§ Mr. Pearson
To ask the Chancellor of the Exchequer (1) what estimate his Department has made of the cost to the Exchequer in(a) the 1995–96 financial year and (b) from 6 April to 8 October 1996 from the tax abuse of share buybacks and special dividends; and if he will make a copy of the calculations available in the Library; 
(2) if he will place in the Library the basis for, and calculations behind, the statement in the Inland Revenue press release of 8 October that the changes in respect of share buybacks and special dividends will produce an estimated yield of £80 million in 1996–97, £200 million in 1997–98 and £400 million for 1998–99 onwards. 
§ Mr. Jack
Estimates of the revenue effects of restricting the payment of tax credits in respect of share buybacks and certain special dividends, as announced by the Chancellor of the Exchequer on 8 October, were prepared on the following basis and assumptions:
- (a) That with no change in tax treatment, the level of relevant distributions would have been £4 billion annually, with associated tax credits of £1 billion; of these credits, £700 million would have been paid to exempt institutions.
- (b) With the change in tax treatment, relevant distributions would fall by £1 billion (with this money retrained by companies or distributed without attracting tax credits). The remaining £3 billion would be paid as dividends not falling within the restrictions announced on 8 October 1996, with tax credits of £750 million, of which £300 million would be paid to exempt institutions.
- (c) The impact of the changes on tax revenues would be:
- (i) receipts of advanced corporation tax (ACT) would fall by £20 million in 1996–97 and £250 million a year starting 1997–98, because of the drop in relevant distributions;
- (ii) payments of tax credits to exempt institutions and non-taxpayers would fall by £100 million in 1996–97 and £400 million a year starting in 1997–98;
- (iii) Payments of mainstream corporation tax would rise by approximately £50 million in 1997–98 and £250 million a year starting in 1998–99; and;
- (iv) the liability of higher rate income tax payers would increase by a small amount.
- (d) The net revenue effects are, therefore, likely yields of £80 million in 1996–97, £200 million in 1997–98 and £400 million in subsequent years.
- (e) The actual revenue effects will depend on the level of relevant distributions that would have been made and the tax liabilities borne when companies make similar or alternative distributions in the future.
The same comparative method of calculation applied to the level of share buybacks and relevant dividends in the financial year 1995–96 and in the period 1 April to 8 October 1996 produces estimates of the total cost to the Exchequer of £400 million respectively, borne over the period 1995–96 to 1997–98 and £450 million.