have coherent policy is on the cost of fuel. This Budget gives some relief on fuel duty rises, with the cancellation of the fuel duty escalator, among other things. However, while motoring bills are being reduced, other Government policies are putting up the cost of energy for a lot for businesses and home owners in other ways, not least through the price of electricity, and the cost of rail travel is also increasing. Does all this—a reduction for motorists, but an increase for rail users and much higher energy bills—form a coherent policy? I do not know, but that needs to be carefully examined, particularly in the light of the Chancellor’s announcement of a floor price for carbon. All these issues need to be carefully examined, because a distortive energy policy will make Britain less competitive, particularly in our export markets.
In our efforts to return to sustained growth, we need to make the best use of every pound invested in our public services. Another example of the need to make sure we have coherence in growth policy has been put to me by colleagues on both sides of the House. They have asked whether spending £17 billion on a high-speed rail link is better use of the money than investing in modern rolling stock and improving the existing tracks. I suspect that millions of rail commuters who cannot currently get a seat and whose trains are unreliable and relatively slow will be interested in the answer to that question. I am very pleased that the Select Committee on Transport has just announced an inquiry into that matter, as a lot of people will await its outcome.
Steve Baker (Wycombe) (Con)
Does my hon. Friend agree that high-speed rail has the potential to be a profoundly bad economic decision for the whole country?
Mr Tyrie
What I am trying to do is not answer the questions, but pose them for Select Committees and others to try to answer. I am trying to point out that in order to generate a coherent growth strategy, a large number of policies need to be looked at in the round to ensure that we are not wasting public resources.
Mr Love
Does it not concern the hon. Gentleman that nothing has been said in today’s Budget about the centrepiece of the Government’s growth strategy—the national insurance holiday for small companies outside London and the south-east? Should we not know more about how that is going and whether it is, in any way, a success?
Mr Tyrie
That is an interesting point. As the hon. Gentleman knows, the Committee will be holding hearings next week and we will have an opportunity to take evidence on exactly that point.
I wish to draw my remarks to a close by observing that growth and the deficit reduction strategy—the two issues I have been discussing—will be one and the same thing if a reduction in the size of government allows room for the private sector to grow. I know that this is not something on which agreement will be reached across the House and that it is the very stuff of party politics, but I hope that Members sitting on the other side of the House will permit me to end with a personal view. Even if there were no deficit, we should still reduce public spending because at close to 50% of gross domestic product it is too high. It reduces choice and freedom for millions of individuals, and it burdens enterprises with unacceptable levels of taxation. During the 13 years of the previous Government, public spending averaged about 40% of GDP. I support this Government’s plans to reduce it to that level again.
Oral Answers to Questions
Lord Tyrie Excerpts(13 years, 9 months ago)
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Mr Osborne
What I would say to the hon. Gentleman is this: we inherited a record budget deficit and there was no credible plan to deal with it. We put a plan in place and it is supported by the international community. The result of all this is that we have interest rates that are closer to Germany’s, despite having been left a deficit that is bigger than Portugal’s or Greece’s.
Mr Andrew Tyrie (Chichester) (Con)
Will the Chancellor make every effort to keep the House informed about the cost of our operations in Libya by providing an estimate at the earliest opportunity? Will he also tell us whether those costs will be funded from the Ministry of Defence budget or drawn from the Treasury reserve?
Mr Osborne
My hon. Friend alerted me to the fact that he might ask this question. The House will understand that it is too early to give a robust estimate of the costs of the operations in Libya, but I can say that they should be modest compared with some other operations, such as Afghanistan. The MOD’s initial view is that they will be in the order of tens of millions of pounds, not hundreds of millions. I can tell the House today that whatever they turn out to be, the additional costs of operations in Libya will be fully met from the reserve.
Budget Responsibility and National Audit Bill [Lords]
Lord Tyrie Excerpts(13 years, 9 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
The Chancellor took a major step by handing responsibility for fiscal forecasting to an independent body, and he took an equally bold step by asking it produce a long-term assessment of the strength of the public finances. He could have opted for a validation model, and instead he has gone for something much more adventurous.
The first inquiry of any significance that the Treasury Committee undertook after it was reformed at the start of this Parliament was on this subject. Rather than wait for the Government to come forward with a draft Bill, we took the initiative and tried to make some suggestions on how we thought it should look. We set eight criteria as minimum requirements for the new body, which for the most part the Government met. I thank the Treasury team for their co-operation in doing what they could to accommodate the Committee’s points.
Absolutely crucial to the success of the new body will be its credibility on independence. To achieve that, some new, groundbreaking arrangements have been made in the relationship between parliamentary Committees and the Executive. The Bill establishes a statutory veto for the Treasury Committee over the appointment of the chairman and executive members of the OBR. This is the first time that a Select Committee has been given such a veto over public appointments, which reflects the importance of cross-party parliamentary oversight of the OBR’s work, and the need for people of the highest calibre and independence to take on the job of running the OBR.
The Treasury Committee has already held its first appointment hearings for the OBR committee, and endorsed the appointments of Robert Chote, Stephen Nickell and Graham Parker. We also welcomed the appointment of two non-executive members. We were particular eager that there should be non-exec oversight of the work of the executives. The non-execs will provide an important check to ensure that the OBR lives up to its requirement to act transparently, objectively and independently.
Non-execs provide an opportunity for two-way traffic. If the OBR chairman becomes a patsy, they have a good chance of alerting the Treasury Committee at an early stage. If the Chancellor or the Treasury lean on the chairman too much, the non-execs offer a first line of defence. If the OBR chairman gets carried away and starts to offer a running commentary beyond his brief on the overall conduct of fiscal policy, the non-execs, as a first port of call, can say, “Steady on.”
The Committee looked carefully at how the OBR’s success ought to be measured. Economic forecasting is an imprecise art, and success on that cannot necessarily tell us much. To be seen as successful, the OBR must provide clear, impartial forecasts and a commentary that improves public debate on the key issues. It must guard against optimism and pessimism, and above all, it must avoid being drawn into political controversy. The Treasury Committee will monitor how the OBR fulfils those performance criteria. We will watch carefully and speak up if we feel that the OBR is not doing its job properly.
Of course, ultimately and simply, the OBR will be judged on the quality of its publications and its responsiveness to reasonable requests from Parliament or the Government for information or work. A few weeks ago, I wrote on behalf of the Treasury Committee to the OBR chairman to seek further information on the treatment of privatisation receipts in the accounts. Frankly, I was not encouraged by his reply. These are early days, and I very much hope that there is more responsiveness to future requests.
In two ways, the Government did not fully implement the Treasury Committee’s recommendations. The Committee asked that an independent group accountable to Parliament be set up after five years to review the OBR’s work. We said that among other things, that group should examine whether the model for the forecasting body chosen by the Chancellor was the right one in the light of experience. To make that judgment, the group would need to examine both the validation model and the much more independent model—the fully independent model—implied by the Congressional Budget Office in the United States. I think, and the Committee concluded, that judging which model is best should be done after a period of experience of the OBR’s work, which is why we suggested the five-year review. I urge the Government to agree, on a non-statutory basis, that the five-year review should report directly to Parliament rather than to the Government via the non-executives, as the legislation currently envisages.
One other proposal in the Treasury Committee report is that the OBR should retain the ability to assess the robustness of the fiscal plans of major political parties in the run-up to an election. That would enhance the quality of debate and take us forward from the world of claim and counter-claim on Labour tax bombshells and Tory stealth cuts and so on, which often leave the public perplexed and do not necessarily move the debate forward much. Although the Bill does not rule that out, it strongly discourages such a role.
I understand the OBR’s reluctance to get involved in anything that could prejudice its appearance of independence, but I hope the door is not completely closed to the idea. Public understanding of what is at stake in elections could be enhanced by the OBR’s involvement. Furthermore, the need for such scrutiny might make parties more careful with their claims and improve their pre-election proposals. I hope we can return to that idea when the OBR’s reputation for independence has been firmly established after a run of years—that could also form part of the five-year review to which I alluded.
Overall, the Treasury Committee was greatly heartened by the degree of engagement from the Government and from the Opposition over the creation of the OBR. That demonstrates that the Select Committee corridor can influence policy rather than just offer critiques of it, which I hope marks a way ahead for improving legislation more widely.
Question put and agreed to.
Bill accordingly read the Third time and passed, with an amendment.
HM Revenue and Customs
Lord Tyrie Excerpts(13 years, 9 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
I am glad that the request of the Select Committee on the Treasury to hold this debate on HMRC’s estimates has been accepted. I am conscious that I am speaking on behalf of a large number of colleagues from right across the House, many of whom cannot be here today, who have spoken to me about the problems that their constituents are experiencing with HMRC. I am also speaking on behalf of hundreds of thousands of taxpayers who have encountered difficulties and feel that they have nowhere to turn. I am delighted that the Chairman of the Treasury Sub-Committee, the hon. Member for Leeds East (Mr Mudie), will follow me in the debate. He has done an excellent job in focusing the Sub-Committee on these problems and, in so doing, has built on the work done by the Sub-Committee in the previous Parliament under the chairmanship of my hon. Friend the Member for Sevenoaks (Michael Fallon). I should like to take this opportunity to thank my hon. Friend for his hard work.
“Ten years ago the Inland Revenue had the reputation of being one of the best run Departments in Whitehall. Today HMRC’s reputation is in tatters as one disaster has followed another.”
Those are not my words but the considered conclusions of the Chartered Institute of Taxation in written evidence to the Treasury Committee. I have a stack of similar evidence from other qualified bodies and people, and they are all variations on the same theme—HMRC is close to being a failing institution in some areas.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that the Treasury Committee has heard much evidence from representatives of businesses who say that dealing with HMRC is now costing enterprises significantly more of their profit and income? Matters that used to take a few hours now seem to take literally months to resolve.
Mr Tyrie
I agree completely, and the next sentence of what I intended to say was to be along the lines of asking what the situation means for small business men. They are not experts in tax, they just want to get on with their job. We must constantly bear in mind the fact that when HMRC gets things wrong, its mistake can be a catastrophe for the taxpayer on the other end of the experience.
I want to tell the story of one such business man who has written to me, who wants to remain anonymous. His business was the subject of an HMRC investigation, and when it found no irregularities, it started an investigation into his personal tax affairs. As he says in his letter to me, “They investigated everything”, even challenging a gift of £15 to a nephew. He had the impression that the local tax office felt it had to find something, having invested so much time in his case. All that went on for five years—it was like being on trial for five years. Finally, a very senior manager at HMRC saw sense and transferred the case to another tax office, and a week later that small business man had an apology.
However, like so many similar cases, it is not a matter of “all’s well that ends well”. The collateral damage has been huge. That business man’s accountant estimates that his business has lost £7 million in the time and effort of handling the case, and on top of that the stress involved in such an experience would have been crippling for many people. It is not just that individual who has lost out but all those who depend on his business for their livelihood and all those who might have had jobs in it had it been able to concentrate on expansion rather than fending off HMRC. One case does not prove anything, but the sheer scale of complaints now pouring into MPs’ postbags suggests something.
Mr Ian Liddell-Grainger (Bridgwater and West Somerset) (Con)
Is my hon. Friend aware that HMRC is going to write off all open cases from 2007-08, which equate to just under £1 billion? It wants to sort out the overpayments, which of course affect the person whom he mentioned. The problem is that, under the four-year rule it is not sure how it can do so. Can he help me on that point?
Mr Tyrie
My hon. Friend makes a point that I was intending to make, and he makes it very fully. Because I want to give other people the opportunity to speak, I will not elaborate on it.
I wish to say a further word about HMRC as an institution. It has a very difficult job. Nobody likes the taxman, and it is easy to kick HMRC. I have no doubt that most people there are struggling to protect the revenue fairly and trying hard to do a reasonable job. Doing that job requires a strong sense of collegiality and loyalty to the ethic of the institution. When I was an adviser in the Treasury in the ’80s, I had a lot of contact with people in both the Inland Revenue and Customs and Excise, and I thought that they were the salt of the earth. They were immensely dedicated to their jobs and civil servants of the best sort. One had no doubt that they were a highly motivated group of people, or that morale was high.
What about now? The Cabinet Secretary runs an annual staff survey, which has been going on for many years. It shows that HMRC has the lowest morale of any Government Department. Some 25% of staff want to leave as soon as possible or within a year, and only 15% believe that the department motivates them to do their best. Only 12% say that the department is well managed, and the survey goes on with a similar litany. There is some good news, which relates to what I said a moment ago. The job content is still considered interesting by three quarters of staff, and more than three quarters say that they can rely on their colleagues. There is still some collegiality. Even that will not last unless we start to put right what has gone wrong. HMRC will become dysfunctional unless action is taken to bring to an end the string of disasters that has befallen it.
Let me give some examples. Last September, the Government were forced to announce that up to 6 million taxpayers were to receive letters informing them that they had paid the wrong amount of tax through PAYE. That had been caused largely by the introduction of a new computer system, which was simply not up and running in time, and it provoked a powerful Public Accounts Committee report, which detailed the failures. There was the matter of the incorrect PAYE notices in January 2010. That provoked even more critical treatment in the PAC report. Then there are the phone call response times—try ringing HMRC. The National Audit Office found that in 2008-09 only 57% of call attempts were answered. That disastrous performance declined even further for a time, before recovering recently. I could give other examples.
What is the root cause of the problems? Some clues probably come from that survey of staff morale. It shows that the collapse of morale appears to have coincided with the merger. I know that the survey on morale began in that form only at the time of the merger, but it charts a decline from then. I believe that the merger was probably a mistake, and I said, from the Front Bench at the time, that merging two institutions with such different cultures was unlikely to be worth the candle. However, now that the merger has occurred, I am equally clear that unscrambling it would also be risky.
In any case, the department is reorganising itself. It is moving from a regional structure, with customer contact based on local offices, to a centralised model. We have heard that before. The experience of the banks with that centralised model, whereby they got rid of Captain Mainwaring, was distinctly mixed. However, the die is cast on the move to a centralised model and, in HMRC’s case, the performance of the new centralised model is not entirely disastrous. Its figures suggest that overall customer satisfaction was 73% in September 2010.
The key question must be whether that reorganisation can be completed while cutting so many more staff. The hon. Member for Leeds East will consider that issue. I hope that it will be completed, but it would be the triumph of hope over experience, if we consider the history of other Whitehall Departments and their reorganisations.
Of course, the large firms with which HMRC engages will not feel the effects of the reorganisation. They will continue to receive a good service. They provide most of the tax yield, and I understand why HMRC devotes so many resources to focusing on them. However, I worry greatly about the small firms—those least able to absorb the turbulence whenever HMRC reorganises itself. I worry particularly that, while HMRC may make savings, it will merely shift the burden of administration to taxpayers and their accountants in small businesses. The effect on the whole economy will not be neutral. It is not a matter of £1 spent in HMRC transferred to the private sector—it may be worse than that, eroding overall business efficiency and bringing downward pressure on GDP.
In a recent evidence session, I asked the Institute of Directors and the main bodies representing the accountants to start to estimate a full compliance cost for firms that deal with HMRC. It has never been done before and it is not easy work. However, we must have at least some core figures to enable us to monitor over time the full compliance burden placed on firms by HMRC. There is no point—absolutely no point—in creating a leaner HMRC at the price of massive compliance costs in the private sector. My challenge to the institutions that represent the private sector is to find that true cost of compliance. I also want to allude to some challenges for the department and the Government.
First, all the evidence that the Treasury Committee has seen suggests that HMRC needs to communicate better with taxpayers—it must find ways of giving clearer and more accurate answers to reasonable queries, and to give those answers quickly. Secondly, it is vital that staff have the training and experience that they need to work with taxpayers. There is no earthly point in a call-centre culture that is based entirely on read-outs from computer scripts.
Thirdly, we need to consider incentives as well as penalties as a means of encouraging the right amount of tax to be paid. Some argue that HMRC should consider a general disclosure facility to encourage the disclosure of previously undeclared tax. We need to reflect on that. There is a risk with amnesties, which is the road down which that proposal goes, but it needs to be looked at.
Fourthly, we must accept that with PAYE coming under increasing pressure as more people develop a variety of sources of income rather than rely on employment from a single source, further changes to PAYE will inevitably be necessary, as well as the coming introduction of real-time information. Those changes must be made extremely carefully if we are not to have yet another major road crash, such as we have seen in the past few years.
I should like to end by offering one crucial, big challenge to the Government. Much that is wrong with how HMRC operates is not its fault, and nor is it the fault of taxpayers. Rather, it is the fault of us—legislators. Successive Governments have put ever more complex legislation on the statute book. In 2009, a leading legal database found that the UK had the longest tax code in the world. That is a charter for accountants and for evasion opportunities. Length means more complexity, and complexity means higher costs for all of us. In evidence to the Treasury Committee, the IOD told us that KPMG estimated the total cost to the UK economy of running the tax system at 0.4% of GDP. I wager that that is an underestimation, as I alluded to a moment ago.
My challenge to the Government is that we must have tax reform. I was struck by a point made in a discussion paper in the Mirrlees review on tax administration, which begins:
“Most of modern tax theory…completely ignores administration and enforcement. The policy formation process is not much better, too often addressing implementation only after reform has been determined”.
Of course, administration should be an integral part of the decision-making process, but in recent years, tax policy formulation has been travelling in the opposite direction. The 2004 O’Donnell report resulted in most decisions on tax policy being taken in the Treasury, with implementation done by HMRC. It is widely held that the policy-making function in HMRC has gradually been downgraded, but we must reverse that. I urge the Government to return to a situation in which there is much greater creative tension between HMRC and the Treasury on policy formulation. If we do not do so, there will be more episodes in which the implementation of policy—delivery—mysteriously turns out to have an unexpectedly high cost or to be unacceptably complex.
In that respect, I very much welcome the creation of the Office of Tax Simplification. However, that will not be enough. We must have better policy and a simpler tax system that gives greater certainty and stability. I hope that the forthcoming Budget will point the way on that. Business and the self-employed in particular are crying out for such measures. We need a series of tax-reforming and simplifying Budgets. In the long run, everyone will gain: HMRC will have a better system to manage, taxpayers will have something that they can understand and the UK economy will have a tax system that creates opportunities for better long-run performance.
The tax system loses the respect of taxpayers, however grudging, when it becomes as complex as the one that it looks as if we are developing. Once we have arrived at that point, the country has a big problem. We will be on the slippery slope towards wide-scale evasion and an erosion of the tax base. I will not name the EU countries that are on that slippery slope, but there are quite a number, and we all know which they are. It is partly with that in mind that the Treasury Committee has launched an inquiry into the principles of tax policy that are needed for such reform. We will be reporting shortly. If we in the UK get those principles right, many of the problems that we have heard about today will diminish, and a more prosperous economy and stable society can result.
Banking
Lord Tyrie Excerpts(13 years, 10 months ago)
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Mr Osborne
Well, that has to be one of the feeblest replies to a statement that I have heard. The only person who seems to be out of his depth at the moment, rather surprisingly, is the shadow Chancellor. There was one thing missing from that rant: an apology. He was the City Minister. I will move on to all the things that we need to do to regulate the City, but I will first remind him that he stood at this Dispatch Box for two years as City Minister and could have done any of the things that were either in my statement or in his reply, but he did not. The truth is that he is man with a past, and we will not let him forget it—even if he does. I took the opportunity to look at his website on which he lists all his achievements in politics, but he does not mention the fact that he was City Minister. He does not mention the fact that he invented the system of City regulation that failed so spectacularly. He might have forgotten what he did not do in government; we will not.
Let me deal specifically with some of the right hon. Gentleman’s questions. He asks how the lending targets will be monitored. I told him in the statement that the Bank of England is going to monitor them. [Interruption.] “How are they going to be enforced?”, Opposition Members cry. The chief executive’s pay will be linked to the targets, and I made it very clear in the statement that, of course, if the deal is not met we will return to the issue.
The right hon. Gentleman talks about transparency. In 13 years, the previous Government never implemented transparency in the City of London. Some £11.5 billion of bonuses were paid in the year in which he was the City Minister, but we are introducing the most transparent regime of any major financial centre in the world.
The right hon. Gentleman continues deliberately—because I know he must know the numbers—to get the sums wrong on the bank payroll tax and bank levy. Her Majesty’s Revenue and Customs confirmed that there is a £2.3 billion net receipt from the bank payroll tax, and that is spelled out in the March 2010 Budget book, which the Labour Government published. We are raising £2.5 billion every year from a bank levy that he opposes— right?—unless he has changed his mind on that. [Interruption.] He now supports it. Well, that is good news.
Perhaps, then, the right hon. Gentleman will listen to the right hon. Member for Edinburgh South West (Mr Darling). The right hon. Member for Morley and Outwood (Ed Balls) quoted quite a lot from the newspapers in his reply. Well, this is from The Daily Telegraph: “Bankers’ bonus tax failed, admits Alistair Darling,” who said:
“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and...will find all sorts of imaginative ways of avoiding it in the future.”
That is from the then Chancellor who actually introduced the tax on which the right hon. Gentleman now pins his entire economic prospects.
Let me end by saying this: the right hon. Gentleman calls for things that he simply did not do in government. On pay and bonuses, he says control them in the nationalised banks; he did not do that last year when he was in the Cabinet, and he did not do it at all when he was in the Treasury. He calls for transparency; he did not introduce it when he was in the Cabinet or in the Treasury. He talks about reforming the banking system; he is the person who designed the banking regulatory system that failed, but he does not admit it. He talks about the bank levy; he wrote 11 Budgets and never put one in. And on lending, he tried as a member of the Government to secure lending agreements throughout the banks, and he completely failed. The truth is this: he is a man running away from his past, with no plan for the future.
Mr Andrew Tyrie (Chichester) (Con)
Anybody looking reasonably at the settlement will have to agree that it is a welcome step in the right direction. In normal times, Governments should not intervene to force banks to lend or to reveal commercial details of pay, and I very much hope the Chancellor will confirm that it is a one-off, with one exception. Does he not agree that, without further transparency on bonuses, we will never know whether banks are fuelling risks and mistakes for which one day, as a result of the way they misallocate risk, we may have to pay? Will he also support the Treasury Committee’s initiative, outlined in a letter to the Financial Services Authority, and supported by Sir David Walker, to secure that much higher level of transparency?
Mr Osborne
I thank the Chair of the Treasury Committee for the welcome that he gives to the package. Of course, in any normal times one would not want to have to negotiate lending agreements with the banks or, indeed, be in a situation where half our banking sector was in part in the public’s hands, but that is the situation that we inherited as a Government and why I felt that the agreement with the banks was necessary, as well as the additional tax that we are levying on them.
My hon. Friend specifically raises the issue of transparency and his proposals that I know he has put to the FSA. As I said in my statement, we have a voluntary agreement this year on disclosure, which already goes beyond those of other financial centres in the world, but, having consulted, we will legislate in the coming year, and his proposals will deserve close attention.
Oral Answers to Questions
Lord Tyrie Excerpts(13 years, 10 months ago)
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Mr Osborne
The right hon. Gentleman is absolutely right that unemployment went up by 1 million under the previous Government. We know that even in the good years, the problem of youth unemployment increased and that we as a country were not able to do much about it. This Government are determined to tackle that head-on with reform of the welfare system so that it always pays to work and, at the same time, with the new Work programme, which will give young people the skills and opportunities they need to get off those unemployment rolls.
Mr Andrew Tyrie (Chichester) (Con)
In giving evidence before the Treasury Committee, Lord Turnbull made it clear that spending as a proportion of GDP should be nearer 40% than the current level of nearly 50%. The OECD has said that the deficit will retard growth. Will the Chancellor make more of the case that action is needed to tackle the deficit not just on financial grounds but to help release the wealth-creating sectors of the economy?
Mr Osborne
My hon. Friend is clearly correct that it is unsustainable for the Government to be consuming almost 50% of national income. Lord Turnbull observes that under Labour and Conservative Governments in the past, the number was closer to 40%. Of course, the deficit reduction plan that we have set out brings that about.