:00:54. > :01:01.Thank you for coming in to give evidence to us today, on this, how
:01:02. > :01:06.should I describe it, a mini budget, a sort of three quarters budget,
:01:07. > :01:14.settling on a smaller size by historical standards. People are
:01:15. > :01:18.mentioning it on the size and I think some of the greatest budgets
:01:19. > :01:25.of the post-war years generated very short read books so I don't think we
:01:26. > :01:33.should use that as a criteria. Can I begin with national insurance
:01:34. > :01:35.contributions? Do you think it is right that the self-employed should
:01:36. > :01:41.be compensated through the tax system for the additional risks they
:01:42. > :01:48.take? And how easy is it to identify these risks? It is worth saying
:01:49. > :01:54.first of all that the tax benefit is really very big, so relative to the
:01:55. > :02:00.employer and employee contributions, 22%, self-employed, facing a much
:02:01. > :02:07.smaller tax than that. I think it's pretty hard on the whole to justify
:02:08. > :02:11.anything like the scale of tax. The question is, do you think there
:02:12. > :02:17.should be something that is justified? Is there something to
:02:18. > :02:22.justify that? Historically, there has been a justification, which is
:02:23. > :02:27.that the self-employed are entitled to significantly smaller state
:02:28. > :02:30.benefits than employees. That gap is almost completely closed now,
:02:31. > :02:36.particularly with the introduction of a single to your pension, so the
:02:37. > :02:41.only difference in terms of benefits and job-seeker's allowance, that
:02:42. > :02:45.might imply a difference in national insurance rates of up to one
:02:46. > :02:49.percentage point. Certainly no more than that. Other differences are,
:02:50. > :02:53.first of all, very different according to the type of
:02:54. > :02:57.self-employment people are in... Let's talk about the genuinely
:02:58. > :03:01.self-employed, the self-employed self-employed, not people who might
:03:02. > :03:05.usually be in the employed sector. Let's concentrate at that end of the
:03:06. > :03:10.spectrum. Then you need to think about what exactly it is you want to
:03:11. > :03:13.compensate or subsidise for? Do you want to compensate or subsidised
:03:14. > :03:18.for, as he was saying, the additional risk people are taking?
:03:19. > :03:24.We need to ask, is the best way of doing that this? And why do we want
:03:25. > :03:28.to subsidise risk? We don't subsidise all risk. And if you do
:03:29. > :03:32.want to do it, why do it through the tax system in a blanket way, which
:03:33. > :03:38.subsidises or helps people who are not taking risks due to finding some
:03:39. > :03:42.better way of achieving that. Thirdly, you want to think about the
:03:43. > :03:49.scale. As I suggested, the scale is big at the moment. Do you think
:03:50. > :03:56.National Trust contributions are a pure tax? Yes. And therefore the
:03:57. > :04:01.contributory principle which suggests they have a complicated
:04:02. > :04:05.relationship, is gradually going? It is very little left of the
:04:06. > :04:11.contributing principle. It is now very hard to avoid getting the full
:04:12. > :04:16.single tier. There are small groups who will not achieve that and the
:04:17. > :04:20.pension is by far and away the biggest part of what is supposed to
:04:21. > :04:28.be... To summarise, you think that if there is a differential, it can
:04:29. > :04:30.be justified on the basis of what they receive, the self-employed, the
:04:31. > :04:41.differential to be self-employed should be very small? And that's
:04:42. > :04:48.from eternity. -- maternity. And if it is to be larger, for example
:04:49. > :04:54.compensation for risk, we need to think more clearly about what risks
:04:55. > :04:58.are entailed and it's your view they probably should not be dealt with
:04:59. > :05:03.through the tax system but through public spending? ? I think we need,
:05:04. > :05:08.on that second point, to think more clearly about what it is that we
:05:09. > :05:14.value from a societal point of view about the self-employed. We need to
:05:15. > :05:17.think carefully about... I'm asking you that question. I'm hoping you
:05:18. > :05:26.have thought carefully about it. They've lose the argument out there
:05:27. > :05:29.that, the enterprise culture drives economies and keeps them flexible.
:05:30. > :05:34.And I think it is hard to justify the current tax system on the basis
:05:35. > :05:41.of that argument. So you do not agree with that argument? No. Just
:05:42. > :05:47.one question, do you mean people are one question, do you mean people are
:05:48. > :05:56.allowed to keep their own money and therefore it is not a subsidy? When
:05:57. > :05:59.we think about tax subsidies, we can do it in different ways but on the
:06:00. > :06:05.whole, when one is talking about paying someone less for doing
:06:06. > :06:12.similar things, one can think about it at a subsidy. If you assume it is
:06:13. > :06:16.the Government's money first... Horizontal equity. It is the tax
:06:17. > :06:19.money on the Government is not getting a subsidy by not taking your
:06:20. > :06:25.money and I think realistically that is important because it slowly shows
:06:26. > :06:28.the angle you're coming from. To put it another way, you're charging
:06:29. > :06:33.other people more tax in order to reduce the tax on another group. Not
:06:34. > :06:37.necessarily to do anything else, you're just charging people more tax
:06:38. > :06:42.but I think it is important because it gives an indication of where
:06:43. > :06:47.you're coming from. You're in favour of higher taxes, which worries me.
:06:48. > :06:50.Absolutely not. We're talking about horizontal equity between people. If
:06:51. > :06:56.you want to lower rate of tax across the board, that is absolutely, I
:06:57. > :06:59.think there is a case, it is harder to make a case for treating this
:07:00. > :07:03.group differently from that group when they do similar things and that
:07:04. > :07:08.creates complexity and cost to the economy and to those who are not
:07:09. > :07:14.benefiting from the reduced amount. But you made a case for higher tax
:07:15. > :07:22.for self-employment? I want to come on to a specific point. Can I ask
:07:23. > :07:25.your view, because only ?3000 exemption for small companies, the
:07:26. > :07:32.first employee, national insurance contributions by employers, because
:07:33. > :07:35.they can situating Dessie Mee to say he used to employ ten people and now
:07:36. > :07:40.they have full setup is as their own company because that gives them
:07:41. > :07:47.?30,000 of employers contribution for free. And I just wonder where
:07:48. > :07:56.you went into the distorting effect of specific tax incentives. And more
:07:57. > :08:06.broadly, the danger of having things unintended consequences. That is the
:08:07. > :08:11.point we are making, that particular subsidy, if I can use that word, it
:08:12. > :08:15.is not surprising it has that effect because it creates a clear incentive
:08:16. > :08:18.in the system to do that, as does treating self-employed and employ
:08:19. > :08:23.people very differently, which is one of the reasons we are always
:08:24. > :08:27.having cases about whether someone is self employed or unemployed, when
:08:28. > :08:30.you create very different tax treatments of similar activities,
:08:31. > :08:36.you create these incentives to change your behaviour purely for tax
:08:37. > :08:41.reasons. And have you done any work specifically on the ?3000 limit? I
:08:42. > :08:48.don't know whether empirically that would be possible. We don't have the
:08:49. > :08:52.data for that we have looked at other bits of the tax system. You
:08:53. > :08:56.can see that individuals respond to tax incentives. Whatever data we
:08:57. > :09:09.have, people respond sharply to tax incentives. There was a measure the
:09:10. > :09:17.Autumn Statement which make changes. We'd like to see to what extent the
:09:18. > :09:23.Government reduced this problem. Can now talk about the issue of
:09:24. > :09:30.forestalling, which created revenue the Government did not get because
:09:31. > :09:36.people took forestalling action. How much consultation can you have
:09:37. > :09:39.safely without creating a fairly large amount of forestalling?
:09:40. > :09:48.Whopper constituting the Government should have? Yes. But it's clearly a
:09:49. > :09:53.difficult balance. There are some issues where you don't particularly
:09:54. > :10:01.neat consultation, you can avoid forestalling. For example, moving
:10:02. > :10:06.the top rate, 40-50, about 45, there did not need to be consultation
:10:07. > :10:11.about that but giving one year's notice created a lot of
:10:12. > :10:15.forestalling. On dividend tax changes, I don't know how much
:10:16. > :10:19.consultation is intended to, as there is clearly another set of
:10:20. > :10:26.changes coming in next year, which we've been given a full year's
:10:27. > :10:30.notice of. But clearly, if you give people the opportunity to do it, you
:10:31. > :10:36.create a lot of forestalling, so the balance of risk in terms of issues
:10:37. > :10:46.like dividend taxation is clearly towards forestalling. Do you think
:10:47. > :10:52.that the tax approach to dividends should be the same as the approach
:10:53. > :11:01.to earning? In the 1970s, there was a surplus tax at quite a high level
:11:02. > :11:06.and now, on earned income is more favourably taxed than earned income.
:11:07. > :11:09.Is this something you think is sensible in terms of encouraging
:11:10. > :11:15.savings and so forth or is it something you feel is distorted?
:11:16. > :11:21.Well, you're getting the right to the, I mean, right at the centre of
:11:22. > :11:27.the way the tax system works. Broadly speaking, we want to be
:11:28. > :11:34.taxing at big thing rate but adjusting the tax base, so you are
:11:35. > :11:38.not producing incentives to save and invest and offset any savings or
:11:39. > :11:45.investment that you are doing against the rate. What that would do
:11:46. > :11:49.effectively would be to provide more generous treatment for the
:11:50. > :11:55.investments, for example, the self-employed charge a higher rate
:11:56. > :12:02.of tax on the returns they therefore make. That is quite a big change.
:12:03. > :12:11.That is not simply increasing the rate of tax on investment income. It
:12:12. > :12:16.is reducing the base in order to ensure you're not taxing the
:12:17. > :12:21.returns, that the normal returns are saving in investment.
:12:22. > :12:31.Do you get that by reducing corporation tax if they keep the
:12:32. > :12:37.money within the company? Rather the reverse, in the sense that whilst
:12:38. > :12:42.you are doing investments, you would be effectively paying no tax on the
:12:43. > :12:45.returns to that investment but you would be paying a higher rate of tax
:12:46. > :12:53.on the rest of the return that you are making. In terms of the
:12:54. > :12:58.complications caused by having the different rates, you move into many
:12:59. > :13:03.anti-avoidance mechanisms to stop people moving things around. Do you
:13:04. > :13:09.think that one of these that might be useful might be to get back to
:13:10. > :13:15.the old close company rules where dividends attract different rates
:13:16. > :13:19.from not closed companies? I don't think it would be better. Whenever
:13:20. > :13:24.you put boundaries on the tax system and you try to define a set of
:13:25. > :13:34.companies, then you obviously give in -- incentives to be one type of
:13:35. > :13:38.company rather than another. You might fix one problem but you might
:13:39. > :13:42.create another problem. There is no economically good reason to treat
:13:43. > :13:47.those types of companies differently. It is a sticking
:13:48. > :13:52.plaster, we can't do the proper things so we will fiddle these
:13:53. > :13:57.things to get these guys out. It is better to sort out the tax breaks
:13:58. > :14:01.and the rates and it is applicable to all types of individuals
:14:02. > :14:07.regardless of the type of company they organise themselves under. That
:14:08. > :14:14.would be a simpler system and a more uniform rate? It would be a simpler
:14:15. > :14:19.system in the sense that you would get rid of lots of boundaries in the
:14:20. > :14:24.tax system and get rid of a lot of allowances, or you could do if you
:14:25. > :14:31.wanted to, you would be narrowing the tax base in the sense that some
:14:32. > :14:41.investment is taxed which would be taken out of tax. You would be able
:14:42. > :14:48.to slash the tax base but then you would lose revenue. You could choose
:14:49. > :14:54.the rate you thought was applicable. Final question on this. Do you want
:14:55. > :15:03.me to go onto the welfare cap? Do you think it meets the Treasury's
:15:04. > :15:11.six principles of tax contributions? Changing the rate year by year. It's
:15:12. > :15:17.unfortunate that it has happened in a non-joined up way. For the
:15:18. > :15:25.self-employed we have had two changes in the last couple of years,
:15:26. > :15:32.giving them pension and making changes to the class four. If we
:15:33. > :15:36.introduced this ?5,000 dividend just the years ago and now we are taking
:15:37. > :15:41.it down to ?2000, it doesn't look like a clear strategy over time,
:15:42. > :15:48.taking all of that together in one go would have made an awful lot more
:15:49. > :15:53.sense. Thank you. If I can move completely onto the welfare cap.
:15:54. > :16:00.Starting with first principles. Do you think it is a good idea to do
:16:01. > :16:08.legislate for caps, or for spending targets, which you then don't meet
:16:09. > :16:14.so you are just the way of meeting them? Or can this lead to bad
:16:15. > :16:20.policy-making and misallocation of resources. Miss Anderson, you look
:16:21. > :16:23.very keen to answer this. In a perfect world, we want policy makers
:16:24. > :16:30.to make the right decisions and explain them clearly. The whole
:16:31. > :16:35.point of the welfare cap is that spending might turn out to be more
:16:36. > :16:39.than you intended and rather than cutting it back you take an easier
:16:40. > :16:44.choice of cutting something else or just ignore it. We are in a world
:16:45. > :16:47.where policymakers are not making perfect decisions and hiding
:16:48. > :16:52.problems and pushing them into the future. Having a cap that says if
:16:53. > :16:56.spending goes above a certain level that you can choose in advance, what
:16:57. > :17:03.you can do is rein back below that level and make the decision to
:17:04. > :17:08.explain why. I think the operation of it so far has hardly been great.
:17:09. > :17:12.We've had only one breach of the cap and at that moment the Chancellor
:17:13. > :17:17.decided not to do a whole load of welfare cuts that he'd announced a
:17:18. > :17:23.few months earlier. We can't say the cap has been tested and proven to
:17:24. > :17:27.lead to better policy-making as a result. Alongside, we have the
:17:28. > :17:33.welfare change report which I think is a very good innovation. And the
:17:34. > :17:37.new Chancellor has made some new changes to the welfare cap,
:17:38. > :17:43.adjusting the benefits spend for changes in inflation, I think, was a
:17:44. > :17:48.good move. The move to assessing it every five years, I think is a bad
:17:49. > :17:55.move. I think cynically that it won't be tested until after the new
:17:56. > :18:02.general election which means it can't have been said to be breached.
:18:03. > :18:08.It becomes so flexible it becomes meaningless? None of the fiscal
:18:09. > :18:12.targets can be breached in this Parliament, unfortunately. It makes
:18:13. > :18:21.it easy to hit. We wouldn't want a 0% margin. The other thing they have
:18:22. > :18:31.done is say that if welfare spending has crept up big, inflation --
:18:32. > :18:37.because of inflation. 3% is a bit bigger than what Mr Osborne chose to
:18:38. > :18:44.have. How arbitrary you think the things included in the cap and those
:18:45. > :18:49.not is? 52% of welfare spending is within the cap and the rest isn't.
:18:50. > :18:55.Is this important or is it just a fair part of pensions policy? The
:18:56. > :19:00.report is focusing on all of welfare spending, we still have a check on
:19:01. > :19:04.the whole lot. The state pension is excluded where reasonably we have
:19:05. > :19:08.argued that we want to think about that in long-term view. The desire
:19:09. > :19:13.to push up the pension age if longevity keeps rising. Which is
:19:14. > :19:23.right because the current ageing population wouldn't suffer from an
:19:24. > :19:26.increase in the state pension. The other thing they are excluding our
:19:27. > :19:33.very cyclical benefits which again I don't think we really want to model
:19:34. > :19:39.up with the, temporarily, jobseeker's allowance is costing a
:19:40. > :19:41.lot more because temporarily in employment is higher. We don't want
:19:42. > :19:48.that to bundle up with pension or disability benefits going up in a
:19:49. > :19:51.much more cyclical way. I think we do need more of a conversation about
:19:52. > :19:58.what the cost of the triple lock has been and whether that is a cost we
:19:59. > :20:06.want to bear. Just before we move onto approach to public spending. A
:20:07. > :20:11.target that is much more fixed than the cap for welfare, doesn't this
:20:12. > :20:14.lead to a distortions in expenditure that you're trying to achieve
:20:15. > :20:22.something that is based on so many moving parts that he is absolutely
:20:23. > :20:30.right is extremely difficult but depends on you making decisions. The
:20:31. > :20:35.welfare cap is constraining policy in a good way, stopping you hiding
:20:36. > :20:39.problems that are appearing. The overseas aid target is very
:20:40. > :20:48.different in that it is always going to cost not .7% of our GNI, you may
:20:49. > :20:52.argue whether that is too high or low, maybe you should care about how
:20:53. > :20:59.much bang for your buck you are getting from this money rather than
:21:00. > :21:06.how much you are a spending. If you're going to have austerity, you
:21:07. > :21:16.are having less money for education, the list goes on. You really
:21:17. > :21:24.constrain the Chancellor in responding to circumstances. What
:21:25. > :21:31.I'm poking away at is whether you think it is good policy but rather
:21:32. > :21:35.bad economics? I started saying we want policy makers to make the right
:21:36. > :21:40.decisions and we don't want to constrain them at all. If we suspect
:21:41. > :21:44.that sometimes people get tempted into letting problems being hidden
:21:45. > :21:48.away we might want to put constraints in place. Elsewhere, you
:21:49. > :21:52.might think it is reasonable for those seeking election to set out
:21:53. > :21:55.what they will do in certain circumstances and if you want to
:21:56. > :22:00.pledge, whatever the world looks like, we will spend not .7% of GNI
:22:01. > :22:13.in our manifesto, I don't think you can stop people from doing that.
:22:14. > :22:18.Stephen Hammond. You made a comment about not thinking there was a clear
:22:19. > :22:23.strategy in terms of some tax policies. You were very critical of
:22:24. > :22:28.the tiered approach and the effect that had in terms of stamp duty. Do
:22:29. > :22:35.you take the same approach to the reforms of probate? It's the same
:22:36. > :22:40.structure, a slab structure. Your steak goes over a certain level,
:22:41. > :22:44.then there's a big increase in the amount of probate duty that you pay
:22:45. > :22:51.and that never feels like a very sensible structure. That said, the
:22:52. > :22:56.opportunities for... There will be some opportunities for gaining that
:22:57. > :23:01.but my guess is that the economic consequences of that will be smaller
:23:02. > :23:08.than the stamp duty changes. It will create some incentives to gain the
:23:09. > :23:12.estate around those levels. You think it will be relatively small
:23:13. > :23:17.opportunities. You don't think a lot of people will take the decision to
:23:18. > :23:24.give away a lot of their estate to avoid those levels in time? With a
:23:25. > :23:30.40% marginal rate, it is only a few thousand pounds of difference in the
:23:31. > :23:35.estate which will very quickly be accounted for in a 40% marginal rate
:23:36. > :23:40.which will soon outweigh any effect of the probate duty where the
:23:41. > :23:45.maximum is 20,000. I think it's not a very sensible structure but I
:23:46. > :23:55.don't think it will have some impact, relative to stamp duty it is
:23:56. > :24:02.a smaller one. Nevertheless, it is causing some odd incentives. On a
:24:03. > :24:12.wider basis, do you think it is a disincentive to save? That probate
:24:13. > :24:17.charge is so small that if it does create any disincentives, it is not
:24:18. > :24:22.one we'd ever be able to measure. It is small relative to other things
:24:23. > :24:28.that are happening in the system. Relative of 40% marginal rate on
:24:29. > :24:33.inheritance which is ?40,000 for every ?100,000, a maximum of ?20,000
:24:34. > :24:38.in a probate for ?2 million estate which would otherwise have
:24:39. > :24:43.inheritance tax of well over half a million, I think, I don't disagree
:24:44. > :24:47.with what you are saying in principle, I think indirectly it is
:24:48. > :24:54.pretty small. I take the point it is small in scale. Are you concerned...
:24:55. > :24:59.Two things that come out of that. In terms of the principal, although it
:25:00. > :25:04.is technically not a tax, do you think there was significant and
:25:05. > :25:09.sufficient consultation prior to it being implemented, given that all
:25:10. > :25:15.the consultation there was, it was relatively given two, showed almost
:25:16. > :25:22.total opposition. Is there a tendency to just do it anyway. I
:25:23. > :25:29.wasn't aware of the consultation or the scale of it. I can't really give
:25:30. > :25:38.a sensible answer to that. You said technically it's not a tax but the
:25:39. > :25:41.when I are saying that it is a tax because of its structure and they
:25:42. > :25:47.are saying that rather than the old probate the D government incurs
:25:48. > :25:54.costs and you can offset those but it doesn't count as a tax because
:25:55. > :26:00.you can set it out as net. The ONS are saying that the income it gets
:26:01. > :26:05.from probate, knocking it off that it would be tax receipt so their
:26:06. > :26:13.view is that the ONS will deem this to be as tax because of its
:26:14. > :26:20.structure. I take the point that you have made a couple times that
:26:21. > :26:23.empirically it is small. Do you think there is an overall message
:26:24. > :26:28.coming from them the government that there is a disincentive to save most
:26:29. > :26:33.of the measures it is introducing at the moment. Over the last few years
:26:34. > :26:41.we have had changes moving in different directions so clearly the
:26:42. > :26:44.incentive to save in a pension for higher earners has been reduced very
:26:45. > :26:50.significantly. Not just high earners. Because of the way the cap
:26:51. > :26:57.is calculated. You will hit the lifetime allowance if you are
:26:58. > :27:05.earning ?35,000 after 15 years of saving. Given auto enrolment that's
:27:06. > :27:18.proven the incentives. The limits for ices have doubled since 2010.
:27:19. > :27:21.That is a big increase in incentive. The LISA provide something that for
:27:22. > :27:27.many people is a better bet than a pension. Five years ago you could
:27:28. > :27:33.put in 25 times as much into a pension as you could in an ice. Now
:27:34. > :27:37.you can only put in twice as much in any year with a lifetime limit on
:27:38. > :27:42.the pension but there isn't on the LISA. We've had quite a radical
:27:43. > :27:46.change in the savings incentives away from the pension shape which is
:27:47. > :27:53.tax-free now, taxed when it comes out towards the ice shape which is
:27:54. > :28:00.tax-free now, tax-free when it comes out. A year ago, we didn't make the
:28:01. > :28:06.big changes to pensions we consulted on, gradually we have moved to a
:28:07. > :28:10.savings map, a savings world which is much more towards the ice type
:28:11. > :28:21.savings. Would be any benefit if the lifetime
:28:22. > :28:26.allowance was done away with? So, the lifetime allowance, if that was
:28:27. > :28:32.done away with, that would move it towards pensions and the main group
:28:33. > :28:36.that would help would be those not fortunate enough to be in defined
:28:37. > :28:39.benefit schemes because getting to the lifetime allowance, given the
:28:40. > :28:43.annual allowance limits, is going to be hard work for someone putting
:28:44. > :28:49.money into a defined contributions scheme. E-fit in ?40,000 a year,
:28:50. > :28:54.you'd have to do that for quite a number of years... The way you
:28:55. > :29:01.factor it up, you can get there quickly. Double-mac you're likely to
:29:02. > :29:10.get there easier through a defined contributions scheme. Clearly, it
:29:11. > :29:15.would simplify the system and help a significant group of system and get
:29:16. > :29:26.rid of what is a distortion in the system. Equally, the way in which
:29:27. > :29:30.the allowance is tapered over 150,000, between hundred and 50000
:29:31. > :29:39.and 210,000, is a very odd distortion in the system. Given the
:29:40. > :29:49.fact that most people are... The movement away from pensions and
:29:50. > :29:53.benefits to boards ISA is a sensible move? I don't have a terribly strong
:29:54. > :30:00.view about which is the better way of doing things. I think it is not
:30:01. > :30:03.been an entirely transparent move. There was a consultation on a fairly
:30:04. > :30:07.transparent move that was pulled away from. I think giving people a
:30:08. > :30:13.choice is acceptable. I think there's a strong case for having
:30:14. > :30:18.that choice. I think I have more of a problem with the annual... In a
:30:19. > :30:22.sense, it is up to Government to decide how much it thinks it is
:30:23. > :30:27.reasonable to give tax incentives for people for over their lifetime
:30:28. > :30:31.but why want to constrain people on their annual amount, as well as
:30:32. > :30:38.their lifetime amount, I struggle with. So, I think, if I wanted to
:30:39. > :30:40.liberalise one of those, I would choose the annual rather than
:30:41. > :30:48.lifetime because that would give people the freedom to put in money
:30:49. > :31:00.when and if they can. And we spoke about the self-employed and said
:31:01. > :31:05.that within a 1 million tap, some people may be disproportionately
:31:06. > :31:08.unemployed. If you want to say everyone can put money into a
:31:09. > :31:11.pension, why did you want to punish those people want to make
:31:12. > :31:18.contributions because their income happens to fluctuate a lot. One
:31:19. > :31:29.group of those is the self-employed. Can we just mention the LISA? There
:31:30. > :31:34.has been mixed publicity about this. Some around whether it created
:31:35. > :31:45.unnecessary risk. Last year, he said, Mr Johnson, there are people
:31:46. > :31:48.losing employer contributions. A lot of the risk statement has been about
:31:49. > :31:57.people transferring out of a pension scheme into the LISA. Your view last
:31:58. > :32:02.year that most people recognise that. Is that remain your view?
:32:03. > :32:08.Particularly with the evidence so far, that the nudge from people to
:32:09. > :32:15.do that is very effective, the extent to which people are not going
:32:16. > :32:18.to actively not to Imrul. It is clear people are not taking that
:32:19. > :32:23.active kind of decision. I think there is some risk around the LISA.
:32:24. > :32:28.There is some potential confusion created by the LISA because up until
:32:29. > :32:35.now, it has been clear that for pretty much everyone, the pension is
:32:36. > :32:40.the more tax advantaged method of saving, so long as you're happy to
:32:41. > :32:47.keep something stuck there until you are somewhat older. The LISA is more
:32:48. > :32:52.tax advantaged method of saving for those who cannot get an employer
:32:53. > :32:55.contribution and I suppose the danger is it my muddy the waters,
:32:56. > :33:01.muddy the advice, muddy the clarity of little bit but it is an
:33:02. > :33:05.additional choice that people have. On the analysis you have done, under
:33:06. > :33:16.any circumstances where it LISA would be better value for a safer
:33:17. > :33:23.than where there is a DC screen? If the employer contribution is
:33:24. > :33:27.smaller, the upfront contribution to the two is obviously 20% of what
:33:28. > :33:31.you're putting him. If the employer contribution is less than that, I
:33:32. > :33:35.don't know where they cut off ears, but if the contribution is only a
:33:36. > :33:42.couple of hundred pounds, then a LISA may be worth more. But you
:33:43. > :33:49.can't access the money from a pension so for an age like 55,
:33:50. > :33:52.something like that, whereas with the LISA, you can access that at any
:33:53. > :34:02.point, if you are buying your first home... Which makes it an attractive
:34:03. > :34:08.product for young people. Although it is not universal, it is likely to
:34:09. > :34:15.be successful as a product to those who are looking for that purpose and
:34:16. > :34:23.some of the naysayers are prepared to offer that product... It is ?1000
:34:24. > :34:33.upfront bonus, I can't see why that would not be attractive. Thank you.
:34:34. > :34:40.I'm going to focus on the issues of social care and business rates. I
:34:41. > :34:44.will be serving for another year so I think I should declare that and I
:34:45. > :34:49.am part of a Local Government Association as well. I want to begin
:34:50. > :34:55.with social care. There was some additional help in the budget to
:34:56. > :34:59.make the demands of the social care crisis but we see a range of
:35:00. > :35:03.estimates about what the actual funding gap is. As IFS pretty clear
:35:04. > :35:11.number on what you think the funding gap is on social care spending by
:35:12. > :35:17.2020? I don't think you can put a cap on it but what I can say is that
:35:18. > :35:21.if all of the money, and this is an if, if all the money that has been
:35:22. > :35:23.allocated to social care in the budget goes on social care spending,
:35:24. > :35:29.that will take Spending Review back to where it was in 2010. So, if all
:35:30. > :35:37.the money goes, it is a big increase, 7%, 8%, but there are
:35:38. > :35:43.three caveats. Firstly, it is not entirely clear all that money will
:35:44. > :35:45.have to go to social care because councils will have a degree of
:35:46. > :35:53.autonomy over how that money is spent. Secondly, given that if it
:35:54. > :35:57.does not go, that is a sudden change and will that then gets bent as
:35:58. > :36:03.carefully as it could be? Thirdly, whilst there is as much money per
:36:04. > :36:08.adult as there was in 2010, there are an awful lot more older people
:36:09. > :36:16.needing social care. So the age adjustment or real amount will still
:36:17. > :36:21.be less than it was in 2010. Yeah, my personal view is that social care
:36:22. > :36:24.pressures are such that I imagine lots of councils will put this money
:36:25. > :36:28.where it should go which is in social care about your right to
:36:29. > :36:36.question whether or not the impact will be felt in the way like. Also,
:36:37. > :36:43.following debates in Parliament, we often have debates about where
:36:44. > :36:46.spending is going and whether it sits relative to the past but your
:36:47. > :36:51.right to point out that the nature of the population, the ageing
:36:52. > :36:55.population, means there are greater amount of services, so on that
:36:56. > :36:59.basis, the LGA, the Nuffield Trust, the health foundation, Apple said
:37:00. > :37:03.the budget announcements are insufficient to tackle the scale of
:37:04. > :37:07.pressure in adult social care. Does the IFS agree with this assessment?
:37:08. > :37:16.We don't have a view on what the right amount of money to spend us.
:37:17. > :37:20.This will leave spending per adult, one should take account of need and
:37:21. > :37:29.age, significantly lower than it was in 2010 but relative to 2016-17, it
:37:30. > :37:36.is a substantial increase, certainly in a year, and that is a significant
:37:37. > :37:41.change. In your opening remarks on the project, in reference to plans
:37:42. > :37:45.for a social care green paper, you called for a little less
:37:46. > :37:54.conversation, a little more action, citing Elvis Presley! What did you
:37:55. > :38:02.have in mind? Well, the reason for that statement is that there has
:38:03. > :38:08.been an awful lot of consultations, green papers, reviews on social care
:38:09. > :38:12.over the last several years. There was a very extensive and well
:38:13. > :38:19.thought out set of proposals that Andrew Lamont came up with 4-5 years
:38:20. > :38:26.ago, which had an emphasis put on the back burner but I doubt whether
:38:27. > :38:31.a further set of reviews on, but anything that has not been known
:38:32. > :38:37.from some of those previous pieces of work and in the end, a big
:38:38. > :38:42.high-level policy decision needs to be taken about the appropriate way
:38:43. > :38:45.of funding social care. So, essentially, I was saying, the truth
:38:46. > :38:48.is we have the information we need, is just a question of the political
:38:49. > :38:53.choice about the extent to which we want this to be privately funded and
:38:54. > :38:58.the extent to which we want a bit more state funding in, and whether
:38:59. > :39:03.you wanted to be local or centrally funded. It is not that I know the
:39:04. > :39:05.answer, it is that I think the Chancellor, Prime Minister, and
:39:06. > :39:10.others have enough information to make a decision because it has been
:39:11. > :39:13.reviewed so many times before. But while the Government is in listening
:39:14. > :39:18.mode with the green paper you are not pointing to particular
:39:19. > :39:27.approaches or policy solutions? There's a lot to be said, as I was
:39:28. > :39:33.indicating, for... This is a risk, I have suggested what I think local
:39:34. > :39:38.authorities would do but in terms of the outcomes we would like to see,
:39:39. > :39:41.there is a risk around whether or not all parts of the system will
:39:42. > :39:45.pull in the right direction and will have the right level of resource to
:39:46. > :39:50.do so. For example, one of the ways in which the NHS needs to manage the
:39:51. > :39:54.pressures on its resource base is to do with the issue of delayed
:39:55. > :39:59.discharges. If local authorities are not in a position to make sure care
:40:00. > :40:04.is provided in a residential community-based setting, the latest
:40:05. > :40:20.problem will continue. How big a risk to the IFS think this is?
:40:21. > :40:26.Again, it's hard to put specific numbers on that but it is striking
:40:27. > :40:31.speaking to people running NHS organisations, their first priority
:40:32. > :40:37.is not more money for them, it's my money for the social care system to
:40:38. > :40:42.prevent the situation you describe. So, clearly this is something
:40:43. > :40:49.terribly important to deal with and as the budget document points out,
:40:50. > :40:52.it is also something which is different in different local
:40:53. > :40:58.authorities, dealing with the specifics as well as the general
:40:59. > :41:03.level of funding is important but I totally agree with the premise of
:41:04. > :41:09.your question, is that dealing with this bottleneck in the system well
:41:10. > :41:13.help write the way back in the health service. One of the
:41:14. > :41:17.challenges we face is, in terms of trying to influence not just
:41:18. > :41:24.Government policy but Government resource allocation over the coming
:41:25. > :41:28.period, is how we determine the question that you were unable to
:41:29. > :41:32.answer outset, which is how much resource, how much money is needed
:41:33. > :41:36.to deal with the social care crisis? I think in some of your answers you
:41:37. > :41:41.have indicated that absolute funding is not the right method to consider
:41:42. > :41:46.because alongside the funding pot, you have to consider the pressures
:41:47. > :41:51.and the changing population, other particular metrics we should be
:41:52. > :41:55.using? It is difficult for us to push the Government allocate more
:41:56. > :42:01.resources without a substantial evidence base so I'm the IFS has not
:42:02. > :42:08.come out with a figure on what the resource pressure might be. We are
:42:09. > :42:17.not in a position I would never say that the right amount to spend is X.
:42:18. > :42:20.We can point out how it relates to a changing level of demand and clearly
:42:21. > :42:22.amount of money going in is not kept up anything like with the increased
:42:23. > :42:46.level of demand in terms of need. It is also provided informally and
:42:47. > :42:59.informal care resources have gone up. A swiftly increasing number have
:43:00. > :43:05.private resources of their own. If one is going to review this whole
:43:06. > :43:09.set of issues, you want to take account of all of that as well as
:43:10. > :43:15.the increasing levels of need to determine how to fund it, what level
:43:16. > :43:28.is right. We can't give your number and say it is an extra X billion. I
:43:29. > :43:33.understand. I guess the Chancellor's flexibility to draw an extra funding
:43:34. > :43:39.to meet pressures like adult social care has been heavily constrained by
:43:40. > :43:44.the commitments made by his predecessor in the Conservative
:43:45. > :43:49.manifesto. Given the social care pressures, where the concentrations
:43:50. > :43:56.of wealth far, it was a mistake to rule out increases in inheritance
:43:57. > :44:05.tax, for example, do you think? If people don't need it, should it be
:44:06. > :44:13.passed on elsewhere? Earle that is a big choice. The tax threshold has
:44:14. > :44:19.been frozen for a long period and has continued to be so. Inheritance
:44:20. > :44:25.tax has been biting more. The main home allowance coming in in April
:44:26. > :44:32.will bring back down again. If there is to be a review, as indicated by
:44:33. > :44:43.the Chancellor, I think it's unfortunate that you rule out what
:44:44. > :44:45.might be reviewed. It is one of those political questions that
:44:46. > :44:56.chancellors need to provide answers to. I want to move on to the issue
:44:57. > :45:00.of business rates. There was, I guess, business rates generally and
:45:01. > :45:10.then there was this discount for pubs. Just beginning up on that one
:45:11. > :45:15.side issue which seem to me to derive from special pleading by
:45:16. > :45:20.affective backbench lobbies rather than most pressing need, even on the
:45:21. > :45:26.discount for pubs it got good headlines but it was pretty small
:45:27. > :45:34.beer. In terms of the pressures that pubs are facing. Would you agree?
:45:35. > :45:43.Yes. It's a small business, it's a small amount of money. Not as bad as
:45:44. > :45:48.Johnny Reynolds, last night with the Chancellor not excelling at his
:45:49. > :45:54.spreadsheets. If we want a simpler tax system we should apply business
:45:55. > :45:57.rates uniformly but if we want special cases, if we do decide we'd
:45:58. > :46:03.like to have more pubs, you might think about the best way to allow
:46:04. > :46:09.that to happen. It might not be the business rates system. It is likely
:46:10. > :46:14.to be temporary. Why would you want pubs supported for a short period of
:46:15. > :46:18.time. It would look rather odd. In some ways, you have opened up the
:46:19. > :46:22.area I wanted to go into regarding business rates. You pointed to a
:46:23. > :46:29.more substantial reform of the business rates system. The
:46:30. > :46:34.government has made a mistake by trying to tinker with the system as
:46:35. > :46:37.they've gone along rather than to address in a holistic sense, the
:46:38. > :46:41.whole issue of business rates, whether they are fit for persons,
:46:42. > :46:45.the impact they are having on the success or otherwise of businesses
:46:46. > :46:48.across the UK. It probably would have been better for the government
:46:49. > :46:56.to reflected on reform of the system before embarking in the way that
:46:57. > :47:00.they have. Is that fair criticism? There may be short-term issues of
:47:01. > :47:04.people surprised by unpleasant increases in their rates bills that
:47:05. > :47:10.may require some transitional relief. The problems are twofold. We
:47:11. > :47:13.shouldn't go seven years without revaluation. We should have them
:47:14. > :47:19.more frequently so people won't see such big changes in their bills,
:47:20. > :47:24.over such a small period of time you won't have bigger changes in the tax
:47:25. > :47:28.base across the country. The other thing we should do is focus the tax
:47:29. > :47:35.more on the value of the business land, not the property that sits on
:47:36. > :47:40.the land. One of my concerns, particularly as a London MP is that
:47:41. > :47:43.property prices in this city have spiralled out of control. There has
:47:44. > :47:50.got to be a place on high streets throughout the city, whether they're
:47:51. > :47:56.in the city or the suburbs, not just for big national brands, but also
:47:57. > :48:00.the small independent businesses, family businesses, whether that's
:48:01. > :48:09.the halal butcher or the local hairdresser. Do you think this is
:48:10. > :48:16.another example where London and the overheating of the property market
:48:17. > :48:20.in London is skewing the national debate and there's a good case for
:48:21. > :48:33.devolution of this policy on a London wide level? You're right.
:48:34. > :48:38.This is very much a London issue. London is the only area where an
:48:39. > :48:43.average business rates have risen quite significantly. One effect of
:48:44. > :48:47.that is a significant increase in the redistribution of those business
:48:48. > :48:51.rates from London to the rest of the country. That reflects the fact that
:48:52. > :48:56.is in a sense what business rates are for. It's supposed to reflect
:48:57. > :49:01.the value of property rising much more here than elsewhere. That's a
:49:02. > :49:05.separate question from your one about high streets and butchers, and
:49:06. > :49:12.so on. If we think that there are sorts of businesses that we want to
:49:13. > :49:15.support, differentially from the rest, then we want to be very clear
:49:16. > :49:20.about why we want to do that and either do that from within the
:49:21. > :49:24.business rates system in a consistent way, or do it in some
:49:25. > :49:28.other way. If you think there is something valuable their unique to
:49:29. > :49:35.divide a policy to achieve what we actually want we want to achieve.
:49:36. > :49:39.The answer is not put a blanket reduction on business rates on all
:49:40. > :49:47.shops, for example. You indicated the merits of business rates as they
:49:48. > :49:51.previously operated which was that receipts can then be redistributed
:49:52. > :49:58.equitably to fund different services across the country. Even though it
:49:59. > :50:01.is characterised as a London issue, it's very much an issue for a local
:50:02. > :50:09.authority like mine which is a commuter suburb in London. So, if I
:50:10. > :50:14.were there leader of Westminster or the leader of Camden, I would be
:50:15. > :50:18.very much in favour of greater business rates in and because that
:50:19. > :50:26.gives me a huge pot of money to spend on local services. As a former
:50:27. > :50:30.deputy leader of Redbridge I'm less enthusiastic about the concentration
:50:31. > :50:35.of resources in zone one. Do you think this is an issue that the
:50:36. > :50:40.government ought to reconsider as part of a broader look at business
:50:41. > :50:47.rates? The business rates that will be retained are only the marginal
:50:48. > :50:54.increase as a revaluation of property. What it means is that a 1%
:50:55. > :50:57.increase in the business rate property in Westminster will be
:50:58. > :51:00.worth an enormous amount of money whereas a 1% increase in any other
:51:01. > :51:06.local authority would be very little. The value of growth to
:51:07. > :51:10.Westminster would be very big. Equally, the cost of contraction
:51:11. > :51:15.will also be very big whereas the value or cost of that happening in
:51:16. > :51:22.other local authorities would be very much smaller. It's important to
:51:23. > :51:29.be clear. The reason this has been happening from London to the rest of
:51:30. > :51:33.the country is the simple value increase in property throughout the
:51:34. > :51:40.country is not going to be retained. About discretionary support. Do you
:51:41. > :51:49.think this is sufficient and where'd you think it should be concentrated?
:51:50. > :51:53.Where is the need for relief? It is being concentrated in London, as you
:51:54. > :51:59.would expect, given that's where most of the increases are happening.
:52:00. > :52:04.I just don't think we have a few, similar to your previous question,
:52:05. > :52:11.about sufficiency. This is about... The key point as Carl is making,
:52:12. > :52:15.this is resulting in 40 plus percent increases in some people's business
:52:16. > :52:19.rates pretty much overnight. The main reason is we've left it seven
:52:20. > :52:25.years since revaluation and there's been a lot of relative change. I
:52:26. > :52:28.think there is a lot of problems with the tax that changes like that
:52:29. > :52:33.overnight. The best way of getting around that is doing the
:52:34. > :52:38.re-valuation much more frequently. The second best way is to provide
:52:39. > :52:41.some proper transitional relief of the extent that can help some of
:52:42. > :52:48.those businesses facing big overnight changes and it will help.
:52:49. > :52:54.So the relief is effectively concentrated to the areas where most
:52:55. > :52:58.needed? That's my understanding. It's going to be allocated across
:52:59. > :53:05.the country according to those areas that saw the biggest increases.
:53:06. > :53:09.Whether you want to pick some businesses that have a larger
:53:10. > :53:14.proportional increase, they will be able to target it. It will be a
:53:15. > :53:18.choice for them. It's not fashionable to stick up for greater
:53:19. > :53:23.spending or support for London but in this case it's needed. We need
:53:24. > :53:28.all the friends we can get to stick up for greater funding concentration
:53:29. > :53:35.in London. I have handbag to you. When you were talking about this
:53:36. > :53:40.cliff edge problem needing more frequent re-evaluation. As you know,
:53:41. > :53:45.these are quite difficult to manage, and minister to flee they are quite
:53:46. > :53:50.complex. Have you examined the possibility of using indexation
:53:51. > :53:56.followed by periodic adjustment where the indexation gets out of
:53:57. > :54:03.line. It would be a neat way through the problem is full revaluation was
:54:04. > :54:08.very expensive. You would just increase by the average and over
:54:09. > :54:11.every few years you would do a proper re-evaluation and then move
:54:12. > :54:19.forward with that. You could even compensate with people who felt have
:54:20. > :54:27.been harshly treated by an average in an area. But you've not examine
:54:28. > :54:34.that approach at all? Not the practicality but in theory we have
:54:35. > :54:39.said it may well be the way. Modern technology, big date is the
:54:40. > :54:43.fashionable phrase, the collection through modern technology required
:54:44. > :54:48.to do that indexation now makes that approach possible where is it didn't
:54:49. > :54:54.ten years ago. It would seem that it is much cheaper to do now than it
:54:55. > :54:58.used to be. I don't think it is completely implausible that you
:54:59. > :55:04.could do that. Measuring profits is not easy either but we managed to do
:55:05. > :55:07.it on a annual basis. We could do something broad brush every year and
:55:08. > :55:14.something more complex less frequently. Isn't it overall fairer.
:55:15. > :55:18.After all, people have been paying rates higher than they should for
:55:19. > :55:22.part of that seven-year period and another group have been collecting a
:55:23. > :55:27.windfall before they hit this cliff edge for which they are now going to
:55:28. > :55:34.get some relief. That is the harsh Inland Revenue, HMRC view of the
:55:35. > :55:39.matter. You can see that there is a shred of truth in it. Do not agree?
:55:40. > :55:43.I agree with that. Were trying to tax people on the rent they are
:55:44. > :55:47.paying. It would seem more natural to do that on the current year, just
:55:48. > :55:54.as with the council tax it seems pretty odd to tax you on what your
:55:55. > :56:00.house was worth the 1991 as opposed to what it is worth in 2017. That's
:56:01. > :56:02.a much bigger cliff edge problem but it's not one I'm going to
:56:03. > :56:08.cross-examine you on at the moment. He said that there were two problems
:56:09. > :56:16.with the house versus property question on the tax. Isn't there a
:56:17. > :56:25.third, which is the appeals system. The appeals system must be fast
:56:26. > :56:30.enough. Even if it's not quite as rigorous as the current system in
:56:31. > :56:36.ensuring that everybody gets the exactly the right answer from the
:56:37. > :56:39.appeals system. It must be fast enough to allow a frequent process
:56:40. > :56:45.of re-evaluation or indexation to be appropriate. Without it, the appeals
:56:46. > :56:54.for the previous year would be carrying on while you were enjoying
:56:55. > :57:00.or suffering a alteration to the rate. In cases where you get it
:57:01. > :57:05.wrong, you want a fair and swift appeals system to set that right.
:57:06. > :57:09.You know the government have announced reforms in this area, have
:57:10. > :57:14.you looked at those? I haven't looked at those. You have no view on
:57:15. > :57:27.whether that is going to take the trip? No.
:57:28. > :57:37.There are different amounts of money put aside by different authorities.
:57:38. > :57:41.Another reason for supposing my concern is justified. Yes. The
:57:42. > :57:46.impact on authority budgets according to what they end up with
:57:47. > :57:48.on the appeal and how well-prepared they would be very different and
:57:49. > :57:56.significant between different authorities. Bespoke a moment ago
:57:57. > :58:07.about this huge cliff edge in the system. All the way from 1991-2
:58:08. > :58:14.through two growth in this cliff edge. Having given serious thought
:58:15. > :58:18.about how to deal with that? Well, in terms of how you would transition
:58:19. > :58:25.towards where we are at the moment, not in detail, I think it would be
:58:26. > :58:31.fair to say... Well, have you at all? The book consequence of moving
:58:32. > :58:37.from where we are to something based on current values, we have looked at
:58:38. > :58:45.that any bit of detail the scale of change, the transitional
:58:46. > :58:54.arrangements you could Britain would be of the kind one normally does,
:58:55. > :58:57.which is to say that in X years' time, we'll get you from your junior
:58:58. > :59:10.and the amount you pay will go up accordingly. A second question, it
:59:11. > :59:22.is true there are furnaces in the present system -- on fair elements.
:59:23. > :59:36.The biggest of all is the absence of any appreciation of the consequences
:59:37. > :59:50.of House price movements in central London. Which means that people have
:59:51. > :59:57.moved into what would have been a much higher tax than the old rates
:59:58. > :00:06.but who are now capped out through council tax banding systems. You
:00:07. > :00:11.have a view on how to address that? There's a lot of money involved
:00:12. > :00:16.there, by the way. A very large proportion of what people consider
:00:17. > :00:20.to be uncollected taxes in that area. And we see the same sort of
:00:21. > :00:23.thing I'm stamp duty with a high fraction is collected from
:00:24. > :00:29.transactions in central London, reflecting exactly what you are
:00:30. > :00:39.saying. Some argue it is a rough and ready substitute. And one can
:00:40. > :00:43.understand. From practical point of view, it is easier to collect deputy
:00:44. > :00:48.but clearly more damaging in the sense that it creates... Have you
:00:49. > :00:53.done any work on what could or should be done to deal with that
:00:54. > :01:06.aspect of the unfairness in the absence of a re-evaluation? Because
:01:07. > :01:09.we haven't had a re-evaluation. I am just stressing that particular
:01:10. > :01:16.aspect. Without a re-evaluation, all that you presumably could do would
:01:17. > :01:20.be to... OK, rather than speculate, I'm asking if you have thought that
:01:21. > :01:27.through? Do you think it might be helpful if the IFS did some work on
:01:28. > :01:30.these things we are identifying that have not been thought through that
:01:31. > :01:37.are quite important? I think there may be some merit. I struggle with
:01:38. > :01:46.the idea of making changes without a re-evaluation. Lots of people have
:01:47. > :01:53.come forward with prudent proposals. And these things have ended their
:01:54. > :02:03.manifestos. -- ended up in manifestos. So, I am very surprised
:02:04. > :02:14.by the reply you have just given. It is clear the re-evaluation is a
:02:15. > :02:18.massive political undertaking. We need to see what re-evaluation is to
:02:19. > :02:24.find a political system and we can look at the poll tax to see what
:02:25. > :02:30.that does. I'm asking you to think through a more modest valuation. I
:02:31. > :02:37.am struggling to see how you could make changes without re-evaluation.
:02:38. > :02:42.You haven't addressed it or thought about it so why don't you come back
:02:43. > :02:45.to us when you have. Anglesey will see what we can think of but it is
:02:46. > :02:49.hard to think of doing something that doesn't address current values.
:02:50. > :02:54.Can we expect something from the IFS on this or not? I can't think of
:02:55. > :03:00.anything that doesn't address current values. You're asking me
:03:01. > :03:05.right on the spot. If you have done something that includes
:03:06. > :03:10.re-evaluation or did something and that was much easier, that would be
:03:11. > :03:16.extremely interesting also. Continuing with this local
:03:17. > :03:25.Government seen, where have most of the cuts to local Government fallen
:03:26. > :03:32.up to now. As you know, the cuts are essentially from Central Hall
:03:33. > :03:35.subsidies, central redistribution to local Government, over the years up
:03:36. > :03:44.until this year on last year. Most of those came as straight percentage
:03:45. > :03:51.cuts to the central Government. Because that grant is and certain
:03:52. > :03:55.types of Labour authorities are more dependent on a cramped and others.
:03:56. > :03:59.Some authorities have spent more and those are intended Metropolitan
:04:00. > :04:04.authorities, including in London and those with teamwork deprived
:04:05. > :04:11.population because they were more dependent on grants. So, Nagatomo,
:04:12. > :04:13.there have been those more grant dependent local authorities which
:04:14. > :04:20.tend to be poorer and some metropolitan areas. Going forward,
:04:21. > :04:25.the formula is being adjusted such that the impact on overall budgets
:04:26. > :04:32.will be similar across different local authorities. Thank you. Yes. I
:04:33. > :04:39.guess there are two dimensions one could look at. One is a geographical
:04:40. > :04:44.and the other is the dimension of which services. Have you looked at
:04:45. > :04:51.either of those? Have you done analysis? Could you shared with us?
:04:52. > :05:04.Thank you. I want to ask you questions in particular about the
:05:05. > :05:07.schools budget funding. In 2015, you said, current or day-to-day spending
:05:08. > :05:13.on schools in England has been relatively protected. Is that still
:05:14. > :05:18.the case? Relative to most other public services, yes. If you think
:05:19. > :05:26.that the current spending on schools up until 2015, spending per pupil
:05:27. > :05:29.actually grew a small amount, compared with 2010-15, largely
:05:30. > :05:33.because there was a significant increase in premiums on average
:05:34. > :05:37.across schools, there was an increase. If you look at the time
:05:38. > :05:47.period, 2015-20, school spending is being frozen in real terms, means a
:05:48. > :05:50.real terms cut of 7% per pupil. So, there is a change there and spending
:05:51. > :05:56.is falling for people going forward, where is did not fall under the last
:05:57. > :06:00.Government. If you look at the period of 2010-20, that is a
:06:01. > :06:12.significantly less generous settlement than many other public
:06:13. > :06:18.services received. -- more generous. I think it is 8%. Do you think these
:06:19. > :06:20.reductions in per-pupil funding can be achieved without any impact on
:06:21. > :06:44.outcomes for children? It is not as strong as you might
:06:45. > :06:58.expect to be. If you look at spending the system, it has really
:06:59. > :07:00.been hit substantially. Relating that outcomes, even at scale of
:07:01. > :07:06.change would be difficult, so I don't know the answer that question.
:07:07. > :07:16.OK. The Government has chosen spend some money on new selective Free
:07:17. > :07:21.Schools, I think nearly ?1 billion over the whole period. Had that been
:07:22. > :07:25.spread across the entire schools budget, what would the impact on the
:07:26. > :07:30.per-pupil reduction has been, do you know? I don't have that number to
:07:31. > :07:36.hand. Is it possible for you to work that out? I think that might be
:07:37. > :07:42.capital spending and the pupil numbers are just gave you were
:07:43. > :07:49.day-to-day spending. That's true. They are slightly different things
:07:50. > :07:56.but supposing it was being spent on capital, it was spent on... And
:07:57. > :08:06.maybe this was a question for the ABI and I didn't ask them this
:08:07. > :08:10.yesterday, but, have the forecast current budget, spend on schooling
:08:11. > :08:16.over the next five years, taking account of these additional places?
:08:17. > :08:24.How will that work? For example, I have got 50 schools in my
:08:25. > :08:29.constituency. Where there to be a new free school setup in my
:08:30. > :08:36.constituency, where with the current funding for that come from? Would it
:08:37. > :08:43.mean the cuts to the schools which are already facing cuts would be
:08:44. > :08:52.even greater? Me to come back to you on the funding of Free Schools. OK,
:08:53. > :09:00.the people funding is falling because the number of is increasing.
:09:01. > :09:03.Is there any evidence that Free Schools are being set up in places
:09:04. > :09:10.where the pressure on school places the greatest? We haven't looked
:09:11. > :09:14.specifically. The National Audit Office has led to an included there
:09:15. > :09:22.are certainly some evidence that they are being set up where that is
:09:23. > :09:25.not the case. OK, so you think this is more something for the National
:09:26. > :09:29.Audit Office than for you to look into? As I say, I think this is
:09:30. > :09:40.something that the National Audit Office has looked into. OK. I won't
:09:41. > :09:44.ask you any more about it but I will just ask you one more question but
:09:45. > :09:50.links school funding to distribution. As you know, in the
:09:51. > :09:57.way the Government is measuring distributional impact of all the
:09:58. > :10:01.changes they are making, they're not just looking at taxes and benefits,
:10:02. > :10:08.there are also looking at public services. Is there any dates are
:10:09. > :10:12.suggesting who would benefit from the preschool places? Whether that
:10:13. > :10:17.will be evenly across income distribution or skewed in some other
:10:18. > :10:23.way? I'm pretty sure the answer to that is that no, there isn't. Do you
:10:24. > :10:26.think it's because the numbers are so small that it wouldn't make any
:10:27. > :10:35.difference for the think they might be significant? I'm just trying to
:10:36. > :10:38.think... Finding data which tells you the incomes of the parents of
:10:39. > :10:43.children going to Free Schools and how that with others, it's not
:10:44. > :10:55.something I'm aware of, I'm afraid... OK, fine. The Chancellor
:10:56. > :11:02.did not, in the tables he published on distribution, did not split out
:11:03. > :11:07.his November measures from his March measures. I think you did split that
:11:08. > :11:15.out in what he published, would you just like to set out what the
:11:16. > :11:21.distributional impacts of the two events were separately? So, we split
:11:22. > :11:26.out, we certainly looked at last week's announcement and of course
:11:27. > :11:31.they were actually extremely small overall, broadly slightly regressive
:11:32. > :11:36.because of the extra dividend tax and national insurance payments paid
:11:37. > :11:41.people higher up the earnings distribution. If you look at
:11:42. > :11:46.everything that has been announced since 2015, so, in this Parliament,
:11:47. > :11:53.you get clearly big losses towards the possibility of distribution but
:11:54. > :11:57.there are substantial cuts to tax credits and benefits, at least a
:11:58. > :12:00.freeze to benefits, which gives you a distributional chart with big
:12:01. > :12:06.reductions at the bottom and much less going on towards the top. I
:12:07. > :12:20.cannot remember what was in the November statement to be honest!
:12:21. > :12:25.The 2015 announcements were more significant.
:12:26. > :12:34.You mean the freeze on benefits and the other one? The set of measures
:12:35. > :12:37.announced in July 2015 are the most significant measures affecting
:12:38. > :12:41.households. Everything else is small relative to that.
:12:42. > :12:45.Yes, now there is one line in the Budget which no-one seems to have
:12:46. > :12:51.taken into account. I'm interested in it.
:12:52. > :12:56.It's line 26. Tax credit debt enhanced collection. This is
:12:57. > :13:03.described as a previously announced welfare policy decision, however,
:13:04. > :13:09.over the final three years of the survey period, this raises over half
:13:10. > :13:15.a billion, ?500 million. I'm puzzled by this. I wondered if you knew what
:13:16. > :13:20.was going on here? I can't understand how it can be a
:13:21. > :13:25.previously announced decision but only now people are seeing that this
:13:26. > :13:32.is ?500 million taken from the tax credit system. Do you know what is
:13:33. > :13:37.going on? By previously announced it is between the autumn statement and
:13:38. > :13:42.the Budget. So not on Budget Day but before Budget Day but not announced
:13:43. > :13:46.before the Autumn Statement, which is why it is making it to this table
:13:47. > :13:50.and not the next table in the document.
:13:51. > :14:02.What is this change? We took evidence six months ago from
:14:03. > :14:07.Concentrix who did a big exercise in checking out fraud in the tax credit
:14:08. > :14:11.system, they seriously overdid this and a lot of people suffered as a
:14:12. > :14:19.consequence, so what is this line 26? What is going on here, do you
:14:20. > :14:26.know? I know the information in paragraph 352. Announced at the
:14:27. > :14:35.start of February it was announced, and it's... It's something that they
:14:36. > :14:38.are doing with their powers to use something called direct earnings
:14:39. > :14:41.attachments, I don't know that wording.
:14:42. > :14:46.It means if you decide somebody has been overpaid you can make a legal
:14:47. > :14:48.order to get it from their salary? So there is more use of those
:14:49. > :14:54.powers. Yep.
:14:55. > :14:58.Well, in looking at the distributional charts you made,
:14:59. > :15:03.where you looked at the freeze on benefits, did you take account of
:15:04. > :15:11.this as well? I would have thought that ?500 million was nonnegligible?
:15:12. > :15:18.We didn't. Per year it is a small amount relative to the measures to
:15:19. > :15:23.limit the freeze on welfare payments for benefits, the cuts to tack
:15:24. > :15:27.credits it is small to that. The data that we use would not allow us
:15:28. > :15:32.to include this measure if we wanted to. We don't have the evidence who
:15:33. > :15:39.receives more than they should have done, so don't know who to pay as a
:15:40. > :15:46.result. If we wanted to we couldn't. And on a sense of scale this is
:15:47. > :15:50.about 100 million a year, against ?12 billion a year, so you would not
:15:51. > :15:56.be able to see it on a chart. OK. Thank you.
:15:57. > :16:01.You looked at the impact of the next changes that the Chancellor
:16:02. > :16:05.announced, did you look at the changes to dividend taxation on the
:16:06. > :16:11.distribution charge is there impact on those? We don't have the date aa
:16:12. > :16:12.to look at that. It hits the people towards the top of the distribution.
:16:13. > :16:33.Yes. The O BR says that the top end of
:16:34. > :16:38.the distribution is the top end, the salary expression at the top end of
:16:39. > :16:43.the distribution, do you agree with that? We don't have separate
:16:44. > :16:50.estimates. I think that the O BR are saying that one they will lose the
:16:51. > :16:53.highest earners as the French bankers move back to Paris, for
:16:54. > :16:58.example and the other is that the level of pay in financial services,
:16:59. > :17:02.that they refer to, may do less well than it otherwise would have done.
:17:03. > :17:07.So we don't have anything looking forward. We looked back, and
:17:08. > :17:13.clearly, this is not Brexit related but it is clearly the case that the
:17:14. > :17:22.earnings distribution has compressed over the last five or six years and
:17:23. > :17:28.indeed the 90 percentile fall in relative earnings in the middle to
:17:29. > :17:34.the bottom going forward, the O BR are set out assumptions there but we
:17:35. > :17:41.have not done our own nor are in the position to do with regards to
:17:42. > :17:45.project ex-s over the distribution. Thank you very much for giving
:17:46. > :17:50.evidence. There have been a number of exchanges where we appreciate you
:17:51. > :17:54.would do some work for Parliament and we would be grateful if you gave
:17:55. > :18:01.serious thought to it and come back as to what you think could be
:18:02. > :18:07.accomplished. If not, suggest how it may be accomplished and in some
:18:08. > :18:14.detail. We would like to look at that you are after all, a public
:18:15. > :18:20.funded institution and Parliament needs resources of your type to
:18:21. > :18:31.enable it to perform its job properly. Thank you very much.