Income Tax (Building Societies) Regulations I986

Clause 52 – in the House of Commons at 12:15 am on 15th July 1991.

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Photo of Peter Bottomley Peter Bottomley , Eltham 12:15 am, 15th July 1991

I beg to move amendment No. 45, in page 36, line 31, leave out from beginning to 'this' in line 32 and insert In relation to any building society whose accounting period ended before 1st October in the year of assessment 1985–86.'.

Photo of Mr Harold Walker Mr Harold Walker , Doncaster Central

With this, we may take the following amendments: No. 29, in page 36, line 31, leave out from 'society' to 'this' in line 32, and insert—

  1. '(a) which commenced proceedings to challenge the validity of the regulations before 18th July 1986, or
  2. (b) which, after 18th July 1986 but before 19th March 1991, commenced proceedings for the recovery of money paid by it, being proceedings taken as a result of the outcome of earlier proceedings of the kind to which paragraph (a) of this subsection relates, or
  3. (c) which, after 18th July 1986 but before 19th March 1991, made any payment as provided for by the regulations, and which, in relation to such payment, gave written notice that it disputed the validity of the regulations.'.
No. 30, in page 36, line 32, leave out 'before 18th July 1986' and insert 'or to recover money paid by it on the basis of such a challenge made by it or by any other building society before the date on which this Act received Royal Assent.' No 31, in page 36, line 32, after '1986', insert 'or in relation to a building society which since 18th July 1986 but before 19th March 1991 commenced proceedings for the recovery of money paid by it, being proceedings taken as a result of the outcome of earlier proceedings to which this subsection relates'. No. 32, in page 36, line 32, after '1986', insert 'or which was referred to in an affidavit sworn before that date as expressly supporting such proceedings and lodged in the Court in the course of such proceedings.'. No. 46, in page 36, line 32, after '1986', insert 'or would have done so but for its reliance in good faith on the view that the liability of every building society under the regulations would be determined according to the decision of the court in proceedings which were commenced before that date.'.

Photo of Peter Bottomley Peter Bottomley , Eltham

If I am given an opportunity, I shall seek to divide the House on amendment No. 29, which brings together a number of the ways in which building societies could reasonably expect to take the benefit of the result of the judicial review that followed the Finance Acts 1985 and 1986, the regulations under the 1985 Act and the application for judicial review made by the Woolwich building society in the High Court, the Court of Appeal and the House of Lords.

I do not intend to try to rally as many hon. Members as possible to join me in the Lobby, although if Labour Members chose to do so that would be very nice. I want it to be made clear in any subsequent judicial review proceedings—others have been instituted, meaning that the saga that has continued for the past five years may continue for a further five—that the House of Commons was not told in 1985, when the proposals for the change were made, that the Revenue intended to take a tax advantage. That is a neutral expression used recently by my hon. Friend the Economic Secretary. The Revenue proposed to take advantage of six months' tax on the Woolwich, the Leeds and some other building societies.

There are three ways of describing the taxation that is at issue. One is to call it "double taxation". To an extent, my hon. Friend the Economic Secretary conceded that in the fifth sitting of the Standing Committee. Another way is to call it "the gap"; my hon. Friend has described it thus on other occasions. He has often used the form of words employed by counsel for the Treasury in the High Court, who argued that the tax under consideration had been deducted from depositors and members of building societies.

The third description—used recently in a letter, from which I think I have permission to quote, from my hon. Friend the Economic Secretary to the president of the Leeds building society—is "tax advantage"; we could, indeed, mention tax disadvantages as well. Whatever expression we use, and whether our chosen expression is pejorative or merely matter-of-fact, we are talking about between £250 million and £400 million.

In the past few days, it has emerged that discussions were held between either the Revenue or the Treasury and building society representatives in 1985. I do not intend to go into the details, because I do not know them. Besides, confidential discussions should remain confidential unless there is good reason to refer to them. I do not accuse my hon. Friend of not having good reason.

Let me say to my hon. Friend—and, through him, to his officials in the Treasury and the staff of the Inland Revenue board—that I am grateful for many of the replies that they have given. In the civil service, it is very difficult to be accountable in detail, and to be able to set out in detail all the reasons why any particular action was taken, especially if it was taken six years earlier. That is one of the differences between public service and the private sector.

We heard in the 1985 Budget statement that there would be no additional revenue from the sensible change that was proposed—that building societies, instead of paying in each tax year a sum to satisfy their tax liabilities or those of their members, would make payments quarterly based on what had happened in the actual financial year.

It was clearly understood in the House previously that the payment made on 1 January in each tax year would satisfy a society's liabilities in that tax year, although the sum came out of a society's dealings with its members and depositors in the previous year. That much is common ground. It is also common ground that the press notice put out by the Treasury, or the Inland Revenue—I forget which, but it does not really matter—at the time of the 1985 Budget said that there would be transitional arrangements.

Many people could have believed that those transitional arrangements were used to refer to the fact that under the new system of accounting for tax quarterly—14 days after the end of each quarter—the system would begin in a quarter starting on 1 March, not in a quarter starting on 6 April. It would have been perfectly reasonable for building societies and others to assume that the transitional arrangements reference was to that and not necessarily to going after extra taxation for a year for which many building societies had already fully satisfied their tax liability.

The only other reference appeared in a footnote to the Red Book issued on Budget day stating that there would be some public sector borrowing requirement effect. The Committee considering section 41 of the Building Societies Act 1986 and the extension of powers to the building society commissioners did not believe that the phrase "some effect on PSBR" was a full way of describing what may have been in some senses a deficit of £76 million to the Inland Revenue in the coming year or a tax advantage to the Revenue of between £250 million and £400 million.

There was a debate on the matter during the Committee stage of the 1985 Finance Bill and I have referred to the debate in the Committee considering the statutory instrument dealing with section 41 and the powers of the building society commissioners. Dr. Oonagh McDonald was wrong when she referred to the effect of £50 million.

I want to refer to some of the parliamentary answers that I have received recently on the matter. I asked my right hon. Friend the Chancellor of the Exchequer what would be the effect of the removal of Clause 52 of the Finance Bill on the ability of the Inland Revenue to retain certain disputed tax paid by building societies. The answer from my hon. Friend the Economic Secretary was: Whether or not tax paid under the transitional provisions in the 1986 Building Societies Regulations is repayable would, in the absence of Clause 52, depend on the particular facts of each case. People outside this place have told me that it would have been far better if the Government had not announced in the 1991 Budget that they were going to introduce what started out as clause 50 and is now clause 52. It would have been much better to have left it the way Patrick Jenkin left it on Report during proceedings on the Finance Bill of 1986 to have the matter fought out in the courts. We have a situation that is created by retrospective or retroactive, or both, amendments to the Finance Act 1986 which gave effect to regulations that were misdrawn under the Finance Act 1985.

As a result of lack of full description about what was happening in 1985 and together with the debate on the Floor of the House on 17 July 1986 and the cascading decisions of the High Court, the Court of Appeal and the House of Lords, we have had a mixture of debate and legal decision. That was revealed in discussions upstairs in Committee on this Bill when my hon. Friend the Member for Beaconsfield (Mr. Smith) and the hon. Member for Brent, South (Mr. Boateng) quizzed my hon. Friend the Economic Secretary. There was a mixture of what the courts held was in law and what the courts and others believed was in Parliament's mind. Very little of that had anything to do with what happened in 1985 when we began to allow for some potential consequential decisions following the change in the basic way in which building societies pay taxation.

We are talking about substantial sums. In a reply to me dated 8 July, my hon. Friend the Financial Secretary refers to the Inland Revenue statistics for each year since 1985 and recounts the schedule for composite rate of tax on building society interest for each year since 1980–81. I will cite the figures to give some idea of the sums involved. In 1980–81 the figure was £1,217 million. It rose the following year to £1,425 million and in the following year, 1982–83, it was £1,583 million. It was roughly the same in 1983–84. In 1984–85, it was up to £1,844 million. There is then a run of four years—1985–86 to 1988–89—in which it was approximately £2,600 million. In the most recent year for which figures are available-1989–90—it was £3,713 million. We are talking about very large sums.

1 am

The amount of money changes because of a number of factors, including interest rates, tax rates and the level of deposits. In the long term, if building societies become a popular medium through which to accumulate savings, that will be one influence.

From year to year, the dominant influence is the interest rate. It is difficult to decide how much of the change in the amount raised by the Revenue from building societies on the composite rate tax changed between 1985–86 and 1986–87. My hon. Friend has said that it would be disproportionately expensive to work that out. However, we need to find out what is likely to have happened.

I return for a moment to 1985. It is clear from the Budget speech that there was not a full explanation. It is clear that there was not a full debate in Committee and it is clear that there was not a full debate on Report.

The first bit of information that we have available to us is an article which I was grateful to my hon. Friend for drawing to my attention. It was written by Richard Northedge and appeared in The Daily Telegraph on 29 July 1985. The headline was Societies fight £500 million double tax demand. The article went on in fair detail, dealing mainly with the Woolwich and with the Leeds, and talks about the societies with a 30 September year end which would have to pay double tax for six months.

I have asked Treasury Ministers whether either the Treasury or the Inland Revenue responded in public at the time of The Daily Telegraph report. My hon. Friend has told me that he is not aware of any such response. That is an accurate answer, because he is saying not that there was not a response, but that he is not aware of one. It is regrettable, because if the issue turns on whether the tax advantage, or the tax that people were going to go after for six months from the Woolwich, from the Leeds and from others for a year in which the tax liability—and there is no dispute about this—had been fully satisfied by the payment made on 1 January, it would have been better if there had been a public response, and if the argument about what is double taxation or what is taxing the gap had started at the time when the issue first came forward in public.

Photo of John Maples John Maples The Economic Secretary to the Treasury

The Treasury is not in the business of responding to every article that is written in newspapers. My hon. Friend cannot read anything into what he has described. My hon. Friend has sought, through his parliamentary questions and correspondence with me, to establish that it was not the intention of the Government at the time of the 1985 Budget to tax what I call the "gap period". I gave him the article, which was a clear sign that in July of that year the matter was raised in The Daily Telegraph. Everyone who reads that paper and every building society must have been aware of it. In those circumstances, it would be appropriate for my hon. Friend to agree that it was clear to all the building societies at that time that it was the Government's intention to tax that period.

Photo of Peter Bottomley Peter Bottomley , Eltham

Nothing that my hon. Friend has said is in disagreement with what I have said. I have said that it is regrettable that the issues were not brought out into the public debate. I was not criticising anyone.

If my hon. Friend wants me to give way again, I will happily do so, because I am trying to put a fair exposition to the House bringing together the various things that have happened over the past six years.

I asked my right hon. Friend the Chancellor whether he would list all other newspaper, parliamentary or ministerial reports before 29 July 1985—that is, before the Richard Northedge article—which made explicit reference to a proposal to claim tax from building societies in relation to any period from their year end to the end of the financial year 1985–86 separate from the tax payments that had satisfied the liability for that full financial year. My hon. Friend has responded today. It is important to acknowledge my gratitude for the speed with which he has responded to a number of these questions, and to say that I understand his comment that the information is not readily available and cannot be provided without disproportionate cost.

However, before the article of 29 July 1985, there is no record of any explicit reference to this issue, despite the fact that we had had the Budget, and the Second Reading, Committee and Report stages of the Finance Bill. The only reference was when Oonagh McDonald raised it in Committee when, apparently, the figures were so different from those that may or may not have been available at the time that that cannot be regarded as a full and open discussion. My hon. Friend may say that officials or Ministers had been having full discussions with the building societies. That is fine—but it is not discussions with the House of Commons. I do not think that there is any reference on the Floor of the House or in Committee to what was going on. That became clear only later.

We move on to when it was decided to propose legislation to obtain what I call "additional tax" from building societies for the financial year 1985–86 and when and how an estimate was published of the financial effect on total tax receipts and on the tax to be paid by societies. My hon. Friend repeats his view that the 1986 legislation, changing the way in which building societies account for the tax on interest and dividends paid, did not involve additional tax. I am still trying to move us forward from 1985 which is when we were looking at the consequential provisions tied to the generally accepted switch in the method of taxation.

We have had some useful information today from my hon. Friend, showing calculations that produce a reduction in the revenue received of £76 million. I am not sure how it will be designated in Hansard but it may be Question 159. It deals with the available information, listing, for the building societies with their year end in each quarter, an estimate of the gains and/or losses respectively from the transitional arrangements and from the change to the new tax system in 1986–87.

I hold the view that that minus £76 million may be based on the fact that the year in question does not have 12 months of tax receipts. There is a switch from one system to another, with the new system starting on 1 March, and with that tax not being received until the subsequent year. The table purports to show that, although some societies, including the Leeds and the Woolwich with their September year-ends, were hurt by the change to the new system, the building society movement in the aggregate benefited to the tune of £76 million or 3 per cent. of what would otherwise have been raised under the old system.

Presumably, there is a short and total answer to this. I suggest that the amount of tax that would have been due in 1986–87 if the old system had continued would have discharged all liability upon interest paid to the investors up to and including 5 April 1987. That is a 12 month-period. Under the new system, the amount due in 1986–87 discharged only liabilities on interest paid to investors up to and including 28 February 1987. In other words, the table compares the cost of 12 months' liability with the cost of less than 11 months' liability or—to put it in a way that will be recognisable to those who drafted the regulations—the table may recognise the double tax effect of regulation 11, but not of regulation 3.

Some of this is clearly supposition, because the information on which I am working has been available to me—and through me, to the House—only recently. It is regrettable—I am not blaming anyone, but it is regrettable—that that is so in 1991 when we are dealing with a saga that started in March 1985. It would have been better to have had this out and to have discussed it at that time. The tax in respect of the stub of one month and five days—from 1 March 1987 to 5 April 1987—did not have to be paid until 14 June 1987, but was it payable at the composite rate of tax for 1986–87? This takes us into one of the invalid regulations that is dealt with by clause 52(2) and (3). The necessary adjustment to compare like with like is to pro-rata the total figure for the new system—the 1986–87 receipts, which amount to £2,868 million—to reflect the missing 36 days. We are talking about over £240 million a month, so 36 days will give us more than a month's worth of tax.

Assuming that interest payments are spread evenly throughout the year, the sum of which may be generous because the March quarter is likely to be a heavy payment, the calculation is £2,868 times the ratio of 365 divided by 324, which has been calculated to be £3,182 million. That would be an extra £238 million or an 8·1 per cent. increase in taxation for the building societies movement in aggregate, instead of a 3 per cent. reduction.

The suppositions and assertions that I am making may not be right, but they are the best that can be done with the information made available to the House in the past few days or hours. There are some uncertainties that I shall not go into about whether the figures include the Woolwich and what percentage of composite rate tax has been employed to calculate the old system and new system receipts respectively.

There are also various other doubts. It is suggested that regulation 12 outbalances regulation 11, which deals with what one might call the gap or double taxation issues. There are discrepancies, which I am sure can be explained, between the figures and those quoted in the Inland Revenue statistics in the Chancellor's answer to me in Hansard of 8 July.

I suggest to the House that what has happened up to now has been clearly unsatisfactorily in several ways. First, the parliamentary draftsmanship was imperfect. That is clear from the need to introduce the amendment in the 1986 Finance Bill at a late stage. That was done to trump the Woolwich application for judicial review. It did not succeed. In the debate on 17 July 1986, when Patrick Jenkin raised the issue, two—[Interruption.] Madam Deputy Speaker, if I go on hearing barracking from behind me, my speech may get longer rather than shorter. It would be helpful to have—

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

I assure the hon. Gentleman that I can hear him very clearly.

Photo of Peter Bottomley Peter Bottomley , Eltham

I can hear those behind me very clearly.

The aim of my last remark was to draw the attention of the House to the two references in the debate on Report on 17 July 1986, that is to say, one day before the cut-off point in clause 52, to the fact that the Leeds was taking proceedings. I do not know whether it commenced proceedings or not, but it may turn out that those references have some substance that would stand up in court. We may find that not only the Woolwich was able to keep its £70 million plus. We may discover that the Leeds could keep its £57 million if it had done anything that could have been construed as opening legal proceedings before the cut-off point. We would then be left with what might be called the minnows and some of the other small societies such as the Greenwich, which proportionately were hit even harder than the Leeds or the Woolwich.

We have already established from the information how building societies have their years end in different quarters and how some of them gained by what have been called the transitional changes—the changes in the timings of their payments of tax. We end up with what is clearly hybridity except that the way in which it is covered in clause 52 is to deal with classes of building societies which include the Woolwich alone or the Woolwich and the Leeds, if my references to the Report stage of 1986 are correct.

The position is highly unsatisfactory. The draftsmanship is unsatisfactory. The near hybridity is clearly unsatisfactory. We then come to whether the Government are seriously encouraging all building societies to join in duplicate judicial review proceedings along the lines of those started by the Leeds Permanent building society last week. There is a clear difference between a tax appeal and judicial review. I am not aware of other occasions when either the Treasury or the Inland Revenue has not allowed judicial review to be regarded as a statement of the law.

To say that a tax appeal applies only to the people who appeal may or may not be reasonable, depending on the circumstances. Most people would accept that one application for judicial review should state the law for each of those affected by the law itself. That is clearly a view which is shared by my right hon. and learned Friend the Attorney-General. When I asked him—I may have got the words slightly wrong—whether it was normal or appropriate for many people to apply for judicial review, he said that it was not necessary. That is a fair comment. If we pass clause 52 and the second application for a judicial review, by the Leeds, is not overturned, judicial review appeals will be duplicated by the whole class of people who could be affected. It is unsatisfactory to have drawn the line at 18 July, which is a reason why it is appropriate to vote on amendment No. 29.

1.15 am

People will see in tomorrow's Hansard the useful answer from my right hon. Friend the Prime Minister. I asked if Ministers at the time of the 1985 Budget intended to lay regulations to create liability for tax relating to a year for which the building societies Composite Rate Tax liability had been fully discharged; what estimate of the money involved was available to Ministers at the time; and what, and when, an estimate was first made available to Parliament. He replied in part: No estimate was made at the time, of tax on interest accruing between the end of societies' accounting periods ending in 1985–86 and paid before the end of that tax year. I may be contradicted by those who were Ministers at the time and I would not want to challenge them, but I believe that if at the time of the 1985 Budget there had been a clear intention, it would have been stated, the sums would have been calculated, there would have been an estimate and the House would not be in this predicament.

My final point is to warn the House about getting into the habit of letting double taxation or a tax advantage of £250 million go by, even after judges have said that a highly peculiar thing has happened, but presumed Parliament knew what it was doing at the time.

I want to assert strongly that as a Member of the House in 1985 I did not have a clue that that was going on, although I had had friendly relations with the Woolwich building society ever since I was elected in 1975. If I did not know that then and if the conclusion to the 1986 debate was that the matter should be tested by the courts because it would not be fully fought through during the late stage of the Finance Bill here, what with the courts saying "No" and Parliament not saying "Yes", I am glad that at least one Member of this House, with support from various others during the past few weeks, has been pursuing this point.

If ever Back-Bench Members, whether on the Government or Opposition side, start allowing Parliament to be treated as it undoubtedly was treated in 1985, what with the conclusions of the 1986 debate, which was not satisfactory, and this near hybrid approach to the results of judicial review, this Parliament might as well scrap its work and go home.

Anyone can provide a Government. There are 160 countries with a Government. It is easy to be in government. It is far better to work in partnership with Parliament. That is why I am grateful to my hon. Friend the Economic Secretary and his officials who provided the information so that tonight at least we could have the debate that we should have had in 1985—six years ago.

I hope that this saga will not continue for the next five years. The way to stop it is for the Government to get together with building societies and sort out an acceptable compromise. It may be rough justice to the Government, but they are dealing with only 1·5 per cent. of the income that they have had from building societies in the past seven years. It will put an unsatisfactory situation right.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

I shall be brief. This is a worrying matter which should concern the House greatly, first, because of the accusation of double taxation and, secondly, because of the retrospective nature of the clause that the Government want to enact in the Bill. Therefore, together with my hon. Friend the Member for Eltham (Mr. Bottomley) and many others, I have been into the matter in some detail.

I have put strongly to building societies that they should set out for the House and in their publicity exactly how they have been double taxed. I have asked them to provide a worked-out example showing where they have deducted tax once and then have had to pay another tax on the same sum to the Government. They have failed to reply and I do not believe that they can, otherwise they would have done so. I am inclined to believe the Government's contention that it is not double taxation. They are merely trying to collect the money that was deducted by the building societies for payment to the Inland Revenue to pay it over to the Revenue.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

No, I will not.

The only thing to which my hon. Friend the Economic Secretary should reply is the recently revealed information to which my hon. Friend the Member for Eltham referred about the building societies paying more money to the Revenue as a result of the calculation on an 11-month year, not a 12-month one. That is extremely worrying because it suggests that the clause has been wrongly administered. I hope that my hon. Friend the Minister will be able to satisfy the House that all he is trying to collect is that which the building societies have deducted from their members, which is due to the Inland Revenue.

Photo of Mr Timothy Devlin Mr Timothy Devlin , Stockton South

The speech of my hon. Friend the Member for Hertford and Stortford (Mr. Wells) simply will not do. My hon. Friend has not even addressed the House of Lords judgment on the matter. The issue has been through the courts and examined by some of the best legal brains in the country. They have come to the conclusion that double taxation has occurred.

It is not good enough to say that, because the building societies will not give a simple worked example, they do not have a case. It will not do for my hon. Friend the Minister to repeat what he has said in correspondence. He cannot, simply by assertion, say that there has not been double taxation.

Photo of John Maples John Maples The Economic Secretary to the Treasury

I think that I must be one of the few people who have read the House of Lords judgments—I read them all again this morning because I thought that they might be mentioned. If my hon. Friend the Member for Stockton, South (Mr. Devlin) can find for me in the House of Lords judgment where it is held to be double taxation, I shall be extremely interested. There is one reference to it in the leading judgment that states that the effect was in a sense, to tax them twice. That judgment did not criticise the Court of Appeal that comprehensively overruled the court of first instance on that point.

I dealt with this matter at considerable length in Committee and I do not intend to bore the House by going over it again. At the end of the Committee proceedings I believe that most members of the Committee found that they were convinced by, or at least reasonably happy with, the Government's position.

I should deal with a couple of issues raised in the debate. I am grateful to my hon. Friend the Member for Hertford and Stortford (Mr. Wells) for the points that he raised, and his criticism of the building societies is a telling one. No one has been able to show me any pound of income that is being taxed twice.

Photo of Peter Bottomley Peter Bottomley , Eltham

What about the 11 -month year?

Photo of John Maples John Maples The Economic Secretary to the Treasury

In 1986–87 there were four quarters. The period taxed was from 1 March 1986 to 28 February 1987. Therefore, it was a 12-month period, although it did not coincide with the tax year. It started a month earlier and finished a month earlier, but there were four quarterly payments in that year. My hon. Friend the Member for Eltham (Mr. Bottomley) is not right to say that the figure of £76 million less revenue that I gave was not an accurate figure because 11 months only had been taken into account. Four full quarters were taken into account. Even though they did not coincide with the tax year, four quarterly payments were made during that year. As a result, as we said in 1985, no additional revenue was generated as a result of the proposal—£76 million less was collected.

My hon. Friend the Member for Eltham has tried to make a lot of the House not being told what was happening in 1985. As I have said to my hon. Friend in correspondence, there were clear minutes of meetings before the Budget between the then Economic Secretary and members of the Building Societies Association. From those minutes it is perfectly clear what was intended.

In view of the furore that has developed over that matter this year, I am surprised that none of those building societies briefed a Member of Parliament like my hon. Friend the Member for Eltham. They could not have briefed him then because he was a member of the Government who passed the proposals, so I suppose that they would have had to have briefed some other Member of Parliament. I am surprised that they did not do so because they were aware of what would happen.

My hon. Friend the Member for Eltham suggests that clause 52 is not necessary because the general law could simply be applied. There is considerable doubt about that. The matter has been raised in the past and was not first raised by the Leeds building society the other day. It would rely on the defence that money paid under a mistake of law cannot be reclaimed. That would turn on the details of documentary evidence which, for arbitrary reasons, might differ according to the case. It is better to set the matter to rest by enacting clause 52.

The final point that my hon. Friend the Member for Eltham made was that there was a difference between a tax appeal and a judicial review. Clearly, they are different procedures but it is difficult to see the substantive difference in this case.

Photo of John Maples John Maples The Economic Secretary to the Treasury

Let me deal with that point.

Previously, a taxpayer may have won a case and the Government would have then changed the law. For example, in the Padmore case the Inland Revenue sued Mr. Padmore for some tax that he declined to pay on the ground that he was not entitled to pay it. Mr. Padmore won the case, but that is not how the Woolwich building society wanted to behave. It did not want to refuse to pay the tax. Instead, it paid the tax and had an explicit agreement with the Revenue that it would challenge it by a process of judicial review and that, if it won, the Revenue would refund the tax. No other building society made that agreement. It would have been open to them to bring judicial review proceedings of their own and have those joined with the proceedings of the Woolwich, or to make an agreement with the Revenue that they would pay under protest and would get a refund of the tax if the Woolwich won its case. That is what happened in the Padmore case. Three other taxpayers made an agreement with the Revenue that they would be bound by the decision in that case. They benefited from the judgment, as did Mr. Padmore, whereas the law was changed for everyone else. Therefore, we are not departing from a fairly standard practice.

Photo of John Maples John Maples The Economic Secretary to the Treasury

I should just like to finish the point.

It may interest the House to know that, when the first tax payments for that period were made, the Woolwich and two or three other small building societies paid under protest. Only the Woolwich said that it would contest the case and it was as a result of that that this agreement was made. No other building society made those arrangements or paid under protest.

The building societies that have been at the forefront of some of the arguments that we are debating did not pay under protest or make any protest until after the Woolwich had won its High Court case, so I did not have much sympathy for those other societies. It seems reasonable that the Woolwich should be allowed to have its tax refunded because it won the case, but it is inconsistent with the practice that this Government and many previous Governments have adopted. Where the law has been held by the court not to be what it was thought to be, the taxpayer involved in that case benefits from that decision, but it is proper retrospectively to amend the law to catch everyone else. That is what we are doing in this case.

Photo of Mr Timothy Devlin Mr Timothy Devlin , Stockton South

In English law, a judicial review is and always has been a statement of public law. Any other person is entitled to rely on that statement. My hon. Friend the Minister is wrong to say that there is no distinction between a tax decision, which is the arbitration in a particular tax case, and a case of public law, which a statement that any other taxpayer, individual member of the public or corporation may fairly rely upon.

Photo of John Maples John Maples The Economic Secretary to the Treasury

When the law is decided by the Court of Appeal or the House of Lords it is exactly the same, whether it is the result of a judicial review proceeding or a case brought by the Revenue against a taxpayer. Although the judicial review has existed for a long time, it is a proceeding that has been developed in the past few years. It has been used largely in connection with administrative rather than tax laws.

I have explained why the case was dealt with by a judicial review. It was because the Woolwich did not want to litigate the matter by refusing to pay the tax and then invite the Revenue to sue it. I understand why it did not want to behave in that way. One cannot argue that the law is different because it was decided as a result of a judicial review proceeding rather than any other way.

Photo of Peter Bottomley Peter Bottomley , Eltham 1:30 am, 15th July 1991

My hon. Friend mentioned an agreement made with the Woolwich to accept the result of the judicial review case. Did my hon. Friend mean to say that there was a formal agreement so that if the Woolwich won the case in the House of Lords it could keep the money?

Photo of John Maples John Maples The Economic Secretary to the Treasury

My understanding is that the Woolwich paid the original tax owed for the gap period under protest and made an agreement with the Inland Revenue that the Woolwich would take the case to litigation and, if it won, the Revenue would refund the tax to it. There was an agreement to that effect, and no other building society made a similar agreement, although it would have been open to it to do so.

In the circumstances, unless there is any particular point that any hon. Member wishes me to develop on general aspects, I shall not continue. I invite the House to reflect on the amendments as they would allow societies other than the Woolwich to take advantage of the Woolwich judgment.

Photo of Peter Bottomley Peter Bottomley , Eltham

The simplest way to sum up the debate, which was valuable, but would have been better if it had taken place in 1985, is to refer to what Sir Nicolas Browne-Wilkinson said at the Court of Appeal. He said: It is unnecessary to consider in detail the judge's"— Mr. Justice Nolan's reasons for rejecting the Revenue's argument since, in this court,"— the Court of Appeal— the Revenue has reversed its position. The argument that the Revenue won in the Court of Appeal was exactly the opposite of the argument that it had put in the High Court.

It seems that if the Revenue is allowed to change its argument totally, and argue in the Court of Appeal that a building society was not accounting for the tax for building society members, the House should be able, not to change its argument, but to stick to the following two principles. The first is that one should not distinguish between the people affected by an application for a judicial review, especially when the Leeds was explicitly referred to in the affidavit proposed by the Woolwich—the two societies shared lawyers. I could not hear a lawyer telling the Leeds or any other building society to go to the expense of carrying out parallel judicial review proceedings. I think that such an occurrence was unprecedented—my hon. Friend the Minister may tell me that I am wrong.

Secondly, in the debate on the Floor of the House on the day before the cut-off debate in 1986, the Leeds was extensively referred to. It was twice assumed in that debate that the Leeds had commenced proceedings. It seems that it is wrong for the Treasury to come forward with a new amendment at a late stage of a second Finance Bill one year after the first to change the law, especially as it is now becoming clearer that those building societies at the year end in December gained from the provisions. The House should regard that as unsatisfactory.

My reason for calling for a vote on amendment No. 29 is not necessarily to win. I have not tried to organise a gang to defeat the Government, because I think that the Government should change their mind and acknowledge that the probing has led to the exposure of an unsatisfactory position. In subsequent judicial proceedings, it should be possible for the High Court, the Court of Appeal or the House of Lords to understand that the House knew nothing of the implications of the affair in 1985, even though the Revenue and some building society officials may have done. Hon. Members are supposed to know what they are doing. Some of the judgments in the judicial review show that the judges had to decide the law as written by the House, and could not look behind it to see what hon. Members had in their minds.

Photo of Mr Timothy Devlin Mr Timothy Devlin , Stockton South

Would it not have been a great help to the workings of the House tonight if the Attorney-General had come to give us a statement of the law as it stands on judicial reviews? My hon. Friend the Minister, while well-meaning, is totally wrong.

Photo of Peter Bottomley Peter Bottomley , Eltham

I do not want to suggest that my hon. Friend the Economic Secretary is wrong on anything. He has a hard enough job anyway and has been put to some test in this debate and others. He has done better than any other Minister could have done, but I still believe that the Government are defending an unsatisfactory position.

Therefore, it is with great reluctance that I shall call for a vote on amendment No. 29, not amendment No. 45.

Amendment negatived.

Amendment proposed: No. 29, in page 36, line 31, leave out from 'society' to 'this' in line 32, and insert—

  1. (a) which commenced proceedings to challenge the validity of the regulations before 18th July 1986, or
  2. (b) which, after 18th July 1986 but before 19th March 1991, commenced proceedings for the recovery of money paid by it, being proceedings taken as a result of the outcome of earlier proceedings of the kind to which paragraph (a) of this subsection relates, or
  3. (c) which, after 18th July 1986 but before 19th March 1991, made any payment as provided for by the regulations, and which, in relation to such payment, gave written notice that it disputed the validity of the regulations.'.—[Mr. Peter Bottomley]

Question put, That the amendment be made:—

The House divided: Ayes 6, Noes 119.

Division No. 211][1.34 am
AYES
Cryer, BobWallace, James
Maxwell-Hyslop, Robin
Paisley, Rev IanTellers for the Ayes:
Robinson, Peter (Belfast E)Mr. Peter Bottomley and Mr. David Trimble
Skinner, Dennis
NOES
Alison, Rt Hon MichaelChapman, Sydney
Amess, DavidChope, Christopher
Amos, AlanColvin, Michael
Arbuthnot, JamesCoombs, Anthony (Wyre F'rest)
Arnold, Jacques (Gravesham)Coombs, Simon (Swindon)
Baker, Rt Hon K. (Mole Valley)Couchman, James
Baker, Nicholas (Dorset N)Cran, James
Bennett, Nicholas (Pembroke)Currie, Mrs Edwina
Bevan, David GilroyDavis, David (Boothferry)
Boscawen, Hon RobertDay, Stephen
Boswell, TimDouglas-Hamilton, Lord James
Bowis, JohnDurant, Sir Anthony
Brandon-Bravo, MartinEmery, Sir Peter
Brazier, JulianFallon, Michael
Bright, GrahamForsyth, Michael (Stirling)
Brown, Michael (Brigg & Cl't's)Franks, Cecil
Burns, SimonFreeman, Roger
Butterfill, JohnFrench, Douglas
Carrington, MatthewGale, Roger
Cash, WilliamGarel-Jones, Tristan
Goodhart, Sir PhilipNeubert, Sir Michael
Goodlad, AlastairNicholls, Patrick
Goodson-Wickes, Dr CharlesNicholson, David (Taunton)
Greenway, John (Ryedale)Norris, Steve
Gregory, ConalOppenheim, Phillip
Ground, PatrickPaice, James
Hague, WilliamPatnick, Irvine
Hamilton, Rt Hon ArchiePeacock, Mrs Elizabeth
Hamilton, Neil (Tatton)Porter, David (Waveney)
Hanley, JeremyRiddick, Graham
Hargreaves, Ken (Hyndburn)Roberts, Rt Hon Sir Wyn
Harris, DavidRowe, Andrew
Hayes, JerryRyder, Rt Hon Richard
Hicks, Mrs Maureen (Wolv' NE)Sackville, Hon Tom
Howarth, Alan (Strat'd-on-A)Sayeed, Jonathan
Howarth, G. (Cannock & B'wd)Shaw, David (Dover)
Hughes, Robert G. (Harrow W)Shephard, Mrs G. (Norfolk SW)
Irvine, MichaelShepherd, Colin (Hereford)
Jackson, RobertStanley, Rt Hon Sir John
Janman, TimStern, Michael
Jones, Robert B (Herts W)Stevens, Lewis
King, Roger (B'ham N'thfield)Stewart, Andy (Sherwood)
Kirkhope, TimothySummerson, Hugo
Knapman, RogerTaylor, Ian (Esher)
Knight, Greg (Derby North)Thorne, Neil
Knight, Dame Jill (Edgbaston)Thurnham, Peter
Lawrence, IvanTownsend, Cyril D. (B'heath)
Lennox-Boyd, Hon MarkTwinn, Dr Ian
Lord, MichaelViggers, Peter
Maclean, DavidWaller, Gary
Malins, HumfreyWardle, Charles (Bexhill)
Mans, KeithWatts, John
Maples, JohnWells, Bowen
Maude, Hon FrancisWheeler, Sir John
Mawhinney, Dr BrianWiddecombe, Ann
Mellor, Rt Hon DavidWolfson, Mark
Mills, IainWood, Timothy
Mitchell, Andrew (Gedling)
Moate, RogerTellers for the Noes:
Moss, MalcolmMr. David Lightbown and Mr. John M. Taylor.
Moynihan, Hon Colin
Needham, Richard

Question accordingly negatived.