Professor Alan Barrett:

You present a convincing argument, Chairman. Obviously we would all be sympathetic to the individuals you are talking about. I emphasise the point that at the lower end of the earnings distribution we have been taking people out of the tax net. You are talking about a group of people in the middle.

Unfortunately, we have to pay taxes. You referred to the notion of whether this was temporary. The economy was in a totally unsustainable place. We know all the arguments and I will not bore you by going through the arguments again. We put the question in terms of the need to keep the aggregate tax take. We are very strong on that. If the argument is whether we need to do something on the USC, then it leads to the obvious question of what else are we going to do. My suspicion is that certain groups of people would say that the higher paid are paying inordinate amounts of taxes and so on. These are the arguments that come up again and again and we could debate them to and fro. Points can be made but, I suppose, the parting point on this question - the more important one - is around the aggregate tax take.

Let us bring it back to the discussion earlier. The stability of taxes and transparency are important. The idea that we might cut the USC but not index the bands would mean the Government is simply clawing it back in another way. There is a general understanding of where unfairness might arise. One particular feature of the tax code is the problem of people paying the high marginal tax rate at relatively low incomes. If the Government is going to fund the USC through non-indexation, then it will be creating more of the difficulty because people drift into the higher bracket. That strikes me as being unfortunate.