Clause 55
Finance Bill
10:00 am
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
Whereas on the previous clause we made our points in a probing manner, we do so here with much greater force. I associate myself with the remarks of the hon. Member for South-East Cornwall. The retrospective nature of the clause is deeply troubling. We fully share the Government’s concern about the issue that it is trying to address. There is a problem with the arrangements and it is perhaps more than just a kink in the system, as the Economic Secretary put it. Trading profits derived from UK land are being received tax free by UK residents and domiciled individuals because of schemes involving the establishment of offshore trusts, specifically in the Isle of Man.
The existing legislation appears to deal with the issue where the UK residents or domiciled individuals are partners in the relevant offshore funds, but it does not seem to work where the partners are trusts and the UK individuals are benefiting from the arrangement. There is not a problem with trying to address that point, but there is a point of principle here. The proposal essentially states that the amendments contained in the clause are to be treated as always having had effect. Either the law exists or it does not. It is troubling when the Government state that the law in the past is something because that is what they say it is now. That is essentially what subsection (4) states.
This is partly an issue of simple democracy. It raises issues about EU law and legitimate expectations. I shall not pursue that point, but the hon. Member for South-East Cornwall is right to raise it. In part, it cuts to the question of the certainty and stability of the UK tax system. For investors, the idea that UK tax law is likely to be changed retrospectively is unattractive, and the UK is, for various reasons, acquiring a reputation for having an uncertain and unstable tax system, which is bad for the UK economy.
This clause is but one example, but it has attracted considerable attention. Indeed, one leading tax expert described it as unprecedented. The Minister smiles, but I would be grateful if she gave some examples. She may seek to give the example of the 1987 case, but distinctions can be drawn with that. The 1987 provision, with regard to section 62 of the Finance Act 1987, seeks to reverse the Padmore case, to which we have referred. It says that the measure is deemed to have an effect except in relation to any judicial decision made before the amending legislation was announced. That is an important carve-out. It benefited not only Mr. Padmore, but a number of other individuals who had entered into arrangements and waited for the conclusion of the judicial proceedings relating to Mr. Padmore. In doing so, they benefited from that carve-out.
None the less, concerns were raised, and understandably so. I think that there was a certain amount of nervousness from the relevant Minister at the time—Norman Lamont, now Lord Lamont—but it may well be worth pointing out the comments made by the Labour spokesman about what was then clause 62. He said:
“Parliament should oppose retrospective legislation, for a number of reasons. The principal democratic reason is that people are perfectly entitled to do whatever the law permits them to do and that it is wrong afterwards to make it unlawful.”—[Official Report, 15 July 1987; Vol. 119, c. 1179.]
That spokesman—