Session 2003-04 No. 23 6 April 2004
PUBLICATION OF SIXTH REPORT: THE 2004 BUDGET (HC 479-I)
The Treasury Committee publishes its Sixth Report of the 2003-04 Session, The 2004 Budget (HC 479-I) at 1200 noon today.
A summary of the Report appears below. The conclusions and recommendations are listed at pp 34-38 of the Report. Mr John McFall MP, Chairman of the Committee, is available for comments on the Report today on 0773 0987802 (mobile) or 07644 004586 (pager).
The written and oral evidence will be included in a separate volume (HC 479-II), expected to be published on Friday 16 April.
The Report can be purchased from the Stationery Office Bookshops (0845 7 023474) and from the Parliamentary Bookshop, 12 Bridge Street, Parliament Square, London SW1A 2JX (020 7219 3890). The full text will be available on the internet at or before 3.30 pm today at: www.publications.parliament.uk/pa/
The Committee welcomes the renewed vigour of the UK economy in recent months. Outturn growth for 2003 was higher than many outside commentators had forecast and buoyant growth is forecast for 2004. The net deterioration in household balance sheets over recent years is relatively limited. While the probability of a fall in house prices or a rise in interest rates on a scale which would cause widespread problems is limited, there is no room for complacency. It is important for policymakers internationally to seek to avoid the dollar's depreciation becoming destabilising in the face of the large US trade deficit.
The fiscal balance and borrowing
The Government remains on track to meet the golden rule for borrowing over the economic cycle. The margin for error has however diminished further over recent months, in spite of the strong growth in the economy. In the medium term, if the economy were to grow above its trend level then it will be important for policymakers to ensure that larger fiscal surpluses accrue than those currently projected. The sustainable investment rule will also be met, although the margin has narrowed since the last Budget.
Despite the growth in the economy, and the record levels of employment, tax receipts in 2003-04 have been below the Treasury's forecasts. The Committee hopes the overestimation over the last three years of both absolute tax receipts and taxes as a proportion of GDP will not continue. The Committee makes a number of proposals for greater transparency in the Treasury's tax forecasts.
The growth rate of public expenditure in the next spending review period (2005-2008) will be slower than the recent increases. Whether increases in expenditure on front-line public services are to match those of recent years will depend on the success of the Government's efficiency savings programme. This programme involves a challenging target which leaves little room for manoeuvre. The House will wish to see clear indications in the Spending Review as to how the savings are to be made and how their achievement is to be measured.
Protecting tax revenues
The Government's proposed disclosure regime for tax avoidance schemes will need to be one which tackles avoidance effectively without creating undue compliance burdens for taxpayers and their advisers or undue administrative burdens for the tax authorities. The details will merit close examination during the passage of the Finance Bill. The Committee welcomes the changes made so far to the initial proposals for a charge on income to close tax loopholes on pre-owned assets.
On the proposals for closing the loophole caused by the introduction of the zero rate of corporation tax, we are puzzled that, unlike other commentators, the tax authorities and the Treasury did not anticipate the likely effect of introducing the zero rate; we are concerned about the possible compliance burdens of the proposals compared with abolishing the zero rate band. Also on corporation tax, the Committee shares the concerns of a number of witnesses over the effect on competitiveness of the extension of transfer pricing rules but were reassured by the Chancellor's comments and looks forward to this being treated sympathetically in the passage of the Finance Bill.
The Committee welcomes the contribution to the debate on housing supply from Kate Barker's review. It sees the design and implementation of any tax along the lines of a Planning Gain Supplement as challenging; the Committee suggests that, if it is set at a level to raise excess revenue rather than to encourage developments and to fund additional investment in housing, then it will not be successful.
The Committee reaffirms its view that to reduce the cash limits for ISA contributions appears to run counter to the policy of encouraging people to save and calls on the Treasury to examine closely the effect that reducing the £3,000 limit for cash ISAs might have on the opportunities for lower income and younger savers and also to keep under review the issue of the treatment of capital in assessing retirement benefits. We also point to the need for progress in developing greater access to advice for the less affluent in relation particularly to debt but also to mortgage borrowing and pensions.
The Committee draws attention to, without coming to conclusions on, evidence taken on tax stamps for spirits, venture capital schemes, the lifetime limit for tax assistance for pension savings, council tax, the devolution of Business Link to the RDAs, the Local Authority Business Growth Incentives Scheme, and the Lyons Review of public sector relocation.
The Treasury Committee is a Select Committee of the House of Commons, appointed to examine the expenditure, administration and policy of the Treasury, the Inland Revenue, Customs and Excise and associated public bodies.
Mr John McFall (Chairman), L, Dumbarton
Mr Nigel Beard, L, Bexleyheath and Crayford
Mr Jim Cousins, L, Newcastle upon Tyne Central
Angela Eagle, L, Wallasey
Mr Michael Fallon, C, Sevenoaks, (Sub-committee Chairman)
Rt Hon David Heathcoat-Amory, C, Wells
Norman Lamb, Lib Dem, North Norfolk
John Mann, L, Bassetlaw
George Mudie, L, Leeds East
Mr James Plaskitt, L, Warwick and Leamington
Mr Robert Walter, C, North Dorset