RT HON ALISTAIR DARLING, MR DAVE RAMSDEN, MR MIKE WILLIAMS, MR EDWARD TROUP AND MR SIMON GALLAGHER

19 MARCH 2008

  Q420  John Thurso: Define "work".

  Mr Darling: That could keep us here for a long time.

  Q421  John Thurso: That is the point. People can be useless directors but they do not get punished for it. I think we know quite a lot of them.

  Mr Darling: What I am anxious to avoid is us getting into a situation where more and more people can avoid what they should fairly be paying into the system.

  Q422  John Thurso: Let me challenge that if I may.

  Mr Darling: That is exploiting a situation that is not open to the majority of people. Up until last summer when we had this court case, I think it was generally understood that if somebody was working, making a contribution, they could be fairly rewarded for that. What I readily accept, which is why we have delayed this, is that it is quite difficult to legislate for it. What I am very sure about is that if we do not address this problem we are going to lose more and more tax. More and more people will take advantage of that and the burden will fall on people who have no choice but to pay their tax. I pass no comment on your non-executive spouse. Whether it is hypothetical or not I do not know.

  Q423  John Thurso: I would not. She is quite cross already. The maximum we had in evidence yesterday would be in the order of 6K that the Treasury might lose. It is the differential between 20p and 40p. It is the NIC on the 40p that is not being paid. Take my word for it. There is another way of calculating it. HMRC say it is 260 million and it is 88,000 businesses. If you do the maths, it averages out at just over £3,000. What we have in the main is large numbers of small businesses, spouses being employed or helping the business, maybe not employed but just doing a lot of work or whatever, who you are chasing for an average of 3,000 and a maximum of 6,000 when the masters of the universe have been creaming you for millions for five or six years. Where are fairness and unfairness in that?

  Mr Darling: The 6,000 figure you were quoting is per couple.

  Q424  John Thurso: No, it is the shift.

  Mr Darling: Yes, but the loss to the Exchequer will be rather more than that.

  Q425  John Thurso: It cannot be.

  Mr Darling: It would seem that the invitation you proffered to me once to visit your constituency has probably been withdrawn now.

  Q426  John Thurso: You are always welcome. If I can demonstrate to you the value of my relations in my business, it would be a delight.

  Mr Darling: As I have not got there yet, I cannot promise you when I will get there.

  Q427  John Thurso: I hope I have not put you off.

  Mr Darling: I have no difficulty with the idea that you get many husbands and wives who are partners in business, who both make a contribution. Some of it is very obvious in terms of somebody doing work and some of it is less obvious. What I think any Exchequer would have a problem with is if you have a system that allows people to reduce the amount of money they pay on tax where it is not at all obvious that somebody is making a contribution. Trying to draft that legislation is difficult, I grant you, which is why we are consulting to try and get the thing right. What you cannot do—and this is a problem right across the tax system—is allow a situation to develop where more and more people can take advantage of something that is not open to the majority of people in this country, because I think that becomes unfair.

  Q428  John Thurso: It is even worse because if I choose to have a mistress and I manage to keep it quiet and I make her a director and she does absolutely nothing, there is nothing you can do about it. I can pay my mistress but I cannot pay my wife. This is a turkey of Orwellian proportions. You should wring its neck and stuff it back in the freezer.

  Mr Darling: I am looking forward to my visit to Thurso to see the menage when I get there.

  Q429  Chairman: I have not had an invite from John to his constituency.

  Mr Darling: Maybe we should all go.

  Q430  Chairman: Maybe I could come along to protect you from his wife. Can I go on to spirits and Scotch whisky? The Scotch Whisky Association contacted me and said that the HMT model which was published three years ago of elasticity for spirits looked at a 40% duty rise producing just 6% more revenue but it would cause the UK spirits market to shrink by one third. That being the case, your figures of raising £400 million in revenue, 2008-09, £505 million in 2009-10 and £625 million in 2010-11 seem in jeopardy.

  Mr Darling: I find that difficult to accept as far as the Scotch whisky industry is concerned because 90% of its sales are export. It is a hugely successful export industry and the duty-paid depends upon the markets into which it is sold. If you speak to anybody in the Scotch whisky industry, they are doing very well. Certainly compared with ten years ago, they are doing exceptionally well. It is a huge industry for Scotland that is very important.

  Q431  Chairman: You have not answered the question.

  Mr Darling: The estimates we give are the best estimates of what we believe will be the effect of increasing the duty. In relation to the Scotch whisky industry, given that 90% of what it produces is exported, I find that argument difficult to understand.

  Q432  Chairman: I will provide you with that information. Given the cautious view of CPI 2% inflation plus 2% for duty accelerator each year to 2013, that puts further doubt on the revenue benefit and on the damage to the industry. We are talking about a 16% increase on spirits over five years.

  Mr Darling: My officials will correct me if I am wrong but the estimates we make are based on our forecasts for inflation, which are the ones you would expect us to use. We can make an estimate of what we think will happen to overall sales but if you look at whisky you are talking about 59p a bottle. In relation to some of the other drinks we are talking about, if you went into a supermarket the average price of a bottle of wine was about £4.40 10 years ago and it is now about £4. I make no bones about it. The reason I did this was to pay for what I wanted to do for the winter fuel payments and child poverty. Given that we had frozen spirits taxation for ten years—and there are very few sectors where we have done that, which is a benefit to the Scotch whisky industry as well as the other spirits industries, a lot

of which is exported as well—I do not think it is unreasonable.

  Q433  Chairman: When we go down for our darts and pool night to the pub, we can say child poverty and winter fuel allowance have gained so that is your sacrifice.

  Mr Darling: I will leave it to you to decide what you say down at the pub but you asked me for the rationale and that is what I said last week and what I say again today.

  Chairman: You have been very open with us, Chancellor. Thank you to you and your officials for coming along.