Clause 31 - Commencement
Finance Bill
10:30 am
Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede and Weybridge, Conservative)
The clause deals with the commencement provisions for the chapter, which addresses the problem of avoidance through tax arbitrage. For things covered by the chapter, a tax charge is potentially accruing now, and has done from 16 March. However, the commencement clause creates opportunities for companies to unwind the arrangements that they have in place by 31 August. That date gives companies an unrealistically short period within which to comply.
When the Bill was first introduced, 31 August was some four and a half months after the date of introduction, but since then the chapter’s provisions have undergone a number of changes. Issues are still outstanding, and clarification is still being sought and received as we go forward. It would be inappropriate and potentially dangerous for companies to collapse structures to take advantage of the window that is deliberately being granted by the Government without knowing the final form of the legislation
I am sure that the Paymaster General will agree that it would pretty much be a disaster if a company underwent a complex restructuring exercise to take into account activities outside the scope of the arbitrage provisions only to find that they had fallen foul of the new rules because changes took place or because further amendments needed to be made. The essential proposal is to extend until the end of December the window of opportunity for things to be unravelled. Also, we want the commencement date of the accrual of liabilities to be changed to 31 July. I accept that that is an arbitrary date to select to replace 16 March. It is based on a comfortable view of when the legislation will achieve Royal Assent.
There are two issues to address. The first is to do with the requirement placed on companies. They should not incur liabilities while the situation is still in a state of flux and changes are being made to the legislation. The second is that companies must have an opportunity, from a standing start, to make the changes necessary to ensure that they can take advantage of the intended window of opportunity to unravel the arrangements.
Companies are telling us that the arrangements take time to unravel. Many of them will involve third party lenders and, for example, complex banking covenants. They cannot be collapsed overnight. Financial terms will have to be negotiated, as will the legal documentation that will be necessary and the legal processes that will have to be carried out to give effect to the required changes. Last week, we spoke to one company that has decided for commercial reasons to unravel one of these structures. It took that decision before the Budget, but even now it is doubtful whether it can complete that by 31 August simply because of the time that it has taken to renegotiate the necessary arrangements. It is important to give effect to what the Government both intend in the legislation and made clear is their intention in subsequent explanations, so that we have a later starting date and a later closing of the window for cessation of schemes.
I hope that the Paymaster General takes that on board and that she reassures the Committee that if the Government are unable to accept the amendments they will, by whatever means—perhaps by extra-statutory concession—give companies a little longer than the 31 August cut-off date to take advantage of the cessation provisions in clause 31(3).