Treasury: consultation would have changed behaviour

The government did not consult on changes to trusts because it would have had
a ‘behavioural impact’, Treasury officials said today.

Rejecting criticisms from John Whiting of PricewaterhouseCoopers, who told
MPs on Monday that the lack of consultation on the issue had been ‘nothing short
of outrageous’, Mark Neale, the managing director of Budget, tax and welfare at
the Treasury, said: ‘We don’t generally consult on budget measures where there
is potentially a behavioural impact. That would certainly have been the case in
this case.’

The comments are the first to have emerged from government figures as to why
there was no prior discussion of the tax changes, which apply three new tax
charges to accumulation and maintenance trusts in particular. The move has
caused an outcry, particularly amongst tax lawyers.

David Gauke, the Conservative MP for Hertfordshire South West, quizzed
Treasury officials today as to how many trusts would be affected.

Neale reiterated Dawn Primarolo’s claim last week that there were 100,000
discretionary trusts in the UK, of which a small proportion were affected. Of
those, only those over the IHT threshold, currently £275,000, would be affected,
he said.

Neale did not elaborate on what behavioural impacts would have resulted, and
how that would have prejudiced the intention of government policy. The lack of
discussion has angered the profession, especially as the government has been
consulting on the modernisation of trusts for several years.

After the meeting, Gauke questioned the official reason given for a lack of
consultation on the issue, telling Accountancy Age: ‘Almost any tax change could
have a behavioural impact. It makes you wonder what the point of any
consultation is.’

Chancellor Gordon Brown is set to be asked questions on the issue at
tomorrow’s session of the Treasury select committee.

The Law Society yesterday criticised the chancellor’s moves on the trusts,
saying that elderly people and the mentally ill affected by the change would be
unable to make changes to their wills unlike others, and could be ‘prejudiced’.

The association suggested delaying the moves and including ‘safe harbours’.

Related reading