Spring Budget 2017 Committee Select Committees

Thank you for coming in to give evidence to us today, on this, how

should I describe it, a mini budget, a sort of three quarters budget,

settling on a smaller size by historical standards. People are

mentioning it on the size and I think some of the greatest budgets

of the post-war years generated very short read books so I don't think we

should use that as a criteria. Can I begin with national insurance

contributions? Do you think it is right that the self-employed should

be compensated through the tax system for the additional risks they

take? And how easy is it to identify these risks? It is worth saying

first of all that the tax benefit is really very big, so relative to the

employer and employee contributions, 22%, self-employed, facing a much

smaller tax than that. I think it's pretty hard on the whole to justify

anything like the scale of tax. The question is, do you think there

should be something that is justified? Is there something to

justify that? Historically, there has been a justification, which is

that the self-employed are entitled to significantly smaller state

benefits than employees. That gap is almost completely closed now,

particularly with the introduction of a single to your pension, so the

only difference in terms of benefits and job-seeker's allowance, that

might imply a difference in national insurance rates of up to one

percentage point. Certainly no more than that. Other differences are,

first of all, very different according to the type of

self-employment people are in... Let's talk about the genuinely

self-employed, the self-employed self-employed, not people who might

usually be in the employed sector. Let's concentrate at that end of the

spectrum. Then you need to think about what exactly it is you want to

compensate or subsidise for? Do you want to compensate or subsidised

for, as he was saying, the additional risk people are taking?

We need to ask, is the best way of doing that this? And why do we want

to subsidise risk? We don't subsidise all risk. And if you do

want to do it, why do it through the tax system in a blanket way, which

subsidises or helps people who are not taking risks due to finding some

better way of achieving that. Thirdly, you want to think about the

scale. As I suggested, the scale is big at the moment. Do you think

National Trust contributions are a pure tax? Yes. And therefore the

contributory principle which suggests they have a complicated

relationship, is gradually going? It is very little left of the

contributing principle. It is now very hard to avoid getting the full

single tier. There are small groups who will not achieve that and the

pension is by far and away the biggest part of what is supposed to

be... To summarise, you think that if there is a differential, it can

be justified on the basis of what they receive, the self-employed, the

differential to be self-employed should be very small? And that's

from eternity. -- maternity. And if it is to be larger, for example

compensation for risk, we need to think more clearly about what risks

are entailed and it's your view they probably should not be dealt with

through the tax system but through public spending? ? I think we need,

on that second point, to think more clearly about what it is that we

value from a societal point of view about the self-employed. We need to

think carefully about... I'm asking you that question. I'm hoping you

have thought carefully about it. They've lose the argument out there

that, the enterprise culture drives economies and keeps them flexible.

And I think it is hard to justify the current tax system on the basis

of that argument. So you do not agree with that argument? No. Just

one question, do you mean people are one question, do you mean people are

allowed to keep their own money and therefore it is not a subsidy? When

we think about tax subsidies, we can do it in different ways but on the

whole, when one is talking about paying someone less for doing

similar things, one can think about it at a subsidy. If you assume it is

the Government's money first... Horizontal equity. It is the tax

money on the Government is not getting a subsidy by not taking your

money and I think realistically that is important because it slowly shows

the angle you're coming from. To put it another way, you're charging

other people more tax in order to reduce the tax on another group. Not

necessarily to do anything else, you're just charging people more tax

but I think it is important because it gives an indication of where

you're coming from. You're in favour of higher taxes, which worries me.

Absolutely not. We're talking about horizontal equity between people. If

you want to lower rate of tax across the board, that is absolutely, I

think there is a case, it is harder to make a case for treating this

group differently from that group when they do similar things and that

creates complexity and cost to the economy and to those who are not

benefiting from the reduced amount. But you made a case for higher tax

for self-employment? I want to come on to a specific point. Can I ask

your view, because only ?3000 exemption for small companies, the

first employee, national insurance contributions by employers, because

they can situating Dessie Mee to say he used to employ ten people and now

they have full setup is as their own company because that gives them

?30,000 of employers contribution for free. And I just wonder where

you went into the distorting effect of specific tax incentives. And more

broadly, the danger of having things unintended consequences. That is the

point we are making, that particular subsidy, if I can use that word, it

is not surprising it has that effect because it creates a clear incentive

in the system to do that, as does treating self-employed and employ

people very differently, which is one of the reasons we are always

having cases about whether someone is self employed or unemployed, when

you create very different tax treatments of similar activities,

you create these incentives to change your behaviour purely for tax

reasons. And have you done any work specifically on the ?3000 limit? I

don't know whether empirically that would be possible. We don't have the

data for that we have looked at other bits of the tax system. You

can see that individuals respond to tax incentives. Whatever data we

have, people respond sharply to tax incentives. There was a measure the

Autumn Statement which make changes. We'd like to see to what extent the

Government reduced this problem. Can now talk about the issue of

forestalling, which created revenue the Government did not get because

people took forestalling action. How much consultation can you have

safely without creating a fairly large amount of forestalling?

Whopper constituting the Government should have? Yes. But it's clearly a

difficult balance. There are some issues where you don't particularly

neat consultation, you can avoid forestalling. For example, moving

the top rate, 40-50, about 45, there did not need to be consultation

about that but giving one year's notice created a lot of

forestalling. On dividend tax changes, I don't know how much

consultation is intended to, as there is clearly another set of

changes coming in next year, which we've been given a full year's

notice of. But clearly, if you give people the opportunity to do it, you

create a lot of forestalling, so the balance of risk in terms of issues

like dividend taxation is clearly towards forestalling. Do you think

that the tax approach to dividends should be the same as the approach

to earning? In the 1970s, there was a surplus tax at quite a high level

and now, on earned income is more favourably taxed than earned income.

Is this something you think is sensible in terms of encouraging

savings and so forth or is it something you feel is distorted?

Well, you're getting the right to the, I mean, right at the centre of

the way the tax system works. Broadly speaking, we want to be

taxing at big thing rate but adjusting the tax base, so you are

not producing incentives to save and invest and offset any savings or

investment that you are doing against the rate. What that would do

effectively would be to provide more generous treatment for the

investments, for example, the self-employed charge a higher rate

of tax on the returns they therefore make. That is quite a big change.

That is not simply increasing the rate of tax on investment income. It

is reducing the base in order to ensure you're not taxing the

returns, that the normal returns are saving in investment.

Do you get that by reducing corporation tax if they keep the

money within the company? Rather the reverse, in the sense that whilst

you are doing investments, you would be effectively paying no tax on the

returns to that investment but you would be paying a higher rate of tax

on the rest of the return that you are making. In terms of the

complications caused by having the different rates, you move into many

anti-avoidance mechanisms to stop people moving things around. Do you

think that one of these that might be useful might be to get back to

the old close company rules where dividends attract different rates

from not closed companies? I don't think it would be better. Whenever

you put boundaries on the tax system and you try to define a set of

companies, then you obviously give in -- incentives to be one type of

company rather than another. You might fix one problem but you might

create another problem. There is no economically good reason to treat

those types of companies differently. It is a sticking

plaster, we can't do the proper things so we will fiddle these

things to get these guys out. It is better to sort out the tax breaks

and the rates and it is applicable to all types of individuals

regardless of the type of company they organise themselves under. That

would be a simpler system and a more uniform rate? It would be a simpler

system in the sense that you would get rid of lots of boundaries in the

tax system and get rid of a lot of allowances, or you could do if you

wanted to, you would be narrowing the tax base in the sense that some

investment is taxed which would be taken out of tax. You would be able

to slash the tax base but then you would lose revenue. You could choose

the rate you thought was applicable. Final question on this. Do you want

me to go onto the welfare cap? Do you think it meets the Treasury's

six principles of tax contributions? Changing the rate year by year. It's

unfortunate that it has happened in a non-joined up way. For the

self-employed we have had two changes in the last couple of years,

giving them pension and making changes to the class four. If we

introduced this ?5,000 dividend just the years ago and now we are taking

it down to ?2000, it doesn't look like a clear strategy over time,

taking all of that together in one go would have made an awful lot more

sense. Thank you. If I can move completely onto the welfare cap.

Starting with first principles. Do you think it is a good idea to do

legislate for caps, or for spending targets, which you then don't meet

so you are just the way of meeting them? Or can this lead to bad

policy-making and misallocation of resources. Miss Anderson, you look

very keen to answer this. In a perfect world, we want policy makers

to make the right decisions and explain them clearly. The whole

point of the welfare cap is that spending might turn out to be more

than you intended and rather than cutting it back you take an easier

choice of cutting something else or just ignore it. We are in a world

where policymakers are not making perfect decisions and hiding

problems and pushing them into the future. Having a cap that says if

spending goes above a certain level that you can choose in advance, what

you can do is rein back below that level and make the decision to

explain why. I think the operation of it so far has hardly been great.

We've had only one breach of the cap and at that moment the Chancellor

decided not to do a whole load of welfare cuts that he'd announced a

few months earlier. We can't say the cap has been tested and proven to

lead to better policy-making as a result. Alongside, we have the

welfare change report which I think is a very good innovation. And the

new Chancellor has made some new changes to the welfare cap,

adjusting the benefits spend for changes in inflation, I think, was a

good move. The move to assessing it every five years, I think is a bad

move. I think cynically that it won't be tested until after the new

general election which means it can't have been said to be breached.

It becomes so flexible it becomes meaningless? None of the fiscal

targets can be breached in this Parliament, unfortunately. It makes

it easy to hit. We wouldn't want a 0% margin. The other thing they have

done is say that if welfare spending has crept up big, inflation --

because of inflation. 3% is a bit bigger than what Mr Osborne chose to

have. How arbitrary you think the things included in the cap and those

not is? 52% of welfare spending is within the cap and the rest isn't.

Is this important or is it just a fair part of pensions policy? The

report is focusing on all of welfare spending, we still have a check on

the whole lot. The state pension is excluded where reasonably we have

argued that we want to think about that in long-term view. The desire

to push up the pension age if longevity keeps rising. Which is

right because the current ageing population wouldn't suffer from an

increase in the state pension. The other thing they are excluding our

very cyclical benefits which again I don't think we really want to model

up with the, temporarily, jobseeker's allowance is costing a

lot more because temporarily in employment is higher. We don't want

that to bundle up with pension or disability benefits going up in a

much more cyclical way. I think we do need more of a conversation about

what the cost of the triple lock has been and whether that is a cost we

want to bear. Just before we move onto approach to public spending. A

target that is much more fixed than the cap for welfare, doesn't this

lead to a distortions in expenditure that you're trying to achieve

something that is based on so many moving parts that he is absolutely

right is extremely difficult but depends on you making decisions. The

welfare cap is constraining policy in a good way, stopping you hiding

problems that are appearing. The overseas aid target is very

different in that it is always going to cost not .7% of our GNI, you may

argue whether that is too high or low, maybe you should care about how

much bang for your buck you are getting from this money rather than

how much you are a spending. If you're going to have austerity, you

are having less money for education, the list goes on. You really

constrain the Chancellor in responding to circumstances. What

I'm poking away at is whether you think it is good policy but rather

bad economics? I started saying we want policy makers to make the right

decisions and we don't want to constrain them at all. If we suspect

that sometimes people get tempted into letting problems being hidden

away we might want to put constraints in place. Elsewhere, you

might think it is reasonable for those seeking election to set out

what they will do in certain circumstances and if you want to

pledge, whatever the world looks like, we will spend not .7% of GNI

in our manifesto, I don't think you can stop people from doing that.

Stephen Hammond. You made a comment about not thinking there was a clear

strategy in terms of some tax policies. You were very critical of

the tiered approach and the effect that had in terms of stamp duty. Do

you take the same approach to the reforms of probate? It's the same

structure, a slab structure. Your steak goes over a certain level,

then there's a big increase in the amount of probate duty that you pay

and that never feels like a very sensible structure. That said, the

opportunities for... There will be some opportunities for gaining that

but my guess is that the economic consequences of that will be smaller

than the stamp duty changes. It will create some incentives to gain the

estate around those levels. You think it will be relatively small

opportunities. You don't think a lot of people will take the decision to

give away a lot of their estate to avoid those levels in time? With a

40% marginal rate, it is only a few thousand pounds of difference in the

estate which will very quickly be accounted for in a 40% marginal rate

which will soon outweigh any effect of the probate duty where the

maximum is 20,000. I think it's not a very sensible structure but I

don't think it will have some impact, relative to stamp duty it is

a smaller one. Nevertheless, it is causing some odd incentives. On a

wider basis, do you think it is a disincentive to save? That probate

charge is so small that if it does create any disincentives, it is not

one we'd ever be able to measure. It is small relative to other things

that are happening in the system. Relative of 40% marginal rate on

inheritance which is ?40,000 for every ?100,000, a maximum of ?20,000

in a probate for ?2 million estate which would otherwise have

inheritance tax of well over half a million, I think, I don't disagree

with what you are saying in principle, I think indirectly it is

pretty small. I take the point it is small in scale. Are you concerned...

Two things that come out of that. In terms of the principal, although it

is technically not a tax, do you think there was significant and

sufficient consultation prior to it being implemented, given that all

the consultation there was, it was relatively given two, showed almost

total opposition. Is there a tendency to just do it anyway. I

wasn't aware of the consultation or the scale of it. I can't really give

a sensible answer to that. You said technically it's not a tax but the

when I are saying that it is a tax because of its structure and they

are saying that rather than the old probate the D government incurs

costs and you can offset those but it doesn't count as a tax because

you can set it out as net. The ONS are saying that the income it gets

from probate, knocking it off that it would be tax receipt so their

view is that the ONS will deem this to be as tax because of its

structure. I take the point that you have made a couple times that

empirically it is small. Do you think there is an overall message

coming from them the government that there is a disincentive to save most

of the measures it is introducing at the moment. Over the last few years

we have had changes moving in different directions so clearly the

incentive to save in a pension for higher earners has been reduced very

significantly. Not just high earners. Because of the way the cap

is calculated. You will hit the lifetime allowance if you are

earning ?35,000 after 15 years of saving. Given auto enrolment that's

proven the incentives. The limits for ices have doubled since 2010.

That is a big increase in incentive. The LISA provide something that for

many people is a better bet than a pension. Five years ago you could

put in 25 times as much into a pension as you could in an ice. Now

you can only put in twice as much in any year with a lifetime limit on

the pension but there isn't on the LISA. We've had quite a radical

change in the savings incentives away from the pension shape which is

tax-free now, taxed when it comes out towards the ice shape which is

tax-free now, tax-free when it comes out. A year ago, we didn't make the

big changes to pensions we consulted on, gradually we have moved to a

savings map, a savings world which is much more towards the ice type

savings. Would be any benefit if the lifetime

allowance was done away with? So, the lifetime allowance, if that was

done away with, that would move it towards pensions and the main group

that would help would be those not fortunate enough to be in defined

benefit schemes because getting to the lifetime allowance, given the

annual allowance limits, is going to be hard work for someone putting

money into a defined contributions scheme. E-fit in ?40,000 a year,

you'd have to do that for quite a number of years... The way you

factor it up, you can get there quickly. Double-mac you're likely to

get there easier through a defined contributions scheme. Clearly, it

would simplify the system and help a significant group of system and get

rid of what is a distortion in the system. Equally, the way in which

the allowance is tapered over 150,000, between hundred and 50000

and 210,000, is a very odd distortion in the system. Given the

fact that most people are... The movement away from pensions and

benefits to boards ISA is a sensible move? I don't have a terribly strong

view about which is the better way of doing things. I think it is not

been an entirely transparent move. There was a consultation on a fairly

transparent move that was pulled away from. I think giving people a

choice is acceptable. I think there's a strong case for having

that choice. I think I have more of a problem with the annual... In a

sense, it is up to Government to decide how much it thinks it is

reasonable to give tax incentives for people for over their lifetime

but why want to constrain people on their annual amount, as well as

their lifetime amount, I struggle with. So, I think, if I wanted to

liberalise one of those, I would choose the annual rather than

lifetime because that would give people the freedom to put in money

when and if they can. And we spoke about the self-employed and said

that within a 1 million tap, some people may be disproportionately

unemployed. If you want to say everyone can put money into a

pension, why did you want to punish those people want to make

contributions because their income happens to fluctuate a lot. One

group of those is the self-employed. Can we just mention the LISA? There

has been mixed publicity about this. Some around whether it created

unnecessary risk. Last year, he said, Mr Johnson, there are people

losing employer contributions. A lot of the risk statement has been about

people transferring out of a pension scheme into the LISA. Your view last

year that most people recognise that. Is that remain your view?

Particularly with the evidence so far, that the nudge from people to

do that is very effective, the extent to which people are not going

to actively not to Imrul. It is clear people are not taking that

active kind of decision. I think there is some risk around the LISA.

There is some potential confusion created by the LISA because up until

now, it has been clear that for pretty much everyone, the pension is

the more tax advantaged method of saving, so long as you're happy to

keep something stuck there until you are somewhat older. The LISA is more

tax advantaged method of saving for those who cannot get an employer

contribution and I suppose the danger is it my muddy the waters,

muddy the advice, muddy the clarity of little bit but it is an

additional choice that people have. On the analysis you have done, under

any circumstances where it LISA would be better value for a safer

than where there is a DC screen? If the employer contribution is

smaller, the upfront contribution to the two is obviously 20% of what

you're putting him. If the employer contribution is less than that, I

don't know where they cut off ears, but if the contribution is only a

couple of hundred pounds, then a LISA may be worth more. But you

can't access the money from a pension so for an age like 55,

something like that, whereas with the LISA, you can access that at any

point, if you are buying your first home... Which makes it an attractive

product for young people. Although it is not universal, it is likely to

be successful as a product to those who are looking for that purpose and

some of the naysayers are prepared to offer that product... It is ?1000

upfront bonus, I can't see why that would not be attractive. Thank you.

I'm going to focus on the issues of social care and business rates. I

will be serving for another year so I think I should declare that and I

am part of a Local Government Association as well. I want to begin

with social care. There was some additional help in the budget to

make the demands of the social care crisis but we see a range of

estimates about what the actual funding gap is. As IFS pretty clear

number on what you think the funding gap is on social care spending by

2020? I don't think you can put a cap on it but what I can say is that

if all of the money, and this is an if, if all the money that has been

allocated to social care in the budget goes on social care spending,

that will take Spending Review back to where it was in 2010. So, if all

the money goes, it is a big increase, 7%, 8%, but there are

three caveats. Firstly, it is not entirely clear all that money will

have to go to social care because councils will have a degree of

autonomy over how that money is spent. Secondly, given that if it

does not go, that is a sudden change and will that then gets bent as

carefully as it could be? Thirdly, whilst there is as much money per

adult as there was in 2010, there are an awful lot more older people

needing social care. So the age adjustment or real amount will still

be less than it was in 2010. Yeah, my personal view is that social care

pressures are such that I imagine lots of councils will put this money

where it should go which is in social care about your right to

question whether or not the impact will be felt in the way like. Also,

following debates in Parliament, we often have debates about where

spending is going and whether it sits relative to the past but your

right to point out that the nature of the population, the ageing

population, means there are greater amount of services, so on that

basis, the LGA, the Nuffield Trust, the health foundation, Apple said

the budget announcements are insufficient to tackle the scale of

pressure in adult social care. Does the IFS agree with this assessment?

We don't have a view on what the right amount of money to spend us.

This will leave spending per adult, one should take account of need and

age, significantly lower than it was in 2010 but relative to 2016-17, it

is a substantial increase, certainly in a year, and that is a significant

change. In your opening remarks on the project, in reference to plans

for a social care green paper, you called for a little less

conversation, a little more action, citing Elvis Presley! What did you

have in mind? Well, the reason for that statement is that there has

been an awful lot of consultations, green papers, reviews on social care

over the last several years. There was a very extensive and well

thought out set of proposals that Andrew Lamont came up with 4-5 years

ago, which had an emphasis put on the back burner but I doubt whether

a further set of reviews on, but anything that has not been known

from some of those previous pieces of work and in the end, a big

high-level policy decision needs to be taken about the appropriate way

of funding social care. So, essentially, I was saying, the truth

is we have the information we need, is just a question of the political

choice about the extent to which we want this to be privately funded and

the extent to which we want a bit more state funding in, and whether

you wanted to be local or centrally funded. It is not that I know the

answer, it is that I think the Chancellor, Prime Minister, and

others have enough information to make a decision because it has been

reviewed so many times before. But while the Government is in listening

mode with the green paper you are not pointing to particular

approaches or policy solutions? There's a lot to be said, as I was

indicating, for... This is a risk, I have suggested what I think local

authorities would do but in terms of the outcomes we would like to see,

there is a risk around whether or not all parts of the system will

pull in the right direction and will have the right level of resource to

do so. For example, one of the ways in which the NHS needs to manage the

pressures on its resource base is to do with the issue of delayed

discharges. If local authorities are not in a position to make sure care

is provided in a residential community-based setting, the latest

problem will continue. How big a risk to the IFS think this is?

Again, it's hard to put specific numbers on that but it is striking

speaking to people running NHS organisations, their first priority

is not more money for them, it's my money for the social care system to

prevent the situation you describe. So, clearly this is something

terribly important to deal with and as the budget document points out,

it is also something which is different in different local

authorities, dealing with the specifics as well as the general

level of funding is important but I totally agree with the premise of

your question, is that dealing with this bottleneck in the system well

help write the way back in the health service. One of the

challenges we face is, in terms of trying to influence not just

Government policy but Government resource allocation over the coming

period, is how we determine the question that you were unable to

answer outset, which is how much resource, how much money is needed

to deal with the social care crisis? I think in some of your answers you

have indicated that absolute funding is not the right method to consider

because alongside the funding pot, you have to consider the pressures

and the changing population, other particular metrics we should be

using? It is difficult for us to push the Government allocate more

resources without a substantial evidence base so I'm the IFS has not

come out with a figure on what the resource pressure might be. We are

not in a position I would never say that the right amount to spend is X.

We can point out how it relates to a changing level of demand and clearly

amount of money going in is not kept up anything like with the increased

level of demand in terms of need. It is also provided informally and

informal care resources have gone up. A swiftly increasing number have

private resources of their own. If one is going to review this whole

set of issues, you want to take account of all of that as well as

the increasing levels of need to determine how to fund it, what level

is right. We can't give your number and say it is an extra X billion. I

understand. I guess the Chancellor's flexibility to draw an extra funding

to meet pressures like adult social care has been heavily constrained by

the commitments made by his predecessor in the Conservative

manifesto. Given the social care pressures, where the concentrations

of wealth far, it was a mistake to rule out increases in inheritance

tax, for example, do you think? If people don't need it, should it be

passed on elsewhere? Earle that is a big choice. The tax threshold has

been frozen for a long period and has continued to be so. Inheritance

tax has been biting more. The main home allowance coming in in April

will bring back down again. If there is to be a review, as indicated by

the Chancellor, I think it's unfortunate that you rule out what

might be reviewed. It is one of those political questions that

chancellors need to provide answers to. I want to move on to the issue

of business rates. There was, I guess, business rates generally and

then there was this discount for pubs. Just beginning up on that one

side issue which seem to me to derive from special pleading by

affective backbench lobbies rather than most pressing need, even on the

discount for pubs it got good headlines but it was pretty small

beer. In terms of the pressures that pubs are facing. Would you agree?

Yes. It's a small business, it's a small amount of money. Not as bad as

Johnny Reynolds, last night with the Chancellor not excelling at his

spreadsheets. If we want a simpler tax system we should apply business

rates uniformly but if we want special cases, if we do decide we'd

like to have more pubs, you might think about the best way to allow

that to happen. It might not be the business rates system. It is likely

to be temporary. Why would you want pubs supported for a short period of

time. It would look rather odd. In some ways, you have opened up the

area I wanted to go into regarding business rates. You pointed to a

more substantial reform of the business rates system. The

government has made a mistake by trying to tinker with the system as

they've gone along rather than to address in a holistic sense, the

whole issue of business rates, whether they are fit for persons,

the impact they are having on the success or otherwise of businesses

across the UK. It probably would have been better for the government

to reflected on reform of the system before embarking in the way that

they have. Is that fair criticism? There may be short-term issues of

people surprised by unpleasant increases in their rates bills that

may require some transitional relief. The problems are twofold. We

shouldn't go seven years without revaluation. We should have them

more frequently so people won't see such big changes in their bills,

over such a small period of time you won't have bigger changes in the tax

base across the country. The other thing we should do is focus the tax

more on the value of the business land, not the property that sits on

the land. One of my concerns, particularly as a London MP is that

property prices in this city have spiralled out of control. There has

got to be a place on high streets throughout the city, whether they're

in the city or the suburbs, not just for big national brands, but also

the small independent businesses, family businesses, whether that's

the halal butcher or the local hairdresser. Do you think this is

another example where London and the overheating of the property market

in London is skewing the national debate and there's a good case for

devolution of this policy on a London wide level? You're right.

This is very much a London issue. London is the only area where an

average business rates have risen quite significantly. One effect of

that is a significant increase in the redistribution of those business

rates from London to the rest of the country. That reflects the fact that

is in a sense what business rates are for. It's supposed to reflect

the value of property rising much more here than elsewhere. That's a

separate question from your one about high streets and butchers, and

so on. If we think that there are sorts of businesses that we want to

support, differentially from the rest, then we want to be very clear

about why we want to do that and either do that from within the

business rates system in a consistent way, or do it in some

other way. If you think there is something valuable their unique to

divide a policy to achieve what we actually want we want to achieve.

The answer is not put a blanket reduction on business rates on all

shops, for example. You indicated the merits of business rates as they

previously operated which was that receipts can then be redistributed

equitably to fund different services across the country. Even though it

is characterised as a London issue, it's very much an issue for a local

authority like mine which is a commuter suburb in London. So, if I

were there leader of Westminster or the leader of Camden, I would be

very much in favour of greater business rates in and because that

gives me a huge pot of money to spend on local services. As a former

deputy leader of Redbridge I'm less enthusiastic about the concentration

of resources in zone one. Do you think this is an issue that the

government ought to reconsider as part of a broader look at business

rates? The business rates that will be retained are only the marginal

increase as a revaluation of property. What it means is that a 1%

increase in the business rate property in Westminster will be

worth an enormous amount of money whereas a 1% increase in any other

local authority would be very little. The value of growth to

Westminster would be very big. Equally, the cost of contraction

will also be very big whereas the value or cost of that happening in

other local authorities would be very much smaller. It's important to

be clear. The reason this has been happening from London to the rest of

the country is the simple value increase in property throughout the

country is not going to be retained. About discretionary support. Do you

think this is sufficient and where'd you think it should be concentrated?

Where is the need for relief? It is being concentrated in London, as you

would expect, given that's where most of the increases are happening.

I just don't think we have a few, similar to your previous question,

about sufficiency. This is about... The key point as Carl is making,

this is resulting in 40 plus percent increases in some people's business

rates pretty much overnight. The main reason is we've left it seven

years since revaluation and there's been a lot of relative change. I

think there is a lot of problems with the tax that changes like that

overnight. The best way of getting around that is doing the

re-valuation much more frequently. The second best way is to provide

some proper transitional relief of the extent that can help some of

those businesses facing big overnight changes and it will help.

So the relief is effectively concentrated to the areas where most

needed? That's my understanding. It's going to be allocated across

the country according to those areas that saw the biggest increases.

Whether you want to pick some businesses that have a larger

proportional increase, they will be able to target it. It will be a

choice for them. It's not fashionable to stick up for greater

spending or support for London but in this case it's needed. We need

all the friends we can get to stick up for greater funding concentration

in London. I have handbag to you. When you were talking about this

cliff edge problem needing more frequent re-evaluation. As you know,

these are quite difficult to manage, and minister to flee they are quite

complex. Have you examined the possibility of using indexation

followed by periodic adjustment where the indexation gets out of

line. It would be a neat way through the problem is full revaluation was

very expensive. You would just increase by the average and over

every few years you would do a proper re-evaluation and then move

forward with that. You could even compensate with people who felt have

been harshly treated by an average in an area. But you've not examine

that approach at all? Not the practicality but in theory we have

said it may well be the way. Modern technology, big date is the

fashionable phrase, the collection through modern technology required

to do that indexation now makes that approach possible where is it didn't

ten years ago. It would seem that it is much cheaper to do now than it

used to be. I don't think it is completely implausible that you

could do that. Measuring profits is not easy either but we managed to do

it on a annual basis. We could do something broad brush every year and

something more complex less frequently. Isn't it overall fairer.

After all, people have been paying rates higher than they should for

part of that seven-year period and another group have been collecting a

windfall before they hit this cliff edge for which they are now going to

get some relief. That is the harsh Inland Revenue, HMRC view of the

matter. You can see that there is a shred of truth in it. Do not agree?

I agree with that. Were trying to tax people on the rent they are

paying. It would seem more natural to do that on the current year, just

as with the council tax it seems pretty odd to tax you on what your

house was worth the 1991 as opposed to what it is worth in 2017. That's

a much bigger cliff edge problem but it's not one I'm going to

cross-examine you on at the moment. He said that there were two problems

with the house versus property question on the tax. Isn't there a

third, which is the appeals system. The appeals system must be fast

enough. Even if it's not quite as rigorous as the current system in

ensuring that everybody gets the exactly the right answer from the

appeals system. It must be fast enough to allow a frequent process

of re-evaluation or indexation to be appropriate. Without it, the appeals

for the previous year would be carrying on while you were enjoying

or suffering a alteration to the rate. In cases where you get it

wrong, you want a fair and swift appeals system to set that right.

You know the government have announced reforms in this area, have

you looked at those? I haven't looked at those. You have no view on

whether that is going to take the trip? No.

There are different amounts of money put aside by different authorities.

Another reason for supposing my concern is justified. Yes. The

impact on authority budgets according to what they end up with

on the appeal and how well-prepared they would be very different and

significant between different authorities. Bespoke a moment ago

about this huge cliff edge in the system. All the way from 1991-2

through two growth in this cliff edge. Having given serious thought

about how to deal with that? Well, in terms of how you would transition

towards where we are at the moment, not in detail, I think it would be

fair to say... Well, have you at all? The book consequence of moving

from where we are to something based on current values, we have looked at

that any bit of detail the scale of change, the transitional

arrangements you could Britain would be of the kind one normally does,

which is to say that in X years' time, we'll get you from your junior

and the amount you pay will go up accordingly. A second question, it

is true there are furnaces in the present system -- on fair elements.

The biggest of all is the absence of any appreciation of the consequences

of House price movements in central London. Which means that people have

moved into what would have been a much higher tax than the old rates

but who are now capped out through council tax banding systems. You

have a view on how to address that? There's a lot of money involved

there, by the way. A very large proportion of what people consider

to be uncollected taxes in that area. And we see the same sort of

thing I'm stamp duty with a high fraction is collected from

transactions in central London, reflecting exactly what you are

saying. Some argue it is a rough and ready substitute. And one can

understand. From practical point of view, it is easier to collect deputy

but clearly more damaging in the sense that it creates... Have you

done any work on what could or should be done to deal with that

aspect of the unfairness in the absence of a re-evaluation? Because

we haven't had a re-evaluation. I am just stressing that particular

aspect. Without a re-evaluation, all that you presumably could do would

be to... OK, rather than speculate, I'm asking if you have thought that

through? Do you think it might be helpful if the IFS did some work on

these things we are identifying that have not been thought through that

are quite important? I think there may be some merit. I struggle with

the idea of making changes without a re-evaluation. Lots of people have

come forward with prudent proposals. And these things have ended their

manifestos. -- ended up in manifestos. So, I am very surprised

by the reply you have just given. It is clear the re-evaluation is a

massive political undertaking. We need to see what re-evaluation is to

find a political system and we can look at the poll tax to see what

that does. I'm asking you to think through a more modest valuation. I

am struggling to see how you could make changes without re-evaluation.

You haven't addressed it or thought about it so why don't you come back

to us when you have. Anglesey will see what we can think of but it is

hard to think of doing something that doesn't address current values.

Can we expect something from the IFS on this or not? I can't think of

anything that doesn't address current values. You're asking me

right on the spot. If you have done something that includes

re-evaluation or did something and that was much easier, that would be

extremely interesting also. Continuing with this local

Government seen, where have most of the cuts to local Government fallen

up to now. As you know, the cuts are essentially from Central Hall

subsidies, central redistribution to local Government, over the years up

until this year on last year. Most of those came as straight percentage

cuts to the central Government. Because that grant is and certain

types of Labour authorities are more dependent on a cramped and others.

Some authorities have spent more and those are intended Metropolitan

authorities, including in London and those with teamwork deprived

population because they were more dependent on grants. So, Nagatomo,

there have been those more grant dependent local authorities which

tend to be poorer and some metropolitan areas. Going forward,

the formula is being adjusted such that the impact on overall budgets

will be similar across different local authorities. Thank you. Yes. I

guess there are two dimensions one could look at. One is a geographical

and the other is the dimension of which services. Have you looked at

either of those? Have you done analysis? Could you shared with us?

Thank you. I want to ask you questions in particular about the

schools budget funding. In 2015, you said, current or day-to-day spending

on schools in England has been relatively protected. Is that still

the case? Relative to most other public services, yes. If you think

that the current spending on schools up until 2015, spending per pupil

actually grew a small amount, compared with 2010-15, largely

because there was a significant increase in premiums on average

across schools, there was an increase. If you look at the time

period, 2015-20, school spending is being frozen in real terms, means a

real terms cut of 7% per pupil. So, there is a change there and spending

is falling for people going forward, where is did not fall under the last

Government. If you look at the period of 2010-20, that is a

significantly less generous settlement than many other public

services received. -- more generous. I think it is 8%. Do you think these

reductions in per-pupil funding can be achieved without any impact on

outcomes for children? It is not as strong as you might

expect to be. If you look at spending the system, it has really

been hit substantially. Relating that outcomes, even at scale of

change would be difficult, so I don't know the answer that question.

OK. The Government has chosen spend some money on new selective Free

Schools, I think nearly ?1 billion over the whole period. Had that been

spread across the entire schools budget, what would the impact on the

per-pupil reduction has been, do you know? I don't have that number to

hand. Is it possible for you to work that out? I think that might be

capital spending and the pupil numbers are just gave you were

day-to-day spending. That's true. They are slightly different things

but supposing it was being spent on capital, it was spent on... And

maybe this was a question for the ABI and I didn't ask them this

yesterday, but, have the forecast current budget, spend on schooling

over the next five years, taking account of these additional places?

How will that work? For example, I have got 50 schools in my

constituency. Where there to be a new free school setup in my

constituency, where with the current funding for that come from? Would it

mean the cuts to the schools which are already facing cuts would be

even greater? Me to come back to you on the funding of Free Schools. OK,

the people funding is falling because the number of is increasing.

Is there any evidence that Free Schools are being set up in places

where the pressure on school places the greatest? We haven't looked

specifically. The National Audit Office has led to an included there

are certainly some evidence that they are being set up where that is

not the case. OK, so you think this is more something for the National

Audit Office than for you to look into? As I say, I think this is

something that the National Audit Office has looked into. OK. I won't

ask you any more about it but I will just ask you one more question but

links school funding to distribution. As you know, in the

way the Government is measuring distributional impact of all the

changes they are making, they're not just looking at taxes and benefits,

there are also looking at public services. Is there any dates are

suggesting who would benefit from the preschool places? Whether that

will be evenly across income distribution or skewed in some other

way? I'm pretty sure the answer to that is that no, there isn't. Do you

think it's because the numbers are so small that it wouldn't make any

difference for the think they might be significant? I'm just trying to

think... Finding data which tells you the incomes of the parents of

children going to Free Schools and how that with others, it's not

something I'm aware of, I'm afraid... OK, fine. The Chancellor

did not, in the tables he published on distribution, did not split out

his November measures from his March measures. I think you did split that

out in what he published, would you just like to set out what the

distributional impacts of the two events were separately? So, we split

out, we certainly looked at last week's announcement and of course

they were actually extremely small overall, broadly slightly regressive

because of the extra dividend tax and national insurance payments paid

people higher up the earnings distribution. If you look at

everything that has been announced since 2015, so, in this Parliament,

you get clearly big losses towards the possibility of distribution but

there are substantial cuts to tax credits and benefits, at least a

freeze to benefits, which gives you a distributional chart with big

reductions at the bottom and much less going on towards the top. I

cannot remember what was in the November statement to be honest!

The 2015 announcements were more significant.

You mean the freeze on benefits and the other one? The set of measures

announced in July 2015 are the most significant measures affecting

households. Everything else is small relative to that.

Yes, now there is one line in the Budget which no-one seems to have

taken into account. I'm interested in it.

It's line 26. Tax credit debt enhanced collection. This is

described as a previously announced welfare policy decision, however,

over the final three years of the survey period, this raises over half

a billion, ?500 million. I'm puzzled by this. I wondered if you knew what

was going on here? I can't understand how it can be a

previously announced decision but only now people are seeing that this

is ?500 million taken from the tax credit system. Do you know what is

going on? By previously announced it is between the autumn statement and

the Budget. So not on Budget Day but before Budget Day but not announced

before the Autumn Statement, which is why it is making it to this table

and not the next table in the document.

What is this change? We took evidence six months ago from

Concentrix who did a big exercise in checking out fraud in the tax credit

system, they seriously overdid this and a lot of people suffered as a

consequence, so what is this line 26? What is going on here, do you

know? I know the information in paragraph 352. Announced at the

start of February it was announced, and it's... It's something that they

are doing with their powers to use something called direct earnings

attachments, I don't know that wording.

It means if you decide somebody has been overpaid you can make a legal

order to get it from their salary? So there is more use of those

powers. Yep.

Well, in looking at the distributional charts you made,

where you looked at the freeze on benefits, did you take account of

this as well? I would have thought that ?500 million was nonnegligible?

We didn't. Per year it is a small amount relative to the measures to

limit the freeze on welfare payments for benefits, the cuts to tack

credits it is small to that. The data that we use would not allow us

to include this measure if we wanted to. We don't have the evidence who

receives more than they should have done, so don't know who to pay as a

result. If we wanted to we couldn't. And on a sense of scale this is

about 100 million a year, against ?12 billion a year, so you would not

be able to see it on a chart. OK. Thank you.

You looked at the impact of the next changes that the Chancellor

announced, did you look at the changes to dividend taxation on the

distribution charge is there impact on those? We don't have the date aa

to look at that. It hits the people towards the top of the distribution.

Yes. The O BR says that the top end of

the distribution is the top end, the salary expression at the top end of

the distribution, do you agree with that? We don't have separate

estimates. I think that the O BR are saying that one they will lose the

highest earners as the French bankers move back to Paris, for

example and the other is that the level of pay in financial services,

that they refer to, may do less well than it otherwise would have done.

So we don't have anything looking forward. We looked back, and

clearly, this is not Brexit related but it is clearly the case that the

earnings distribution has compressed over the last five or six years and

indeed the 90 percentile fall in relative earnings in the middle to

the bottom going forward, the O BR are set out assumptions there but we

have not done our own nor are in the position to do with regards to

project ex-s over the distribution. Thank you very much for giving

evidence. There have been a number of exchanges where we appreciate you

would do some work for Parliament and we would be grateful if you gave

serious thought to it and come back as to what you think could be

accomplished. If not, suggest how it may be accomplished and in some

detail. We would like to look at that you are after all, a public

funded institution and Parliament needs resources of your type to

enable it to perform its job properly. Thank you very much.