I beg to move amendment No. 1A, page 73, line 12, at end insert—
'(3A) An order under subsection (2) may not be made until—
(b) the Treasury has laid before the House of Commons a report setting out its assessment of the effectiveness of those provisions.'.
Copy and paste this code on your website
With this it will be convenient to discuss the following amendments: No. 2A, line 23, at end insert—
'(7A) A statutory instrument containing an order under subsection (2) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.'.
No. 3A, line 13, leave out subsections (4) to (6).
No. 4A, line 24, leave out subsection (8).
It is a pleasure to speak on the issue of penalties. As with so much in this year's Finance Bill, we have to go back to last year's Bill to gain a full understanding, although I suspect that we shall not see quite the same drama that we saw in last night's debate about income tax.
Schedule 24 of the Finance Act 2007 introduced a single new penalty regime for incorrect returns in respect of income tax, self-assessment, pay-as-you-earn, corporation tax, capital gains tax and VAT, which involved a common structure of stepped penalties depending on taxpayer behaviour. The provisions of schedule 24 of the 2007 Act were broadly well received. Those who can recall last year's debate will remember the concern about the expression "HMRC think", which was contained in the first draft of that Bill, but which was thankfully amended by the Government following representations from all parts of the House. However, there was little dispute about the common structure of stepped penalties.
Schedule 24 of the 2007 Act addressed only the main taxes, as they were described, and did not try to cover all taxes. Its provisions are only now coming into force, so that they will come into effect only for returns or documents due to be sent to HMRC on or after
None the less, the Government seek to extend the regime set out last year. We question the timing of that. Two logical positions could be taken on the matter. The first is that it is confusing to have two different penalty regimes for errors in tax returns and therefore right to move to one common structure as quickly as possible. That could be described as the big bang approach to penalties, if that is not overdoing it. The alternative is to take a more gradualist approach, by seeing how the new system works, extending the approach in stages by a process of trial and error, learning as we go along, identifying strengths and weaknesses, and imposing a new system of penalties for tax returns over a number of years.
Both are acceptable positions and there are arguments for adopting either. However, in attempting to take two different approaches, the Government appear to be in an inconsistent position. In the 2007 Act, the Government did not seek to apply the new penalty regime comprehensively; instead, they just picked out the main taxes and left the rest. That would indicate the gradualist approach. However, long before the existing provisions come into force and it is possible to assess the effectiveness of schedule 24 of the 2007 Act, the Government are seeking to expand the regime to a new set of taxes, as we see in schedule 40 of the Bill. The taxes include inheritance tax, stamp duty, stamp duty land tax, petroleum revenue tax, insurance premium tax and a wide range of duties.
Over the course of a year, the Treasury and HMRC have gone from a gradualist approach to one of trying to impose a single regime as soon as possible. However, clause 117(3) allows different days to be appointed for different provisions, so things might not work out like that and some taxes might be treated differently over time. If the Government had wanted to introduce all the measures as quickly as possible so that different regimes were not running simultaneously—I acknowledge that there is an argument for doing so—we must ask why they did not do that in 2007 by applying the new penalty regime more broadly. I hope that the Financial Secretary will address that point. It appears that the Government changed their mind during the past few months and I should be grateful for an explanation of why that happened.
The Government also seemed to change their mind in a rush. "Modernising Powers, Deterrents and Safeguards: Penalties Reform—The Next Stage", HMRC's consultation paper, was published only on
It is worth noting that annexe A of the document contains the consultation criteria in the Department for Business, Enterprise and Regulatory Reform code of practice. The first criterion states that a consultation should
"Consult widely throughout the process, allowing a minimum of 12 weeks for written consultation at least once during the development of the policy."
The consultation closed on
The consultation document stated:
"HMRC would welcome views on...extending the penalty regime...to incorrect returns for other taxes".
Six days after the date for submitting those views, it announced that legislation would be introduced in the Finance Bill 2008
"to create a single penalty regime for incorrect returns" across all taxes, levies and duties administered by HMRC. HMRC might well have welcomed views on the subject, but it is difficult to believe that as much consideration was ever going to be given to views that conflicted with what the Government seemed determined to do in the first place. There are plenty of stories that Treasury officials were burning the midnight oil in the run-up to the Budget and that there were all sorts of last-minute changes, but I suspect it is unlikely that the intense review of submissions to the consultation on penalties was the reason.
It has not been a good winter for HMRC consultations. Draft legislation on non-doms had to be corrected mid-review because it was already damaging the UK's reputation. The consultation on income shifting was so widely castigated that plans to introduce measures were withdrawn. The consultation on penalties might not have been in the same league for controversy, but its timing—eight weeks, not 12—and its completion six days before the Government announced their policy, gave every impression that HMRC was simply going through the motions. That concern is shared among various professional groups. That is not to say that there is no support for the proposals; indeed, the principle of a single system for penalties has many supporters. However, serious points of substance were raised during the consultation.
I do not intend to get into a detailed debate about schedule 40—we will return to that in much greater detail upstairs—but it is worth briefly highlighting the concerns raised through the consultation process to show that there are issues to address, as I think that the Minister accepts. In such circumstances, a hurried consultation was far from ideal.
I shall outline several of the concerns. The proposals involve penalties that are based on underlying behaviour. That is widely supported, but the Institute of Chartered Accountants, for example, believes that there is a problem with distinguishing between prompted and unprompted disclosure for one-off taxes, such as inheritance tax and stamp duty, compared with the situation for taxes that are paid repeatedly, such as income tax or corporation tax.
A third-party penalty for incorrect inheritance tax returns was raised during the consultation process by the ICA, which said that it was not convinced by the Government's proposals, and the Chartered Institute of Taxation, which had strong reservations about penalties on third parties generally. The Government have moved on that point, but worries still exist. The ICA raises an important concern that proposals on penalties for failure to notify might discourage persons operating in the shadow economy from regularising their position. Both the CIT and the ICA raised the issue of suspended penalties. There are substantial issues for us to debate, but I think I have demonstrated that important points were raised in the consultation process, so it is not good enough to steamroller through the measures. Given the limited time allowed for consultation, our assessment and evaluation upstairs will be all the more important.
I welcome you to the Chair, Sir Nicholas. It is a pleasure to serve under your chairmanship.
I declare an interest as a member of the Institute of Chartered Accountants.
I do not understand why the institute and other organisations were put to the trouble and cost of becoming involved in a consultation that lasted for only eight weeks when I understand that the Government recommend minimum consultation periods of three months.
Yes, as I said earlier, the Government's code of conduct states that consultations should last 12 weeks. However, it simply was not possible to do that and to get everything done before the Budget, when the policy was announced. That raises the question whether we are rushing into this somewhat. My hon. Friend makes a helpful point.
There is further evidence that the matter has been rushed. The Financial Secretary wrote a letter dated
Having highlighted several issues of substance that we need to debate, let me point out that the consultation timetable has made it difficult for the Government to respond regarding the latter two substantial points—on penalties for failure to notify and suspended penalties. We would be in a much better position to assess the validity of those arguments if we knew how the regime for main taxes that was introduced in the Finance Act 2007 had bedded down. If we were able to see how that had worked over a given period, we would be able to see whether there is a strong argument on these points. But we do not have that opportunity, because the Government wish to proceed much more quickly with extending the penalty regime.
Amendment No. 1A would give us the chance to pause and reflect, thus enabling us to see how schedule 24 works out in practice. It would also give the Government more time to consult properly—as my hon. Friend Mr. Bone has pointed out, they consulted for only eight weeks—and give a genuine response that does not look as though it had been ready to print, regardless of the submissions that have been made. Amendment No. 2A would require the use of the positive resolution procedure to implement schedule 40, which would give the House a proper opportunity to debate this matter again.
We do not criticise the Government for seeking to introduce a single penalty regime. However, given last year's decision to do that in one go, the Government should pursue this matter carefully, by listening to the concerns of professional bodies, assessing the measures that they have introduced and examining the effectiveness of those measures before acting. Amendment No. 1A would enable them to do precisely that.
Amendments Nos. 4A and 3A—particularly 3A —address another concern that several bodies have raised: that subsection (4) seems to be what is sometimes described as a Henry VIII clause. I learned the definition of such a clause only today, from the first report of Session 1992-93 of the House of Lords Select Committee on the Scrutiny of Delegated Powers, which I had not read before. It states that a Henry VIII clause is
"a provision in a Bill which enables primary legislation to be amended or repealed by subordinate legislation, with or without further Parliamentary scrutiny."
I do not pretend that it is the first time that such a clause has been used, but its use is a matter of concern. Subsection (4) states:
"The Treasury may by order make any incidental, supplemental, consequential, transitional, transitory or saving provision which may appear appropriate in consequence of, or otherwise in connection with, Schedule 24 to FA 2007 or Schedule 40."
Subsection (4) is extraordinarily broad. We must put that in the context of the Prime Minister's statement last year that he was looking for a
"new British constitutional settlement that entrusts more power to Parliament".—[ Hansard, 3 July 2007; Vol. 462, c. 815.]
The measure seems to take power away from Parliament, because it gives the Executive enormous flexibility to amend the provisions that we will consider in schedule 40 to the Bill, and those that we considered in schedule 24 to the 2007 Act.
Not only do Henry VIII clauses seem to be more prevalent, but they are more widely drafted. Section 97 of the 2007 Act, which implemented schedule 24, gave the Government the power to make an order that may include "incidental, consequential or transitional" provision. This year, in addition to those words, an order may contain a supplemental, transitory or saving provision. The word "supplemental" is particularly vague, and I hope that the Minister will indicate what she means by that. I note also that subsection (6) states:
"An order under subsection (4) may make different provision for different purposes."
I confess that I am not sure what that means, and I should be grateful for some elaboration on that point. However, it appears to be extremely broad.
Is not the Henry VIII clause typical of what the Government do these days? They rush through legislation and do not have proper consultation, taking the view that if they get things wrong they can alter them without coming back to Parliament. It is a way of rushing things through without giving them proper consideration.
My hon. Friend, who is a doughty defender of the rights of Parliament, makes another good point. His comment brings together the first and second parts of my argument, the first being that there seems to have been a rush to get the legislation in place this year, and the second that the Government have had to protect themselves as a consequence. To be fair to the Financial Secretary, she acknowledges that this is a technical area that is likely to require a great deal of consequential amendment. However, rather than try to get the Bill right first time and take a more methodical approach to it, they provide themselves with powers to go back to it and address these issues again.
I might have misheard the hon. Gentleman—I have learned that he is very thorough in his approach to such matters—but he quoted a definition of the so-called Henry VIII clause from 1992. He will know that a different party was in government in 1992, and that this issue has long been a complaint of parties in opposition.
Sometimes parties in opposition are right. I thought that the Financial Secretary would pick me up on that point, but I did say that the use of such clauses seemed to be more prevalent. That is our concern. They are also more comprehensive. A comparison with last year's Henry VIII clause shows that we seem to be getting bigger Henry VIII clauses by the year. That is a concern.
I shall take my hon. Friend's comment in the manner in which I am sure it was intended.
The Financial Secretary talks about 1992, but it was only last year when the Prime Minister said that he wanted the House to be consulted more. She waves that comment away—perhaps the Prime Minister's comments should be waved away more often—but such comments are important. If we are to believe what the Prime Minister says, then why have the Government used another, even larger Henry VIII clause?
I am grateful to my hon. Friend, who makes a very good point. To be fair to the Financial Secretary, I must stop trying to put her into embarrassing positions in respect of the Prime Minister's comments, as she had to cope with denials over the losers in the 10p tax rate issue last night. On this occasion, however, I think that the Prime Minister was right to say that Parliament should be in the centre of things to a much greater extent, and we would like to see that happen in practice rather than just hear the rhetoric, but we see no evidence of it in the Bill. In fact, we see Parliament being marginalised because it will not have the ability to scrutinise or control legislation as it should.
Let me draw a couple of comparisons with provisions elsewhere in the Bill. Clause 118, for example, deals with penalties for failure to notify and covers equivalent provisions, while clause 119 relates to HMRC decisions, reviews and appeals. That, too, employs similar wording, but unlike clause 117 it requires the affirmative resolution process. Amendments Nos. 3A and 4A would remove the powers. If the Government wish to amend the law in this area, we believe that they should do so through primary legislation and amend schedule 40 accordingly. If HMRC is not ready to do so and is still working its way through existing legislation, that is a further argument for delay, as I said.
"order-making power contained in clause 117(4) is a reserve power to provide for the smooth transition from the old penalties legislation to the new, allowing for interim rules to apply if necessary when the new legislation comes into force".
In arguing that it is purely about a smooth transition, the Government's difficulty is that the provisions are much wider than that. For example, there is no sunset clause that would satisfy the concerns identified by the Financial Secretary, but it would at least provide some comfort to Opposition Members who are concerned about these provisions.
If the Financial Secretary says that she will not use the powers more widely than is set out in her letter, I would not for a moment doubt her integrity on the matter; I fully accept that, but she will not necessarily hold her position for ever. I mean that in a positive way, as I am sure that promotion beckons. I, for one, think she would make an outstanding member of a Labour shadow Cabinet, but Parliament should require greater protection of its rights than the assurances of one particular Minister, however popular.
There is already an issue about parliamentary scrutiny because these measures are contained in a Finance Bill and it is worth making the point that the other place does not have an opportunity properly to scrutinise these measures for that reason. Given that the provisions greatly affect the balance between the liberties of the individual and the sanctions that the state requires to enforce the law, there is a strong argument for saying that any fundamental review of HMRC's powers, as we saw in last year's Finance Act and this year's Finance Bill, should be contained in separate legislation that is not part of a money Bill. Any such separate Bill could then be examined in the other place. I would be grateful if the Government gave consideration to that point, which has been raised by a number of bodies.
As well as the constitutional argument, there is a practical point about the way in which the Government seek to amend legislation through statutory instruments. The design principles followed in the review of HMRC's powers are referred to in the consultation document I mentioned earlier, which states that penalties should be
"visible and set in statute".
I accept that even if it is amended by statutory instrument, it will still be in statute, but there is a genuine point that if the Government are going to use orders to amend legislation in that way, it will not be "visible" and it will not be as easy for practitioners to go to one or two schedules set out in Acts to work out how it works. Anyone who works on Bills knows how difficult it can be to juggle various legislative instruments to find out the most up-to-date status. There is thus a practical point about trying to achieve legislative change through orders, as it is harder for professional groups to monitor.
In conclusion, in determining the balance between the rights of individuals—in this case, taxpayers—and the sanctions necessary for the state to enforce its powers, Parliament has a vital role. In the context of income tax on the low paid, we hear that Parliament has taken control of the matter, so we, Parliament, should not surrender our rights to control the penalties imposed on taxpayers either. It would appear that this set of proposals has been somewhat rushed and that the consultation has been inadequate. There is a danger that Parliament will not be able to scrutinise measures made pursuant to schedule 40 as closely as it should. For those reasons, we tabled the amendments and we look forward to hearing the Minister's comments on them.
Let me say straight away that I share all the concerns of Mr. Gauke about what the Government have done, or rather not done, so far. The amendments are very pertinent.
As has been said, schedule 24 to the Finance Act 2007 introduced the single penalty regime for inaccurate documents. I recall that there was considerable discussion when it was introduced. The taxes, levies and duties for the penalties that are payable have been considerably extended to include environmental taxes such as the aggregates levy, the climate change levy and landfill tax; excise duties such as those on alcohol, tobacco, oils, gambling and air passenger duty; stamp duties such as stamp duty land tax and stamp duty reserve tax; and inheritance tax, insurance premium tax, pension schemes and petroleum revenue tax. It is difficult to think of any instance in which a penalty would not have to be paid if someone inadvertently supplied false information. The level of penalty is dependent on the amount of tax that has been understated, the underlying behaviour and the extent of the disclosure by the taxpayer. I suppose that we would not argue with that, as none of us wants to give any comfort to people who deliberately try to avoid paying taxes for which they are liable.
I am particularly pleased that the new provisions do not apply to tax credits. I cannot imagine what might happen if they did; I do not know how many million people might suddenly find themselves liable to investigation.
That is an excellent point. Indeed, some payments have been made, but I suspect that they were nowhere near adequate compensation for what people will have had to go through—not only all the telephone calls and letter writing, but all the stress, and sometimes negotiations with banks—because they properly provided information, but it was not taken into account, so they found themselves in great difficulties.
There are two overall themes to our concerns. One is the lack of certainty. Most people would accept that good legislation requires certainty. The current group of amendments, like the previous one, deals with the fact that there is very little certainty on which people can rely. We also feel that HMRC should be putting its own house in order. We are very cautious about extending the powers of HMRC—an agency that has consistently sought to push to the absolute limit the powers that it already has. I am thinking of its attitude to chasing tax on contractual termination payments under clause 49 and the attempts in this year's Bill to give it unlimited access powers to businesses. Those are draconian powers, and when such an approach is combined with uncertainty, we will have an unacceptable mix.
Reference has been made to the Financial Secretary's letter of
We think that it would be better to tighten up the provision, if that is possible, than to remove it. We agree that there is a legitimate expectation that individuals who deliberately provide false information for the purposes of tax evasion should be penalised, but we cannot support the clause as currently drafted. We support amendments Nos. 1A, 2A, 3A and 4A, however, because they would introduce a measure of control over what the Government are trying to do. We urge the Government to abandon the drip, drip method of using regulations to amend these powers, as it seems to be catching on far too much, and we think it should be curtailed.
May I also give advance notice that we shall certainly want to oppose the inspection powers in clause 108? We will no doubt discuss that provision upstairs in the next few weeks. We feel that it is just another example of the powers that are being provided to an already over-powerful agency, and that does very little to assist us in being convinced about it. What the legislation proposes is sensible, but it is not clear enough for us to be able to support it. Therefore, we will support the amendments if they are pressed to a Division.
I rise to support the amendments of my hon. Friend Mr. Gauke. I am deeply concerned about two points. First, I am concerned about why the Government are so worried about their own 2007 legislation, which they have not managed to enact yet; indeed, they have got their knickers in such a twist that they want to bring in new legislation long before that 2007 legislation takes effect and in a rush, as has been mentioned by several Members.
It seems frightening that legislation that we debated at some length last year in Committee and on the Floor of the House on the industry and individuals getting together to discuss and try to understand what the penalties for errors will be is being dealt with in such a way. The Government have rushed through what sounds like quite a bogus consultation, as they have not been able to give the time that everybody—particularly the experts in the field—would need in order to consult and so that the Government could respond with answers to concerns, and so that proper consultation could take place. From what I have heard this evening, it sounds like the Government had already made their mind up before the consultation even took place. It seems a complete sham to give only such a short period, when their own regulatory advice is that it should be three months.
I also wish to address the point about the Henry VIII clause. My hon. Friend—I think he is my friend—the Member for South-West Hertfordshire alluded to the power of such a clause, and also made some other comments in respect of my intervention. I fully accept that Henry VIII clauses were used before the current Government were in power, but that does not make them right. They should be brought in only in exceptional circumstances. I am deeply concerned that this House will be excluded from debating, and being consulted on, important measures that have an effect on almost all our constituents, and that we will leave that power with the Minister of the day. I agree with my hon. Friend that the current Financial Secretary is exemplary in her— [Interruption.] I am pleased I have cheered up the Financial Secretary, especially after the couple of days she has had. She will almost certainly not be in her current position after the next general election, however. I have grave concerns about other Ministers of whatever party having such Henry VIII powers.
I will support the amendments, so that this House continues to have the powers it should have, fulfilling the promise of the current Prime Minister, and to make sure that we debate measures of significance to our constituents, especially on penalties they may incur.
First, let me make the same observation that I made last night: it is a pity that once again not a single Labour Back Bencher is present to support the Government's proposed legislation. That is disappointing, not least because I enjoy a good debate.
As my hon. Friend Mr. Gauke is a solicitor, I am sure he is far better placed than me to scrutinise the Government's use of the Henry VIII powers in clause 117, and he does so through his amendments Nos. 3A and 4A. I am grateful to him for his thoughtful explanation of the amendments. Nevertheless, the name that has been given to the powers is an evocative one that summons all the images of unaccountable government that we could ever need. The Government's use of such powers should be of interest, and ultimately of some concern, to each and every Member, because of their impact on our ability to exercise effective scrutiny and hold the Government to account. Crucially, the matter should also be of concern to Members in another place; indeed, I believe it already is. The fact that these powers crop up in a money Bill will exclude them from further scrutiny in another place, particularly by the Delegated Powers and Regulatory Reform Committee, whose Members take a special interest in these matters. That is the key point I take from my hon. Friend's arguments.
I note that there are some specific requirements relating to the scrutiny of such powers which do not, by default, apply to the passage of the Finance Bill because it is concerned with supply. Indeed, the DPRRC's guidance for Departments on the role and requirements of the Committee lays those requirements down clearly, including the submission of a memorandum that is required to justify the necessity of the power in some depth. I understand the general situation regarding the right of another place to scrutinise and delay Bills that Mr. Speaker has certified as money Bills under the Parliament Act, and perhaps it follows that another place cannot delegate scrutiny powers that it does not itself enjoy to one of its own Committees. However, I question the general principle that another place should not be able to scrutinise delegated powers that are to be exercised under the Finance Bill simply because it deals with supply. The other place's right to scrutinise this Bill may well be truncated by the Parliament Act, but it is not entirely removed.
The scrutiny of the sort of powers that appear in clause 117 has attracted considerable attention. The Delegated Powers and Regulatory Reform Committee looked in depth at the issue of the Henry VIII powers in its third special report of 2002-03, upon which its departmental guidance draws. One of the report's striking conclusions was on standard wording for Henry VIII powers. The Committee shied away from recommending the use of standard wording, because on the advice of parliamentary counsel, its concern was that any standard wording would need to be as broad as possible if it was successfully to catch all potential situations. The concern was thus that Departments would automatically grant themselves powers for which they had no need and would justify the decision to do so by dint of the standard form of words.
A letter from the parliamentary counsel to the Committee gave the draftsman's perspective in some detail, but the germane point was that draftsmen should always refer to the specific needs of any particular Bill when framing Henry VIII powers. Typical terms might include "incidental", "supplemental", "consequential" and "transitional", as appropriate. However, clause 117(4) contains not only the words "incidental", "supplemental", "consequential" and "transitional", but the words "transitory or saving". Furthermore, subsection (6) seems to widen the scope of the powers further still. I am no draftsman, but it seems to me that the power is framed as widely as it could possibly be. Is the Minister confident that that is necessary, and can she justify that necessity to the Committee?
My second main concern is the sheer potential breadth of operation of the powers in practice, given that they can amend not only the Act that will implement them, but every Act that it in turn amends. I have not yet gone through the Bill to see how many other Acts it will amend, given its length, but I suspect that the list will be very long indeed. Can the Minister confirm whether the proposed powers under the clause will give the Treasury the right to amend any part of any other Act that this Bill itself happens to amend, without further recourse to Parliament?
During the Delegated Powers and Regulatory Reform Committee inquiry into Henry VIII powers, questions were raised as to what level of parliamentary scrutiny over them is appropriate. The parliamentary counsel's opinion was:
"The question is one of policy for ministers."
As this is a policy matter and not one of drafting, can the Minister therefore justify why the powers, as they stand, provide only for the negative procedure, instead of the affirmative procedure, despite appearing to be drafted as widely as they could have been?
A third concern is derived from the Delegated Powers and Regulatory Reform Committee's 2002 special report findings. The report states that
"we are persuaded that the Government should, in the Explanatory Notes accompanying any new bill...offer an explanation of the reasons why a particular form of wording has been adopted in each case."
I am sure that Rob Marris, who is an assiduous user of explanatory notes, would concur. The report specifies any new Bill and does not exempt money Bills, yet the explanatory notes on clause 117 are very brief indeed—brevity is not apparent elsewhere in the 1,148 pages, so I am a little puzzled. The notes do nothing beyond paraphrase the subsections to which they refer, and that seems explicitly to contravene the recommendation that I just cited. Perhaps the Treasury believes that because this Bill does not fall formally within the Committee's remit, its guidance does not apply to it. I would be interested to hear whether that is the case, as I am sure would the Committee.
Given that the staff of the Delegated Powers and Regulatory Reform Committee confirm that they cannot examine the Finance Bill, and given that there seems to be no explanation for that in the Standing Orders of the House beyond the supply exemption, is it not time for the Government and for Parliament to re-examine this issue? The Delegated Powers and Regulatory Reform Committee has no equivalent in the House of Commons and, as such, it could be said to be exercising its functions on behalf of Parliament as a whole, rather than just on behalf of another place. The Committee is very widely respected in both Houses for its thorough and timely work, as was emphasised in its rapid handling of the Banking (Special Provisions) Act 2008, for which I am sure the Chancellor was grateful.
The Government have at least three options in responding to what is undoubtedly a legitimate concern. First, they could simply extend that Committee's remit, so as to allow it scrutiny of the very wide powers in this Bill and future money Bills, notwithstanding the limitations implicit in the Parliament Act. Secondly, even if the powers really are necessary and expedient, the Government could still remove the clause and schedule 40 from this Bill and reintroduce them in a future non-money Bill, which would be subject to proper scrutiny in another place. Finally, the Government should accept our amendments Nos. 3A and 4A and remove the powers altogether. Their doing nothing would contravene the Prime Minister's reaffirmation of his respect for the House and for Parliament as a whole.
It is a pleasure to see you in the Chair this evening, Sir Nicholas. I hope that you will agree that this has been a very good debate. I congratulate Mr. Gauke on tabling these amendments. I do not adopt an ideological or partisan line on this area of work, and I have found listening to the concerns that have been raised helpful.
Before I deal with the amendments, I would like to discuss the background to the clause. As we have had a wider-ranging debate instead of dealing with the two groups independently, it might be helpful if I were to respond more broadly. The clause is part of a larger package of measures in the Bill. It is the latest stage of the review of the powers, deterrents and safeguards of Her Majesty's Revenue and Customs, which is aligning and modernising the powers inherited from the Inland Revenue and Customs and Excise. Many, if not all, the anomalies in the law result from the piecemeal way in which tax legislation has evolved, particularly in two separate departments. Those differences are confusing for taxpayers, they are costly to administer and they reduce HMRC's ability to ensure that the right tax is paid.
Our aim is to provide a modern framework of law and practice for HMRC. Penalties are a good example of the wide variety of approaches across different taxes that exist in the law at present. For example, a person filing an incorrect excise duty return may receive a fixed penalty of £250, whereas an understatement on a corporation tax return resulting from the same behaviour could attract a penalty in law of up to 100 per cent. of the tax lost. Neither approach has proved effective or fair, so reform is needed. The review has been commended for its approach, especially the breadth and depth of its consultation and the willingness of HMRC officials to listen and make changes.
Inevitably, there will be tensions as we seek to ensure that HMRC has appropriate powers to work effectively and that taxpayers have strong safeguards. The hon. Gentleman questioned why we were doing this now, and suggested that it was rushed, as did other hon. Members.
HMRC inherited different powers from the two former departments. Those were inconsistent in places, which is confusing for taxpayers and imposes undue burdens on them and on the Exchequer. The full benefits of merger cannot be delivered until those powers have been aligned where it makes sense to do so. The way in which the review of powers and safeguards works is to engage stakeholders in an ongoing round of consultations that include formal public documents, workshops and literally dozens of face-to-face meetings.
Development of the provisions in the Bill has been an iterative process, and stakeholders acknowledge that HMRC has made changes throughout in the light of their views. The January consultations were therefore part of a very long process. I accept what the hon. Gentleman says about the relevant part of the Cabinet Office code of practice on written consultations and I take that very seriously. The code clearly states that we should consult widely throughout the process, allowing a minimum of 12 weeks for written consultation at least once. I assure him and others who have expressed concern that those guidelines have been followed for all the powers clauses in the Bill.
This is the last stage of an extensive consultation process over two years, involving previous 12-week consultations, dozens of meetings with interested parties and workshops. Knowing that time would be tight in March, HMRC raised key issues in meetings with stakeholders and sought suggestions for improvements. Changes to the draft law were identified and action was taken before the consultation period closed. All written responses were considered in detail and several changes were made in the final few days, as parliamentary draftsmen were about to be commissioned. A full response document was published on
Since 2005, the review has issued 13 consultations and has had meetings with representative bodies and interested parties, as well as exposing draft legislation. That is to be commended as a form of consultation on the Government's intentions. HMRC has worked with representatives of business, the professions and low-income groups on guidance and codes of practice. For this year's penalties changes, HMRC has made a particular effort to reach out to more specialist representatives for the particular taxes involved—for example, the oil, alcohol and insurance industries.
I wish to put on the record my thanks to all those who have given their time to participate in the development of the measures in the Bill, with particular thanks to those who attended meetings with HMRC throughout, which meant that issues could be considered and addressed at an early stage—
I regret giving way and I am grateful for your guidance, Sir Nicholas.
Clause 117 is about creating a single penalty regime for incorrect tax returns to apply across taxes and duties administered by HMRC. It does that by extending the scope of schedule 24 of the Finance Act 2007 and replacing the current separate and different regimes. The new penalties will be related to the amount of tax understated, the behaviour—as Mr. Breed described—giving rise to the understatement and the extent of disclosure by the taxpayer. Much more of the penalty framework will be set out in primary legislation than in the past and, together with appeal rights, which I would have thought would be singled out for approval, to an independent tribunal against all penalties, that will ensure greater consistency.
These provisions will repeal the large number of different penalty regimes that are specific to particular taxes and can be confusing for the taxpayer. Amendment No. 1A seeks to postpone applying the new penalties for the additional taxes for 12 months and until the new regime's effectiveness for the main taxes has been evaluated. Such a delay would be a huge missed opportunity to simplify, modernise and align penalties across HMRC, to enable clear deterrent messages to be sent and to move to a more effective and fair response to taxpayer errors.
Before the new penalties were even put forward for consideration in last year's Finance Bill, HMRC undertook a review of settled cases, to assess the likely impact and effectiveness of the new penalties, and this, combined with international comparisons and the support of analysts and academic research, all helped in developing the overall structure. These penalties are a good example of evidence-based policy making.
In practice, holding introduction back by 12 months would actually mean three to four years' delay, because meaningful evaluation could not be started until sufficient cases had been worked and completed. As with all proposals in the review of powers, deterrents and safeguards, the penalties reforms have been the subject of extensive consultation since 2006. The Institute of Chartered Accountants in England and Wales wrote:
"We think it would be sensible to have a single system of penalties for incorrect returns across the tax system".
The Chartered Institute of Taxation concurred:
"We are pleased to note the proposals by HMRC to extend the Finance Act 2007 approach for the main taxes to other taxes, which is in line with our comments in earlier consultations."
The Association of British Insurers, which is not always in favour of Government proposals, wrote:
"The benefits of aligning penalties for incorrect returns across taxes outweigh any difficulties."
The Society of Trust and Estate Practitioners said in relation to inheritance tax:
"The principle of alignment of penalty regimes is logically sound and appropriate to the taxes that affect trusts, estates and their administration. It is appreciated that alignment of penalties will simplify the structure."
I could continue with other such positive quotes, but I detect a degree of twitchiness in the Committee about the length of time that I am taking. However, this is an important debate and I wish to respond seriously to the measured points that have been made on occasion by Opposition Members.
Amendment No. 2A calls for the Treasury order commencing the penalties for the additional taxes to be made under the affirmative procedure. That would be contrary to the normal practice for commencement orders in tax matters, which are usually made under the negative procedure. I can recall that between 1992 and 1997 I made similar points to those made by the hon. Member for South-West Hertfordshire and his colleagues. In those days, a popular way for the Opposition to extend the length of a debate was to make a routine and well worked complaint about the conduct of the Government. We learned the lesson of where the previous Government had got it right in terms of administering legislation, and we implemented that lesson.
I am saying that I learned a lesson. When I came into government, I was able to appreciate that the previous Government had done some things that were right. We therefore adopted those measures.
I see no sensible reason why an exception should be made in this matter. The order will simply set out the dates from which the new penalties will apply for the additional taxes and is expected to be very similar to the commencement order made in March this year for the 2007 penalties. We expect the order to state that the new penalties will apply to all the additional taxes at the same time. That will be for return periods starting on or after
Moving swiftly on, amendments Nos. 3A and 4A would remove from clause 117 provisions to make incidental, consequential or transitional changes by Treasury order in connection with the new penalties for error. The use of those words has been picked up on by Opposition Members, but they are necessary phrases that form part of the legislative process. The fact that we have a Parliament indicates that legislation has to be revisited from time to time in the light of new circumstances in which it applies. The amendments would make the Treasury's order-making power completely ineffective, presumably in an attempt to prevent the new penalties for errors from ever coming into effect for the additional taxes set out in schedule 40. They seem to contradict amendment No. 1A, which merely seeks to delay the start. It could be that that is a probing approach, and I am sure that we will return to the subject in Committee.
All the substantive changes to primary legislation are included in schedule 40, which is due to be debated at a later time. In order to have a smooth transition from the numerous old penalty regimes that are being repealed to the single new behaviour-based penalty regime for errors, a number of minor consequential and transitional changes to the law are required. I believe that they are minor, consequential and transitional changes. However, as I said at the beginning, I do not take an ideological or partisan position on these measures. I am listening to the representations made by the hon. Member for South-West Hertfordshire and by his hon. Friends, and those made by the hon. Member for South-East Cornwall.
If amendments Nos. 3A and 4A were accepted, that would leave the legislation unclear and untidy. Surely that cannot be right. I hope that the hon. Member for South-West Hertfordshire will withdraw his amendments. If he chooses not to do so, I am afraid that we must resist them.
As ever, the Financial Secretary presents her case in a reasonable tone, but I will disappoint her as I have not been convinced by her arguments about protecting Parliament's position in scrutinising legislation in this area or about the concerns that the consultation has been insufficient and the measures have been rushed through. She quoted the Institute of Chartered Accountants. If I may, I shall quote its remarks in its briefing for the Committee of the whole House. It said:
"The FA 2007 penalty provisions are far-reaching and we think it is right that these recently introduced provisions should be given time to bed down before consideration is given to extending them further."
I intend to press amendments Nos. 1A and 3A to a vote. If it emerges that the Labour Back Benchers who attended the debate were so persuaded by my arguments that we are successful, I might look to press the other amendments to a vote. If that does not happen—that is a distinct possibility, given that there were no Labour Back Benchers present—I shall press only those two amendments.
Question accordingly negatived.
Amendment proposed: No. 3A, page 73, line 13, leave out subsections (4) to (6).— [Mr. Gauke.]
Question put, That the amendment be made:—
The Committee divided: Ayes 164, Noes 300.