Pre-Budget Report should be opportunity for consultation on tax changes, says John McFall MP
The Pre-Budget Report is intended to be largely consultative in nature, and should retain its focus on consultation on fiscal measures, according to a Treasury Select Committee Report published today (26 November).
TSC chairman, John McFall MP said: “The Pre-Budget Report provides an important opportunity for consultation on tax measures. We learned that the Treasury did not consult explicitly on the withdrawal of taper relief prior to the publication of the 2007 Pre-Budget Report. The Chancellor told us that ‘sometimes the Treasury consults on these things and sometimes it does not’. Changes such as this will generally benefit from consultation, and it is pleasing that the Chancellor told us of his willingness to discuss the details of the changes to capital gains tax policy with those affected.”
The Committee appreciates the benefits that tax simplification can bring and its desirability for all taxpayers, particularly small businesses and entrepreneurs, but also concludes that the reform of the capital gains tax regime announced in the 2007 Pre-Budget Report will affect small businesses and employee shareholders and could affect longer-term investment. The Committee recommends that the Government set out how it proposes to mitigate the effects of the withdrawal of taper relief, particularly for those already within the two-year qualifying period and with especial reference to small businesses. Such a statement should assist with the discussions on the details of the capital gains tax reforms that the Government has said it is prepared to have with interested parties.
Mr McFall said: “Tax simplification is a desirable objective, but the reforms of capital gains tax will have an immediate impact on many individuals and businesses that have sought to plan ahead. There is a window of opportunity for meaningful consultation between now and the 2008 Budget, and the Treasury needs to establish clearly the terms for such consultation.”
The Committee notes that the Government has down-graded its forecast for economic growth in 2008 since the 2007 Budget and identifies some downside risks to this forecast, particularly if the wider effects of the credit crunch are greater than currently expected. The Committee also notes some risks going forward to the Treasury’s forecast that the economy will return to trend growth in 2009 and concludes that the Treasury’s optimism that the growth rate should revert to trend in 2009 has not been adequately explained.
Mr McFall said: “The economy is facing a period of heightened uncertainty. Much depends on the ability of the UK’s financial sector to bounce back from the effects of the credit crunch, particularly if the Treasury’s forecast for a return to trend growth in 2009 is to be justified.”
The Committee notes that the Treasury has recently reduced the scale of errors in its forecasts for the public finances and that this may be related to the current stage in the economic cycle. The Committee notes risks to the public finances from a deeper or more prolonged downturn in the financial sector than currently forecast.
Mr McFall said “The Treasury’s fiscal forecasting has improved, but the Treasury needs to prove that the trend towards improvement is genuine, and not simply a function of the UK’s position in the economic cycle. That forecasting record will be tested if the effects of recent events on corporate and personal receipts are more substantial than the Government is currently expecting.”