(1) Part III of the Finance Act, 1960 (which relates to income tax and profits tax penalties and assessments), shall be construed as having, from the commencement of that Act, the like effect in relation to happenings before that commencement as it has in relation to happenings after that commencement, except as specifically provided by any enactment contained in the said Part III (including the Seventh Schedule to the Act);and where any enactment so contained makes use of words in the present tense or in a past tense, that use shall not be taken to have any reference to the commencement of the Act or to import any distinction between happenings before and happenings after that commencement.
(2) In subsection (2) of section forty-four of the Finance Act, 1960 (which contains savings by reference to proceedings commenced before the commencement of that Act), "proceedings" shall be construed as referring only to proceedings for the recovery of a penalty under the Income Tax Acts or the enactments relating to the profits tax.
(3) This section shall be deemed to have had effect as from the commencement of the Finance Act, 1960, but not so as to make interest payable under section fifty-eight of that Act on any tax as respects which a certificate under subsection (5) of that section was refused before the passing of this Act. —[The Attorney-General.]
I beg to move, That the Clause be read a Second time.
During my speech on Second Reading, I said that we would introduce this Clause in order to counteract the consequences of the decision of the divisional court in the case of ex parte Fysh, which was given after the Budget debate. I reminded the House then of the criticisms made in the court of the penalties and provisions that were contained in the Finance Act, 1960. They were also criticised by the Royal Com- mission and I need not discuss them in detail.
Suffice it to say that it was open to the Inland Revenue to sue for £20 plus three times the taxpayer's total liability to tax for a particular year, if the taxpayer failed to make a true and correct return. That kind of penalty, under the old law, was criticised as harsh and unconscionable. It is right that I should point out, however, that there was little criticism of the way in which the Revenue used this extensive power. It was open to it to accept far less than the full pound of flesh to which it was entitled by the Statute. In practice, the Revenue used these penalty provisions for recovery of all tax which the taxpayer should have paid and of interest on the amount outstanding, and for the recovery of such penalties in addition as it thought appropriate.
The Committee will remember that in 1960 we introduced a new code which, I think, met with the approval of all right hon. and hon. Members. Under it, provision was made for the raising of assessments to recover the tax which ought to have been paid and had not been paid, for the charging of simple interest at 3 per cent. on tax recovered, and for the Revenue to sue in the court for penalties appropriate to the taxpayer's misconduct, it being for the court to decide what was the appropriate penalty within the prescribed limit.
The intention of the House was that this new code should apply after 1960 to all cases, whether or not the tax default occurred before or after 1960 and whether or not the default was discovered before 1960. There was only one exception. We did not intend to interfere with penalty proceedings already started under the old law, but we intended that any new proceedings for a penalty should be under the 1960 Act. That Act was, in a sense, retrospective in this respect. It was intended to be retrospective for the benefit of the taxpayer. It would, indeed, have been unfair to have allowed the old harsh code to continue to apply to offences committed in the years before 1960 while prescribing a fairer code in relation to misconduct since then.
On 18th April, the divisional court held, in the case of Fysh, that because the provision in the 1960 Act imposing a charge of interest on unpaid tax was in the present tense, interest could not be charged on tax assessed before the Act came into force. In the light of this decision, it could be argued that the new penalty provisions applied only to defaults committed after the passage of the 1960 Act and that the old harsh penalty provisions applied not only where penalty proceedings had been instituted before 1960, but also where other steps had been taken before that time.
Subsection (1) of the Clause makes it clear that the 1960 code applies to happenings before as well as after the commencement of the 1960 Act and that this is to be so despite the use of the present tense in certain sections of that part of the Act. Subsection (2) makes it clear that the old code of penalty proceedings applies only where penalty proceedings were started before the 1960 Act. Subsection (3) makes it clear that this Clause, while retrospective—as was the 1960 Act—will not affect the decision in the case of Fysh and similar cases.
I may be asked why this Clause should be made retrospective, why it is not to have effect as from the commencement of the 1960 Act, and why it would not suffice to allow it to commence with this Bill. There are three compelling reasons for this course.
The first is that unless it is made retrospective back to 1960 the taxpayer, even though penalty proceedings under the old code have not yet been started, may be liable. I am confident that that was not the intention of Parliament in 1960. The second reason is that between 1960 and the decision in the Fysh case the Inland Revenue made many thousands of settlements with defaulting taxpayers involving over £30 million. These settlements were made on the basis, accepted by both sides, that the new code applied.
In the light of the Fysh case, claims may be made for the reopening of these settlements. Those claims might not succeed, but, if they did, the consequences to the Revenue might be serious. In many of these cases it might also be too late to undertake formal penalty proceedings, or even to assess tax, so that the defaulting taxpayer would get away with it without paying the tax he should have paid.
Furthermore, in some cases the Revenue has started penalty proceedings under the new code. If those proceedings had to be abandoned owing to expiry of the time limit, it might not be possible to start fresh ones. Again, the result would be that these defaulters would get away with it.
For these reasons, and because the passage of the Clause will have the effect of making the 1960 Act do what everyone intended it to do and what, until the decision in the Fysh case, it was generally thought to do to the advantage of the taxpayer, I commend the Clause to the Committee.
I do not think that anyone on this side of the Committee would want to dissent from the fact that the Attorney-General is commending this new Clause to the House, but I think that it is pertinent to make two observations on his speech.
First, I gather from what the Attorney-General said that it is really a confession on his part that the 1960 Act was imperfectly drawn and that it was not drawn with sufficient clarity to give effect to what Parliament intended.
It seems to follow from what the Attorney-General said that he and his advisers, in drafting the 1960 Act, had not effectively given operation to the intention of Parliament, because when the courts came to construe the Act of 1960 they placed a different interpretation on it from that which the Attorney-General and others on the Government Front Bench had intended.
As a result of that failure on the part of the Government to draft the Act properly, I think that we might have had, in addition to what the Attorney-General has said, some apology for that omission, and also I think that we are entitled to some assurance that sufficient care is being taken in this Finance Bill to ensure that the intentions of the Government are being properly carried out in legislative form. I think that we are at least entitled to that assurance.
Secondly, I think that it is reasonable to make this observation that, just in so far as the Government recognise that in the 1960 Act it was perfectly legitimate to make certain provisions with retrospective effect and to amplify them in this Finance Bill by making them doubly retrospective, it is worth placing on record the fact that the Government recognise that there are cases in which legislation of a retrospective character in Finance Acts is not only perfectly legitimate in itself, but is in the interest both of the taxpayer and of the Revenue.
Finally, I think it right to ask the Attorney-General for this assurance: that in so far as proceedings may in the future be contemplated under the Finance Act, 1960, as we are now about to amend it, any taxpayer will be subject only to the penalties introduced into the 1960 Act by the Act of 1960 and nut be subject to the penalties in force before that Act was introduced.
I dealt with the last point raised by the hon. Gentleman the Member for Islington, East (Mr. Fletcher) in the course of my speech, when I made the position perfectly clear. As to the first point that he made, I think that perhaps he had in mind the observation that I made about this on Second Reading.
The 1960 Act was drafted with very great care. It made use of what I think the grammarians call the historic present tense, and that led to difficulty in the divisional court. As I said on Second Reading, one might well have an appeal from that decision, to a superior court, but in view of the fact that the Finance Bill was under consideration it was thought preferable to take this course. We always try to get the Finance Bill right, but instances occur from time to time where the courts put an interpretation on a particular Section which is different from that which the House intended. It is not infrequent for that position to be remedied in subsequent Finance Bills. That has been the experience of all Governments of all parties.
I have no doubt that the object of this new Clause is very good and important. However, we have had an example of the sort of decisions which the courts make and on the Government Front Bench we have three hon. and learned Gentlemen very learned in the law. Is it not time that something was done to put this matter into simple, ordinary English? Finance Bills are getting beyond all argument and all reason. They are a field for argument by lawyers—I suppose that I should be the last to complain about that —and it is time that something was done about them.
I shall read to the Committee, because I think that it is important to put it on record, the wording of what is proposed. The new Clause states:
Part III of the Finance Act, 1960 (which relates to income tax and profits tax penalties and assessments), shall be construed as having, from the commencement of that Act, the like effect in relation to happenings before that commencement as it has in relation to happenings after that commencement, except as specifically provided by any enactment contained in the said Part III (including the Seventh Schedule to the Act);"—
it goes on:
and where any enactment so contained makes use of words in the present tense or in a past tense, that use shall not be taken to have any reference to the commencement of the Act or to import any distinction between happenings before and happenings after that commencement.
That is a jumble of words. Is it not time that something was done to simplify it?
I do not think that this provision deserves the criticism of the hon. and learned Member for Stoke Newington and Hackney, North (Mr. Weitzman). I am quite sure that after reading it once, he understood it completely. It is never a matter of easy drafting to make a Statute say what everyone thought it did originally. As I said, a lot of the argument in the divisional court depended on the use of tenses—that is, in respect of the last passage which the hon. and learned Gentleman read.
There are two schools of thought about drafting. One is that one should cover every single possibility, in which case the language becomes rather complicated, and the other is to state quite clearly what is the purpose of the provision. I think that the provision in the 1960 Act comes in the latter category, because the whole of Part III was directed to saying what should happen under the new code. In the provision of Part III, dealing with the new code, the present tense was used and that led to the decision of the divisional court.
My criticism is that something should be done to simplify the whole matter and get Finance Bills put into proper shape so that ordinary people can understand them.
In his original explanation, the right hon. and learned Gentleman said that the first subsection which my hon. and learned Friend the Member for Stoke Newington and Hackney, North (Mr. Weitzman) quoted made something plain, and at another stage he said that it made it clear. All I wish to say—and I hope that the right hon. and learned Gentleman will take it as a compliment, as it is certainly intended—is that I accept that, but do so as an act of faith in the right hon. and learned Gentleman.