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Evidence on scrutiny of taxation, 1970

The following evidence was submitted to the Select Committee on Procedure and printed with its Second Special Report of Session 1969-70, Parliamentary Scrutiny of Taxation, HC 302, as Appendix 9 to the Minutes of Evidence (pp 181-8).


Memorandum by Professor A. H. Hanson, University of Leeds, Mr. D. Coombes, University of Reading, and Mr. S. A. Walkland, University of Sheffield, on behalf of the Academic Members of the Study of Parliament Group.

1. It is appropriate that the enquiry that the Select Committee on Procedure is now conducting should stimulate evidence from a variety of viewpoints, from economists on the one hand to professional associations in the field of tax administration on the other. The authors of this memorandum are academics from three University Departments of Politics, who all have an interest in the working of Parliamentary government. It has been prepared on behalf of the academic members of the Study of Parliament Group, but it should be emphasised that it does not necessarily reflect the views of all those members. The authors have been fortunate enough to be able to read some of the written evidence that has already been put to the Procedure Committee, and their submission has been composed in the light of this material, and also of the preliminary memoranda on this subject which the Committee received in the course of its major enquiry last Session.(1)

2. In its Report on The Scrutiny of Public Expenditure and Administration the Select Committee on Procedure attempted to bring about a quantum change in the way in which the House of Commons scrutinises these subjects. It is our view that in so doing the Committee has committed itself to pronouncing in radical fashion on Parliamentary procedures for the scrutiny of taxation, since the two are necessarily inter-related. It has long been a criticism of the financial procedures of the British Parliament that they afford no opportunity for consideration of a Budget proper, in the sense of creating occasions on which public expenditure programmes can be examined in terms of their detailed implications both for social and economic policy and for the demands to be made on the community by a pattern of taxes, charges and contributions needed to meet that expenditure. Not only has the House of Commons traditionally considered both the Government's expenditure and revenue proposals on an annual basis only, but through distinct procedures separated in time. Now that Parliament is likely to be furnished regularly with the Government's medium-term survey of public expenditure the opportunity has been created for it to consider simultaneously (a) the economic reasoning and assumptions on which the expenditure commitments have been formulated; and (b) the means, and their implications. by which it is intended to finance them. Without such opportunities, the House of Commons will have no chance to pronounce on the basic question as to whether the community is prepared to devote the necessary resources to the public sector, as against private investment and consumption, which an expenditure plan requires, or on the implications for economic, social and industrial policy of the means by which the Government intends to meet the cost.

3. The Government already makes this necessary correlation and conducts for the purpose of producing its medium-term expenditure plans what amounts to an integrated economic exercise. The emphasis of the exercise has been from the beginning on the consequences for future taxation and budgetary policy of alternative programmes of public expenditure, to enable governments to set limits to their expenditure commitments. The chief instrument has been the Treasury's medium-term economic survey, produced in conjunction with the preparation of the report to the Government of the Public Expenditure Survey Committee. So far, as the Procedure Committee has noted, the Government has not committed itself to publishing the Economic Assessment annually. We would hope that the Committee in its Report will reiterate the need for the Government to provide regularly as much material as is necessary for the House to be able to judge the reasonableness of the resource-cost of a public expenditure programme which is presented for its consideration.

4. We assume, however, that the main focus of the present enquiry of the Procedure Committee will be to review the responsibility of the House of Commons, and the procedures available to it to discharge that responsibility, for scrutinising how a Government proposes to finance an agreed set of expenditure proposals over a period of time. Although Government procedures for deriving a reasonably accurate broad picture of the growth of the economy and the total of public expenditure which the economy can bear are reasonably advanced and sophisticated, its plans for meeting that expenditure do not appear to be subjected to the same critical examination, and have resulted in a taxation system which, to quote the memorandum of the Allied Accountancy Bodies, "no longer provides an equitable and cohesive structure" and which bears all the marks of "an approach which is often hasty and piecemeal".(2) The consequences of every tax policy should be rigorously examined by the legislature. Just as the expenditure proposals of government now have a wider significance than the primary one of providing essential public services and collectively and individually affect national economic welfare, so taxation has a number of functions. Its main aim may still be budgetary, in the sense of raising funds for public spending, but fiscal measures have a stabilising function by preventing excess of deficient demand--a legacy of Keynesian economics. Taxation is used to induce economic change, not necessarily related to demand management, by the provision of incentives to personal and corporate effort, and has also a social policy function, largely connected with the redistribution of wealth and earnings. In addition, taxation is used to regulate the balance of external payments, an important function in so open an economy as ours. The House of Commons should have adequate powers of scrutiny and debate of all these objectives. The present financial procedures of the House, which mainly comprise the debates on the Budget Resolutions and the stages of the Finance Bill, are insufficient to give adequate opportunities for the expression of the legitimate interest of Parliament in these matters.

5. We are impressed by the argument of some economists and others (including the specialist adviser to the Committee of last session) that under present circumstances the House may be giving imbalanced or even irrational consideration to financial policy in general. The debate about the extent to which the House of Commons can legitimately concern itself with the soundness of the taxation policy of the Government over a similar period of time to that covered by its recent expenditure surveys has already been joined. In a preliminary memorandum to the Procedure Committee on financing public expenditure and administration, the Committee's specialist adviser, Mr J. H. Robertson, produced a scheme which attempted to identify the major interests of the House of Commons in fiscal policy, and related them to a structure of Parliamentary enquiry which aimed at duplicating on the revenue side the proposed stages of Parliamentary participation on the expenditure side. He identified for the purpose of scrutiny of taxation three stages of possible Parliamentary involvement, related respectively to policy, management and results, and explained his proposals as follows:

" ... Parliament should be in a position:

(a) to have well-informed debates several years in advance about the policy (including economic policy) implications of financing projected public expenditure by various alternative mixes of taxation, contributions, borrowing and charges;

(b) to examine, in the proposed Select Committee on Economic and Financial Affairs, both the adequacy with which the material for these debates is being prepared and presented, and also the management efficiency of the various government agencies and departments (such as the Revenue Departments and the Bank of England) responsible for handling taxation, government borrowing, etc.;

(c) to scrutinise retrospectively the success with which these agencies and departments have been operating."(3)

In a further memorandum prepared for the current enquiry of the Procedure Committee Mr. Robertson has enlarged on these proposals, and has related effective Parliamentary scrutiny of taxation to the following points:

(a) "the economic, social and industrial impact of different forms of taxation;

(b) the administrative arrangements for preparing possible new tax proposals;

(c) the implications of actual new tax proposals which the government has put before the House;

(d) the efficiency with which taxes are administered and the costs of tax assessment and collection, not only from the point of view of the Revenue Departments themselves but also from the point of view of taxpayers and the nation at large; and

(e) the efficiency of the Revenue Departments' methods of advance administrative planning to meet future manpower and systems problems which may arise from existing tax policies or possible new ones."(4)

6. So far as the policy stage of enquiry is concerned, the principal point put to the Committee by its adviser and in other memoranda is the extent to which the Government is able and prepared to reveal its broad fiscal projections over some years ahead and to open to Parliamentary scrutiny the lines on which it plans to finance its commitments. Both Mr. J. H. Robertson and the Allied Accountancy Bodies are concerned to introduce a greater degree of stability and certainty into the tax structure than it exhibits at present. The Allied Accountancy Bodies in particular criticise the present system for its uncertainty, and for the absence of predictability which results from frequent and even annual changes in the tax system, and are firmly in favour of stimulating longer-term consideration of taxation by the Government, and associating the House of Commons with this exercise as fully as possible.

7. The reaction of the Treasury so far as been discouraging. It has emphasised(5) the essential differences between expenditure and revenue which, in its view, makes different treatment of each necessary. It insists (a) on the need for retaining short term flexibility in tax policy as a means of economic regulation, for bringing total demand into line with resources at any particular time. In addition it (b) stresses the unsettling effect of any implications for tax changes which might emerge from any long-term survey, and also makes the point (c) that decisions about Budget changes are in many cases about social policy, as reflected in the distribution of tax burdens and reliefs, and being essentially party political in character are difficult to programme for any long period into the future.

8. As regards point (a), it should be possible to distinguish areas of taxation policy where Budget secrecy should be preserved, whilst identifying others where discussion would not be prejudicial. Detailed discussion of rates and allowances are obviously matters for Budget debate; longer-term questions concerning the aims and structure of the tax system could usefully be examined by other means. Fairly detailed Parliamentary scrutiny of the hypothetical consequences of alternative forms of taxation, or of changes in existing forms, has taken place by means of ad hoc Select Committee enquiry in the past; more permanent arrangements for review of the tax structure by a Select Committee could stimulate some introspection on the part of the Government, and offset the Treasury's interest in administrative convenience and the concern with the needs of short-term economic management, one expression of which is the secure hold which the executive has through delegated powers on the legislative basis of some forms of taxation. We are of the opinion that more systematic investigation by the House of Commons into the general coherence of taxation policy in the light of the long-term budgetary plans of the Government is both feasible and desirable.

9. As regards point (b), made by the Treasury, that such investigations would necessarily have an unsettling effect, we agree completely with the opinions expressed in the memoranda already submitted to the Procedure Committee, which rest on the same distinction between the tax structure and marginal changes in rates. We would repeat that such investigations need not have the consequences which the Treasury fears, nor result in any greater degree of anticipation than at present occurs. As regards the Treasury's point (c), that decisions about Budget changes are in many cases about social policy, we do not recommend that a Select Committee should make proposals about social policy. But this type of enquiry could articulate the social policy of government as exemplified in its tax treatment of individuals and classes of individuals, and test the premises of government action in this sphere.

10. We advocate a Select Committee type of enquiry into the taxation policy and philosophy of the Government which would allow the House of Commons a clearer insight into the Government's intentions than at present it can gain. We sympathise with the view that there may be difficulties in putting the scrutiny and debate by Members of the financing of expenditure on the same time-scale or in exactly the same context as their consideration of expenditure itself. However, we suggest that the Government should provide information to permit the sort of examination we have outlined. The question of the general effectiveness of Government policy is at present the main issue in each year's Budget and Finance Bill debates, and whilst taking the Treasury's point that the question of whether a taxation strategy is achieving its objectives is "a peculiarly difficult one", we would comment that this is the more reason for confiding it to investigation by a Select Committee, instead of leaving it wholly to discursive and disjointed debate carried on under restrictive rules and with a severe time limitation.

11. Some basic questions concerning the tax system have already been raised in memoranda submitted to the Committee, and these and others could be examined by a Select Committee in the course of discussions of how best to close the gap revealed by the Government's long-term expenditure commitments, the economic projection and the operation in this context of the existing tax structure. The Select Committee could consider, inter alia, the effects of the present degree of emphasis on indirect taxation; the consequence of the Government's policy of giving specific subsidies (negative taxes) for housing etc., as opposed to adopting a comprehensive negative income tax; the effects of using different main tax bases such as income, consumption, wealth, etc., and how the choice of base facilitates or otherwise the attainment of objectives of the fiscal system such as income redistribution or economic stabilisation; and the degree of erosion of the tax base which takes place through the granting of various allowances. This sort of exercise would not, we believe, require the Government to feed public speculation about possible future changes in taxation. Any contact with officials could if necessary be confidential within the context of an enquiry. We are encouraged by the evidence to the Procedure Committee last Session of the Permanent Secretary to the Treasury, who implied that officials might well be able to provide a Select Committee with information about the hypothetical consequences of different forms of taxation as long as they were not asked to express opinions about the views of the Government. We are confident that a Select Committee would be able to produce valuable reports on the basis of evidence collected from officials in a perfectly conventional way for Select Committees, and with the help of evidence from outside experts, economists and professional associations of accountants and advisers. Economic and statistical assistance could be given to the Committee by the Research Division of the House of Commons Library.

12. Because consideration of the broad fiscal philosophy of the Government should be related to consideration of long-term programmes of public expenditure we urge that the Select Committee investigation should take place, as Mr. J. H. Robertson has suggested, in the Expenditure Committee of the House of Commons which was proposed by the Procedure Committee last Session, and not in a separate Select Committee on Taxation, despite the precedents for such a body which have been cited in the memorandum of the Clerks Assistant. We agree with Mr. Robertson that the appropriate forum for the types of scrutiny we are suggesting would be a sub-committee of the proposed Expenditure Committee, appointed specifically to deal with economic and financial administration. We would defer comment, as perhaps the Procedure Committee may wish to, on the broader proposal of Mr. Peter Jay and Mr. Samuel Brittan for a wider-ranging Select Committee on Economic Affairs. These expert observers clearly feel, retrospectively, that alternative measures of economic policy to those actually adopted in the past were overlooked or insufficiently discussed, and that a Select Committee might have helped by instituting broad enquiries into topics of economic and monetary policy not necessarily related to the taxation system. Economic management is more likely to be politically divisive and less easy to discuss in the abstract than Fiscal strategy, and hence less suitable for treatment by a Select Committee; the latter now tends to be overlooked or subsumed in the former.

13. As the second and third stages of Parliamentary enquiry into fiscal policy and administration Mr. Robertson recommended that Parliament should examine the management efficiency of the various government agencies responsible for handling taxation, and scrutinise retrospectively the success with which they had operated. At present these Parliamentary functions are performed, in a limited way, by the occasional enquiries by the Estimates and Public Accounts Committees into the effectiveness of the tax collection agencies, while the Parliamentary Commissioner for Administration studies cases of specific hardship. Mr. Robertson is contemplating more ambitious Parliamentary enquiry, into the adequacy of the Treasury's and Revenue Department's machinery for studying (a) the tax structure as a whole; (b) the working of existing taxes; and (c) proposals for new taxes, in relation to their implications for the future economic, social and industrial policy of the Government. He also envisages enquiries, such as those contemplated for a new Expenditure Committee of the House by the Procedure Committee last session, into the management effectiveness of the Revenue Departments, which would include questions of the efficiency and economy of the administration of taxation of the type raised from time to time by the Estimates and Public Accounts Committees but with emphasis on Fulton-style management procedures. The proposed Select Committee should engage in such investigations as a matter of urgency; in particular we would welcome any preliminary comment on machinery for advance tax planning which the Procedure Committee might be able to elicit from Treasury witnesses in the course of its current enquiry.

14. Under the rubric of retrospective scrutiny the specialist adviser contemplates enquiries into tax avoidance and evasion (the concern at present of the Public Accounts Committee) and investigation of some of the effects of the taxation system, notably tax yields expenditure proposals of government. Estimates are passed "on the nod" and Parliamentary control of the so-called 19th century model, in the sense of a prior Parliamentary sanction of all expenditure proposals, has been abandoned in all senses other than the most formal, even if it ever existed. Parliamentary "control" of expenditure resides in the existence of general sanctions which can be applied as a result of public debate on the floor of the House and scrutiny by Members on Committees. In the case of the Finance Bill, however, the legislative hurdles imposed by the procedures of the House are formidable, effective and necessary. Taxation, unlike expenditure, involves more than just a pattern of proposed government action on the part of Departments and other public spending authorities. It imposes direct liabilities and duties on individuals and corporations outside the public sector. It involves precise legislation, and therefore the Government's proposals must be subject to the detailed scrutiny applied to all Bills.

15. Three purposes are served by the annual Budget statement and by the debate and legislation that flows from it. An opportunity is provided for a general review of the state of the economy. The revenue-raising proposals of the Government for the year are considered. The chance is taken to reform tax law. The Select Committee enquiries which we have envisaged should provide guidance to the plenary House in relation to all three of these functions; in particular to provide material in its reports to enable the House to review existing taxes and to judge the desirability of new proposals, and to provide a forum in which the administration of taxation is examined. So far as this latter function is concerned, one objection to the present legislative procedures for scrutiny of taxation is the amount of time which is spent on technical debate only of interest to a few Members. Those clauses of the Finance Bill which deal with the technical implementation of taxes are also those which benefit least from scrutiny by the processes of general debate, whether on the floor of the House or in standing committee. For effective examination they need to be considered by Select Committee procedures, with evidence gathered from tax lawyers and accountants and in the light of specific instances of anomalies and hardship. We submit that, whether the Finance Bill is committed to a Committee of the Whole House or to a standing committee, it should also be referred to a special sub-committee of the proposed Select Committee on Economic and Financial Administration for the examination of those clauses which raise detailed or technical problems.(6) This procedure could lead to a better understanding of the clauses involved, to a better chance of all-party agreement on amendments to tax law, and to the better drafting of these clauses. It would also help the process of building up a core of Members knowledgeable on taxation administration. It is unlikely that the proposed Committee on Economic and Financial Administration could report on the administrative aspects of specified clauses of the Finance Bill in time for amendments to be moved at the Bill's Report stage. But subsequent Reports might provide evidence for changes in tax law which the Government could take into account in the preparation of the following year's Finance Bill; ultimately this technique could lead to revision of the law of taxation being carried out on an ad hoc basis, outside the annual Budget procedures, and result ultimately in a separation of the revenue-raising proposals of the Finance Bill from proposals for law revision. We would draw attention here to the memorandum submitted to the Procedure Committee by The Institute of Taxation,(7) which is confined to consideration of standards of fiscal legislation, and how best to improve them. The Institute similarly cites lack of time and opportunity on the part of the House of Commons for adequate scrutiny, and believes that more prolonged discussion of tax legislation by bodies with expert knowledge and experience is necessary. In the words of the Institute "... it has become apparent that the convention of including in one Finance Bill introduced in April in each year broad economic measures, measures relating to rates and detailed measures relating to the minutiae of the tax system and then demanding that the whole should be debated and considered in Committee in conditions often of extreme political tension and great urgency is not likely to lead to effective, comprehensible and comprehensive tax laws considered from the technical standpoint", and the Institute similarly concludes that a separation of tax law revision from the revenue raising proposals of the Government is entirely feasible and that the former is eminently suitable for treatment by a Select Committee of the House.

16. The Budget debate is still a major event of each Parliamentary Session. Yet no debate on proposals for legislation is so ill-prepared. On other occasions Members have advance notice of legislative proposals; the content of the Chancellor's Budget statement is, of necessity, a closely guarded secret. Members do have adequate time to prepare for the subsequent debate on the second reading of the Finance Bill, but this is a lesser, shorter discussion when fewer Members have the opportunity to speak. If there were a longer interval between the Chancellor's statement and the main debate on the Budget, Members would have more time to study both the Chancellor's assessment of the national economic situation and his specific intentions in regard to tax changes. The quality and value of the Budget debate should be improved significantly by extra time for preparation.

17. It is submitted that this could be achieved by a minor adjustment in the timetable of the Budget debate. The Chancellor's statement should be made on Thursday. The Opposition should have the opportunity to make preliminary comments on the statement. The Government should then move the adjournment of the debate until the following Monday. An early adjournment of the debate on Budget day would be a return to the practice of twenty years ago. The half-day thus saved could be devoted to some other business unconnected with financial affairs. This half-day saving would also make a contribution towards finding time for the House to debate on another occasion the reports of the proposed Committee on Economic and Financial Administration.

18. With the growing complexity of the tax system more and more of the time of Members has been devoted to painstaking laborious work on the details of individual taxation proposals during the stages of the Finance Bill. To some extent their ability to consider the merits of taxation proposals in relation to social policy, management of the economy and the scope of public expenditure must have been affected adversely. With the functions which we have outlined for a Select Committee, the existing working of the tax system should be under more continuous review. In particular, anomalies and inconsistencies would have a better chance of being corrected without taking up the time of Members during the committee stage of the Finance Bill. Insofar as a Select Committee on Economic and Financial Administration was able to stimulate debate between Members, the Government and outside bodies on the effects and implications of the taxation system, one might expect that actual legislative proposals might be introduced in more coherent and complete form than has been usual in recent years. In due time the role of the House in scrutinising and debating the party political implications of financial proposals might be strengthened. But, before this, we might reasonably expect some improvement in the standards of management of the Revenue Departments, deterioration of which has recently been fully documented and traced directly to the rapid innovations of recent years. We might also expect an improvement in tax administration, through more careful Parliamentary scrutiny of tax legislation.

19. The need to restructure elements of the tax system in the light of Britain's possible entry into the E.E.C. is already engaging political opinion. The need for any changes to be fully considered in ways which will secure the confidence of Parliament and the public in them is obvious. Otherwise further innovation may only exacerbate a situation in which distinct signs of malfunction and loss of confidence in the tax system are already appearing. The responsibility for countering such a tendency lies firmly with Parliament.

20. Summary of recommendations:

1. That a sub-committee of the proposed Select Committee on Expenditure of the House of Commons should be set up to deal with economic and financial administration; in particular to review, with expert advice, the operation of the main structure of taxation in Britain, from the standpoint of its success in attaining the stated objectives of the fiscal system;

2. That the same Committee should examine comprehensively the administration of the tax system by the Revenue Departments and by the Treasury;

3. That a special sub-committee of such a Committee should examine the legal technicalities of tax administration; and that ultimately revision of tax law should be dealt with on an ad hoc basis, separately from the annual Finance Act, which should be confined to revenue-raising proposals only;

4. That the stages of the Budget debate in the House of Commons should be re-timed, to allow more adequate preparation by Members.

April, 1970.


1. First Report from the Select Committee on Procedure 1968-69, H.C. 410. Memoranda from the Specialist Adviser to the Committee and from the Treasury: "Financing Public Expenditure". Minutes of Evidence: paras. 700-761.

2. Memorandum submitted to the Select Committee on Procedure by the Allied Accountancy Bodies: "Consideration of the Principles and Practice of Taxation"; para. 2 (See Appendix 3).

3. loc. cit. p. 219.

4. Memorandum submitted by Mr. J. H. Robertson: "Parliamentary Procedures for Scrutiny of Taxation", paragraph 2 (Evidence, page 21).

5. H.C. 410. Memorandum by the Treasury: "Financing Public Expenditure", p. 223-224.

6. This is a development of the proposal made by the Study of Parliament Group in 1965. See the Fourth Report from the Select Committee on Procedure, 1964-5. H.C. 303. Appendix 2; "Memorandum by the Study of Parliament Group", paras.13-14--Finance Bills. See also Michael Ryle: "Parliamentary Control of Expenditure and Taxation", Political Quarterly, Vol. 38, No. 4, October-December 1967.

7. Memorandum by the Institute of Taxation: "Scrutiny of Tax Legislation". (see Appendix 4).

© 1970, Study of Parliament Group

Prepared by Simon Patrick, 1 August 2001