I beg to move amendment 4, page 45, line 18, after 'after', insert 'the first anniversary of'.
The amendment refers to clause 92, which imposes additional duties on senior accounting officers of large companies. The Financial Secretary can be assured that schedule 46 will be discussed in some detail in Committee upstairs, because it raises issues that need to be explored properly. From time to time, we have been complimentary to the Government when they have consulted on legislation: we recognised their efforts in consulting businesses on the taxation of foreign profits, and, after a somewhat tortuous process, the outcome of that consultation was satisfactory.
The apparent absence of consultation was one of the criticisms of clause 92. No one, whether from the industry or an adviser, has come forward to say that they were consulted. The clause has therefore come as a surprise to a large number of people. There is considerable concern among advisers and the industry about what the clause means in practice. The heart of the amendment applies to accounting periods beginning immediately after the Bill receives Royal Assent, because businesses seeking to comply with the proposal have a very short period to understand its purpose and the additional burdens and costs imposed on them, and they seek guidance. The purpose of my amendment is therefore to delay the implementation by a year to give the Government, Her Majesty's Revenue and Customs, businesses and their advisers time to understand the implications, costs and benefits.
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I am following the logic of the hon. Gentleman's amendment, which is reasoned and, on the whole, has much to be said for it. If one starts to consult before putting proposals in a Bill, however, it is almost impossible to get anything down before it is publicised and various wrecking attacks are made on it. Will he please believe in the good faith of the Government in getting the proposal out there and committing themselves to the consultation that is vital to make it a success, and in which he and his party have a role?
The hon. Gentleman makes an important point, but as we discussed in yesterday's debate on corporation tax, businesses are angry and frustrated about the lack of consultation before measures are announced, and that is one of the factors that makes Britain a difficult place in which to do business. They want a predictable, certain tax system, in which matters are clearly flagged, and they want more consultation, before legislation is introduced rather than after. From the direction of travel of HMRC, businesses had no sense that the measure was likely to be included in the Bill.
I accept that there must be consultation before the legislation is introduced, and that will be the intention, so I am sympathetic to the hon. Gentleman's point. But believe me, the best way to get the proposal through in the end is to get something down on which we then consult.
I do not agree with the hon. Gentleman. Consultation should have taken place before the Bill was introduced, but now we have the Bill, we need to consider what to do with it. The thrust of my amendment is that we need to get the proposals right, and we need time to do so. If senior accounting officers are to sign off on whether they have appropriate systems of tax accounting for financial periods starting effectively from when the Bill is passed, they will need guidance. They will need to comply for the whole year, and they will have only a matter of weeks before they must know what is meant by the proposal. I would be pleased if the Financial Secretary followed my amendment and decided to defer implementation by a year. That would achieve the objective of Mr. Robinson in getting consultation, it would achieve what I would like, and it would give industry and advisers time to make it work properly.
My biggest concerns are about the Bill's unintended consequences, its impact on our economy's competitiveness, and the costs that will be incurred. The regulatory impact assessment flagged up big concerns about the impact of the Bill, and it reminded me of the impact that the passing of the Sarbanes-Oxley legislation in the States had on American businesses, and of its benefit to London's competitiveness. I have always joked that a statue should be erected in the City of London, first to reflect the contribution of Messrs. Sarbanes and Oxley to the success of the City, and secondly, as a reminder that hastily introduced, ill-thought-through legislation can be damaging.
The clause seems to muddy the water as to auditors' responsibilities and board responsibilities. It does not say whether the senior accounting officer has to be resident or non-resident. It would be better if we debated such issues before the provision is implemented.
My hon. Friend is absolutely right. We have talked about large companies, and there is also the issue of limited liability partnerships. We think private companies are included as well as public companies. It is not clear who the senior accounting officer should be. Should it be the finance director, or the director of tax? What happens if the parent company is overseas and it has a very flat structure, with lots of operating companies in this country? Does each one have to complete a certificate? There is a raft of questions to which we do not have answers, yet companies will have to start to comply with the measure within a matter of weeks. That is my concern.
I ought to make it clear why I tabled the amendment. Its intention is not to probe; I do think that it is important. However, the jury is out on how the measure will affect business, and we are not opposing it outright. We just need to understand what it means, as does business. That is the purpose of the amendment.
Clause 92 introduces schedule 46, which is for discussion later in Committee, but as the issue of timing causes the hon. Gentleman concern, it is fair to look at that schedule. Paragraph 19 of that schedule provides for regulation-making powers. It would help the Financial Secretary to address the hon. Gentleman's concerns about timing and involvement, which I quite understand, if it were clearer in the Bill what those regulations would be about, and when they might be made.
Indeed, and the hon. Gentleman makes an important point about those powers. Perhaps when the Financial Secretary responds, he could say whether he expects draft regulations to have been published by the time we debate schedule 46. It would be helpful if that did happen, because given the nature of the consultation that has taken place to date, we would not feel comfortable passing legislation without having seen a draft of the statutory instruments that will implement the detail of the measure. The issue is not just one of consultation. It is about what the measure means in practice. How far does it go? There are already legislative requirements on companies relating to their accounting systems. There is also HMRC guidance on accounting systems already in place.
On drawing up a set of statutory accounts, a number of my hon. Friends, and the hon. Member for Coventry, North-West will know from their business background that businesses are required to have in place a set of accounting systems that enable them to draw up financial statements. Companies' financial statements will be audited. Auditors will rely on the systems and controls in place to ensure that the accounts are drawn up on a proper basis. The Companies Acts also confer duties on directors to keep adequate accounting records, and there are penalties if they misfile. There are already obligations on companies to ensure that the tax charge and tax balances figures that appear in their accounts are based on proper accounting systems, so it is not clear how much further the Government are seeking to go in imposing additional duties on senior accounting officers. Again, that is a matter on which we need clarification.
One of the things that has surprised industry about the measure is that industry felt that it was working very closely with HMRC on risk assessment—on making sure that HMRC understands the risks in business relating to accounting for tax. Industry feels that that process has been much more open than it perhaps was historically. Guidance on tax compliance risk management is now published as an HMRC manual. It makes it clear that systems have become a key issue in moving corporates away from high risk and towards low risk. There has been a pilot scheme involving detailed systems reviews of 10 large corporates, and numerous other systems discussions are going on with large corporates, both within HMRC's large business service and outside that unit in the local compliance large and complex teams.
A lot of work is already going on in HMRC with large companies so that they understand the risks for businesses in producing accurate assessments of their tax position. Under the Finance Act 2008, HMRC has the absolute right to see statutory records. Also under that Act, there is an obligation on corporate businesses to provide reasonable assistance to HMRC's information technology auditors. There are already significant obligations on companies to work with HMRC, so it is not clear, from a tax angle—let alone from the angle of the normal responsibilities placed on a company through the Companies Acts—what more HMRC is looking for through the powers in the Bill.
May I try to assist the hon. Gentleman? Of course, I cannot speak for HMRC, but as ever, I can refer to the explanatory notes. Volume 4, paragraph 23 of the explanatory notes refers to clause 92 and schedule 46, and it says:
"Currently, there is no legal obligation on any particular director or company officer to ensure that the company has appropriate tax accounting arrangements."
That seems to be the perceived mischief at which clause 92 and schedule 46 are directed. I have to say to the hon. Gentleman that I am surprised that there is currently no such legal obligation.
The hon. Gentleman makes a point about enforceability and about which person should be under an obligation, but of course a senior accounting officer will already have to sign off the tax returns when they are filed, a finance director will have to sign off the accounts, which include a calculation of the tax liability, and directors are responsible for maintaining proper accounting records. There may not be a specific obligation relating to tax accounting, but there are already broad responsibilities placed on directors to maintain proper accounting records. HMRC needs to justify why it is going beyond the existing tax and legal obligations on companies to provide proper tax accounting systems. That justification is missing. It is a question of HMRC trying to establish what the benefits and costs are of the enforceability that we are discussing. That is what is missing.
I was about to comment on personal accountability. The measure imposes a fine of up to £5,000 on senior accounting officers for non-compliance. I suspect that any senior accounting officer would seek indemnity from their company, and would also look to their auditors. It is a slightly odd situation; the accounting officer will provide the certificate to the auditors, but he will also look to the auditors for compliance.
There is an important point to make on the issue of materiality. I know from my experience as an auditor that one works to a "true and fair view". There is a concept of audit materiality in that, and it depends on the company to say where that threshold of materiality applies. It is not clear where it applies in the case that we are considering. Clearly, the fact that the Government introduced the proposal suggests that the level of materiality in company accounts is not sufficient: otherwise, they would not have needed to include the clause. They would have been content for the matter to rest where it is. I am not sure whether the Government are clear about where they believe that materiality should be. How much inaccuracy would HMRC be prepared to tolerate in the preparation of tax accounts?
There is a real problem, because although only one fine can be levied per year, one presumes that if there was a problem with tax records going back several years, there would be multiple fines. Some poor fellow could retire, and be sitting in Sandbanks in Poole, and get a knock on the door one day. Let us say that, on his watch, there was a problem with record-keeping in a particular company for four or five years; that person could be asked for £20,000 or £25,000. We need more information, because such a situation would very much go against the grain of limited liability, and the liability of boards.
My hon. Friend makes an important point. We will tease out the detail of the measure in Committee—whether it is retrospective, for what period people will be liable, and so on.
On the issue of materiality, let me put a scenario to the Financial Secretary. I do not know what his experience was after the VAT cut in the pre-Budget report. I remember doing a bit of Christmas shopping and being surprised at the number of shops which, rather than calculating the impact of the VAT cut at the till, relied upon the assistant at the till to do a manual calculation on his or her calculator. I hope that in most cases that calculation was correct— [Interruption.] Rob Marris asks whether I checked. Despite the fact that I am a chartered accountant, and although I sit at annual general meetings and check that the accounts add up, in the anal way that accountants have, I did not crosscheck the calculations. What I did check, though, was that the VAT cut was calculated not as 2.5 per cent. of 100 per cent., but as 2.5 per cent. of 117.5 per cent. That bit was okay.
Would the senior accounting officer of, say, John Lewis—come to think of it, John Lewis is a partnership, and I do not know whether partnerships are in or out of the proposed regime, but it is a large business—be accountable for somebody at the till making such a manual calculation on a calculator? I think John Lewis programmed its tills properly, so perhaps that is an unfair example. Any big retailer that did not have time to programme its systems after something unexpected happened, such as the VAT cut, would be dependent upon somebody with a calculator to calculate the reduction at the till. Is that material or immaterial? To my mind it is immaterial. If there was a systemic problem in calculating the VAT cut, I suspect that that might be moving towards material, but we need some guidance on materiality.
I know that materiality is a difficult issue for many organisations, particularly regulators, to deal with. If the regime is to work in a way that will reduce the cost burden on business and maximise the value, industry needs some guidance on what is material from HMRC's perspective, if HMRC is not prepared to rely on the concept of materiality used in the audit of statutory accounts.
The senior accounting officer's responsibility is to take reasonable steps. We would not have a big discussion on that, although I, as a lawyer, have some idea what that means. Although I understand the hon. Gentleman's concerns, it has certainly been found in the field of health and safety, which is my specialist background, that if a particular director is nominated as responsible for safety—not for every incident on the shop floor, but to assume overall responsibility for taking reasonable steps to make sure that there are safe systems and so on—safety improves. I expect the Government's approach is similar in respect of tax accounting.
That is fine, but there is already an obligation on directors to maintain proper books of records. They already have to sign off the accounts. If there was no responsibility anywhere in the business for signing off the books and records or for signing off the accounts, that would be a valid point. That is probably why it is in the Companies Act already. But we are going beyond the existing requirements, to create a new obligation on senior accounting officers, and I query the need for that move, given all the checks and balances that are in place already through the directors' statutory duties, the audit and the work that HMRC is doing with large corporates on risk management. What is the rationale for going that much further, given all the existing legal responsibilities?
I am grateful to the hon. Gentleman for his generosity in giving way. There is almost a clash of backgrounds here, but I think it is helpful. In the safety field, similarly, there is a panoply of legislation going back to the Factories Acts, the Factories Act 1961, the Health and Safety at Work etc. Act 1974 and so on, and the law of negligence stemming from the seminal case of Donoghue v. Stevenson in the 1930s. Having a nominated director seems to focus the mind of the organisation, even though there is that legislative background and all those duties exist. I suspect the Government's approach may be that similar focusing is needed in some companies—a minority—regarding tax accounting.
I am still not persuaded. That is why I look forward to the Financial Secretary's reply, in which I hope he will lay out explicitly, for the first time in public, what the rationale is for the measure. On Second Reading there was not much reference to it.
Behind the measure lies the particular role that the chief financial officer plays in a company. He is the ultimate point of accountability. That is why, in all the companies with which I have been involved, small ones and some comparatively large ones, the chief financial officer has always had the right of appealing direct to the board as a whole, quite apart from the chairman, and to the chairman, but separate from the executive officer. The provision is, in a sense, an extension of the very particular position that the chief financial officer has in relation to an extremely sensitive issue. The Bill is trying to take that a little further by imposing a sanction—which will no doubt be covered by an indemnity—so that the responsibility is registered personally, as all financial matters are and as the hon. Gentleman rightly says, and directly with the financial officer.
The hon. Gentleman and his hon. Friend the Member for Wolverhampton, South-West are trying valiantly to justify the measure, but I am not persuaded. There are already checks and balances in place to ensure that. If there was feedback from HMRC's risk assessment that directors were not taking their responsibilities seriously and that there were big gaps in risk, that would be an issue. I also question whether HMRC is concerned that there are material issues with tax compliance. I would expect that to be picked up by auditors and appropriate adjustments to be made.
A good example of where finance directors can get leant on, I suppose—with no insidious implication—would be some of the big banks, such as Royal Bank of Scotland, where even the non-executive directors had nothing to say as liabilities racked up. I wonder where the finance accounting officer was in that. It is another aspect of his position, not directly related to tax, but it is clear why singling out one aspect—in this case, tax—and giving it a special focus could have a bearing and give him a reinforced position on the board.
I have great deal of respect for the hon. Gentleman's business experience. He comes to the House with some knowledge of large companies, but I am not yet persuaded. The case has not been made. It goes back to the point that I made at the start, which he and I first tussled with, about the lack of consultation. The Government have not gone out there in advance of the Bill to make the case for the requirement. If the case was made, we might well change our minds. That is why time is needed to sort out the issue and nail down exactly why it is needed and what the consequences are.
Presumably the penalty is levied directly by HMRC on the company without recourse to courts—I see nothing that involves courts or appeals—and presumably the company gives the name of a senior accounting officer. Do the tax authorities have to accept a particular name? Some people have a certain reputation with the tax authorities—they may call it battle honours. Clearly, somebody who had had quite a few penalties levied against them might not be the most popular person for the Revenue to deal with. There are many issues here, and I am not sure the Government have explained them fully.
My hon. Friend makes an important point. That is part of the challenge. The case has not been made, which is why people outside are perplexed about the need for the measure.
I have touched on materiality and talked about normal accounting systems. "Tax accounting arrangements" is a vague term. Is it simply the processes? Is it the technology or the people involved? What does "appropriate" mean? These are details that we need to take into account.
The measure's impact assessment raises some questions. The Government say:
"We forecast an improvement in Exchequer receipts of £140 million over 4 years."
So it would be quite helpful—perhaps before we reach schedule 46—if the Government were to produce an estimate of how the forecast was reached and what they expect to emerge as a consequence of their focusing responsibility on an individual.
The impact assessment also highlights the Sarbanes-Oxley Act, which I touched on earlier. The assessment says:
"This measure draws on the US 2002 Sarbanes-Oxley Act which put obligations on senior officers of US corporations to certify amongst other things that: they have established and are monitoring certain internal controls, and they have disclosed any material weaknesses in those controls to the company auditors."
That rang alarm bells in my mind, because the Act had a big impact on business in the United States and created some concern about whether the mooted takeover of the London stock exchange by the New York stock exchange would introduce extra-territorial regulation—whether Sarbanes-Oxley would apply here in the UK.
The issue reminded me of a debate that I had with the current Secretary of State for Children, Schools and Families when he was the Economic Secretary to the Treasury. On that occasion, we debated the Investment, Exchanges and Clearings Houses Bill, which was introduced as an attempt to avoid imposing extra-territoriality on UK businesses, triggered by concerns about the impact of Sarbanes-Oxley. I am therefore rather surprised that the Government have used that legislation to back up this measure, because, at the time, the right hon. Gentleman, referring to a conversation with Christopher Cox, the then chairman of the US Securities and Exchange Commission, and Hank Paulson, the then US Treasury Secretary, said:
"I think that they both share my analysis of the current dangers of the Sarbanes-Oxley regime, which is that the way in which it has been implemented is both burdensome and insufficiently risk-based and that therefore it does not achieve the initial intention."—[ Hansard, 28 November 2006; Vol. 453, c. 1039.]
I should have thought that somebody in the Treasury might have remembered that exchange when drawing up the regulatory impact assessment, because they then could have said that perhaps Sarbanes-Oxley was not the best precedent to cite. Indeed, I should have thought that the Chancellor might have remembered the precedent, because, in a 2007 speech to the Institute of Chartered Accountants, he discussed the reforms that were being introduced in the UK and compared them with the US, saying:
"During a visit to the US last year, I was struck by the extent to which the approach taken by Sarbanes-Oxley—overly burdensome and prescriptive rules—was now seen as the wrong response."
I do not know whether the Financial Secretary shared the contents of the impact assessment with the Chancellor. If so, the Chancellor might then have remembered that he was quite sceptical about the benefits of Sarbanes-Oxley and the prescriptive rules that it imposed.
Of course, the issue goes right to the top, because even the Prime Minister recognised the implications. He said:
"I was under the same pressure as US legislators to impose blanket proscriptions such as Sarbanes-Oxley. I resisted"— a great dividing line in politics, there—
"in favour of maintaining a flexible principles-based approach. We will allow nothing to undermine that commitment."
The Government have argued before that measures inspired by Sarbanes-Oxley are overly burdensome and prescriptive, but the measure before us rings alarm bells: the Treasury has not learned the mistakes of Sarbanes-Oxley and seeks to impose its rules and approach to tax accounting. Interestingly, Deloitte and Touche, when commenting on Sarbanes-Oxley, also queries its relevance, saying that it is
"questionable how relevant the Sarbanes-Oxley experience should be here as the US legislation was developed specifically in relation to financial reporting and so arguably does not extend to tax return preparation process."
Sarbanes-Oxley led to the significant deterioration in the relative competitiveness of the US when compared with other jurisdictions, but the Bill's regulatory impact assessment says that
"it"— the measure—
"has no impact on competition" and costs are "negligible". The Government could not have reached that conclusion without having consulted industry first, but they did not, so they are not in a good position to make that statement.
Again, we return to the issue of consultation. The Government must understand the true cost to business. I am sure that Messrs. Sarbanes and Oxley, at the time of their Bill's passage through Congress, said, "Oh, don't worry, it will have no impact upon competition, it won't involve additional costs on business"; that they were quite breezy about it, in the same way that the Financial Secretary is quite breezy about it in the impact assessment that he has signed off; and that, only when it was too late, did they realise that it had a cost and an impact on the US's competitive position. I just counsel caution.
The Treasury has rather rushed into the initiative, and it is not clear who its author is. I do not get the impression that HMRC has embraced it as warmly as it would if the initiative had been one of its own; and I do not know whether it was a follow-up to the G20 summit, whereby someone said, "Something must be done," or a response to the TUC's campaign on the tax gap—a political, knee-jerk reaction in the same way that Sarbanes-Oxley was to problems in the United States. It is not clear who is the father of this great idea.
Before the hon. Gentleman probes the genesis of the measure, I note that he talked about the costs for competitiveness. However, there are real costs, too. Schedule 46 describes accounting arrangements, including arrangements for keeping accounting records, and many businesses will simply assume that that means that they need to get the most up-to-date and expensive enterprise accounting system. The hon. Gentleman will know that the real cost of delivering that—in monetary terms, consultancy fees and management time—can be quite enormous.
The measure could be expensive, and that is part of the problem. No one knows quite how expensive it will be, because no one knows the detail of a measure that was published without consultation. We would have had a better idea of the cost if someone had bothered to ask business beforehand, rather than just slapping it into a Finance Bill as a cracking idea that might get a few cheers from Back Benchers, trade unions—whoever it was targeted at—and saying, "We'll just finesse the detail later." That is not good enough, given the issues that this country already faces about the competitiveness of its tax regime, predictability, stability and certainty.
I am bemused by the clause, as are professional advisers and business. I am not even sure that we have a clear justification from the tax people. I talked about systems and materiality, and there are more than 20 taxes that could affect business. Does the clause apply to the accounting for each tax? Is it simply restricted to corporation tax, VAT, pay-as-you-earn and national insurance—the mainstream taxes? Or will business have to look at other taxes, too? I have not even discussed its impact on UK subsidiaries of overseas businesses or how somebody in the UK will get comfort on overseas subsidiaries, because the issue goes back to materiality.
The hon. Gentleman looks like he is about to make a point, but I know from my experience of working with multinationals that an organisation's control over, and knowledge of what is happening with, small overseas subsidiaries can be quite limited. It is down to risk and judgment.
The hon. Gentleman asks who fathered the provision; I think that it probably has many fathers. In parts of, for example, Barclays, it seems that no one, including the finance director, knew what was going on, particularly in the separate overseas companies, many of which were seemingly set up for tax purposes. I do not know whether the Government intend to tackle that, but there is a real problem in making a chief finance officer sign off responsibility for the whole company. I understand from my right hon. Friend the Financial Secretary that we are targeting the very biggest companies. If it is the intention to make the chief finance officer responsible for what happens in all a company's operations, although it is necessary, we must think carefully about what we are doing.
The hon. Gentleman makes an important point about whom we are targeting and the level of control. I remember that the changes that corporate governance control measures introduced got people to examine some of their businesses in more detail. I am conscious of his point about the very largest companies, but I am not sure whether we are considering only those companies. The regulatory impact assessment states:
"Turnover—more than £22.8 million
Balance sheet total—more than £11.4 million
Employees total—more than 250".
What constitutes "large" for the Government is therefore relatively small.
My hon. Friend Mr. Robinson drew on a brief conversation that we had earlier. I will say something specifically about the point that Mr. Hoban raises, and about narrowing the scope of the provision when I catch the Chairman's eye.
I am pleased that we seem to have forced a concession from the Financial Secretary. Again, it illustrates the point about ill-thought-through measures and lack of consultation. If the Government had thought matters through properly, the regulatory impact assessment would be better defined than it was when the Financial Secretary signed it off on
We had the same experience in last year's Finance Bill on the treatment of residence and domicile. The relevant provision was delayed till the end of consideration of the Bill to cope with a raft of further amendments on Report. We were assured that it was the last legislation on the matter, yet—lo and behold—this year's Finance Bill includes more provisions on residence and domicile as a consequence of lack of consultation. I therefore believe that the Government are starting to retreat from their initial position as on
Let me reinforce the point that Mr. Robinson made. I was with one public limited company, which had 140 units in the UK and one overseas, for five years. It would have been extraordinary if the finance director had been expected to spend half his time examining 139 units and the other half looking at one unit, simply to understand the one overseas operation.
In a way, that goes back to risk and materiality. [Interruption. ] The hon. Member for Wolverhampton, South-West said from a sedentary position, "The Bermudan subsidiary." That is not a reflection on the company for which Stewart Hosie worked. It is interesting to ascertain what constitutes the gap that we are considering. Is it simply straightforward accounting for day-to-day transactions and the normal run of business, or are we looking at a layer of tax planning above day-to-day transactions? Are the Government targeting the latter? I am sure that any attached risks will emerge from HMRC's risk analysis procedures.
I have spoken for longer than I intended. I thought that I would make a brief contribution to the debate, but hon. Members have made many useful comments about how the provision will work in practice.
"This proposed new requirement appears to impose further onerous obligations whilst adding nothing new in terms of tax compliance. The proposed measure is disproportionate because it applies a potentially onerous personal liability on all the senior accounting officers ab initio. HMRC's risk analysis procedures should identify the small number of large companies that do not have adequate accounting systems to prepare a correct and complete return. Rather than introduce this measure, if HMRC is concerned about internal accounting systems it would make more sense to extend the existing declaration that is required on the corporation tax return."
That is a balanced criticism of the provision, which has been hastily introduced with inadequate consultation. There are many grey areas, yet companies will be required to comply with it from an accounting period that starts the day after the Bill receives Royal Assent, without sight of draft secondary legislation. In the interests of maintaining industry's confidence in HMRC and ensuring that HMRC knows what it is doing, the reason for doing it and what the costs and benefits are, we should delay implementation until the first anniversary of the Bill's passage.
I want briefly to take up a few points in the light of that discussion. I shall start from the same point as the Conservative spokesman. Clearly, there must be a great deal of consultation on this provision, and it should not be implemented until the consultation has ironed out the bulk of the problems that are bound to be associated with it. However, I put it to Mr. Hoban that if we consulted in detail on legislation like this before including it in a Bill, we would never get the Bill, because of the attitude of those who, understandably, do not want any form of additional regulation, bureaucratic control or paperwork, or any of the costs that Stewart Hosie identified. We would never get there, so it is much more sensible to produce something first. HMRC is in touch with all companies' accounting officers. It knows what it is after, and the companies do, too—and that knowledge is built into what is before us. It is not as though the provision had been plucked out of the air—although it may sometimes suit the Opposition to suggest that that is the case.
The time to deal with the detail will be when the Bill goes into Committee upstairs. The companies meet HMRC in between the Committee sittings—that is how it always happens—and I am sure that the Government will be open to amendment, where appropriate. The hon. Member for Fareham makes a good case for consultation, which does happen, but he gets it the wrong way round if he thinks that we could have such detailed consultation before including anything in the Bill.
However, I think that a year's delay would be sensible, if there were agreement on that—but whether the Government would go that far, I do not know.
There is no question of that. If the hon. Gentleman ever had to work with HMRC and companies—a remote possibility—I would urge him not to believe that he can undertake meaningful consultation before first producing something in a Finance Bill.
Does my hon. Friend share my concern that in the body politic in the United Kingdom, we—this applies to all parties—have developed a regrettable tendency, which is that although we all say that discussion and debate are good, when someone changes their mind as a result of that debate, we claim that they are performing a U-turn, and that that change of mind proves that the original measure was ill thought out or rushed? That is regrettable, because that is what we do in this place: we share ideas here and discuss them, and occasionally people change their minds. That is an honourable thing to do.
Indeed, it is not just honourable; it is the correct way to proceed. I used to start debates in Committee by saying, "Look, this is for discussion and we are looking to get it right." If a point then came when the Minister made a sensible compromise or came to an agreement—not that that would necessarily happen, because in those days the Opposition had often not even tabled an amendment for the first sitting—we would hear, "The Government are collapsing! A huge concession! Holes knocked in the legislation!" That is not what Committee is about. I never had a problem with reaching for amendments, if that was the right thing to do—that is the whole purpose of the process—providing, of course, that they did not vitiate the essence or the purpose of the Bill. Indeed, if an amendment commends itself to the Minister, it should enhance the Bill.
I was interested in what the hon. Member for Fareham said about the law that was introduced in the United States in the wake of the Enron and WorldCom scandals, when the United States went in for what we called "heavy regulation", which contrasted with what we over here called "light-touch regulation", which I am sure the hon. Gentleman and the Financial Secretary will remember. I was not in the Treasury at the time, but I knew what was going on. We thought that that difference would give us a huge competitive edge, but it is interesting to see how things turned out.
That issue was meant to be about financial controls, but what went wrong with the banks was, in large part, to do with the lack of financial controls, albeit in a different sector now. Despite the heavy regulation in the United States, the problem started there—Gillian Tett has shown that clearly in her book "Fool's Gold"—and then it spread, and we are clearly caught up in it. However, that regulation did no good for the sector that was about to blow up in the United States, whereas our light-touch regulation is now being blamed for what happened here.
What clearly went wrong was that people were not being intelligent about regulation—that is what it comes down to—and neither were the central banks. Although we took away regulation from the Bank of England and gave it to the Financial Services Authority, the Bank still had an overall direct responsibility. I remember Eddie George saying, "I'm afraid of a systemic collapse," which is why he wanted that responsibility, and the money for it. That responsibility was clearly left with the Bank of England when we made that change. It is no good for the Bank to say, "It was all passed over to the FSA." It was not: the integrity of the entire banking system was left clearly with the Bank.
Everybody was looking at the wrong thing, or not looking hard enough at the right thing. That is what happened in the United States. If we do not focus intelligently on the area that poses a threat to the economy, we will do no good, whatever sort of regulation we have, however many people we have and however many pieces of legislation we have to back it up.
May I give my hon. Friend an example? The Canadian banking system has been far stronger than the banking systems in the USA or the United Kingdom. However, in Canada, under the Office of the Superintendent of Financial Institutions, there is less regulation. Banking is more heavily regulated in the USA, but the Canadians take a risk-based approach, on the basis that: "We know risk when we smell it and we'll get in there." It is not just a question of regulation; it is a question of philosophy.
My hon. Friend is dead right, and I agree with him entirely. The idea of bureaucracy regulating entrepreneurial banks will never be terribly effective.
To return to clause 92, I am pleased that we are approaching the issue in the way that we are. I am sure that the Government will listen hard to what the industry says, and I am sure that we can get things right. As for why we are focusing on tax as we are, to me that does not pose the sort of problem that it seems to pose for the hon. Member for Fareham. In view of the multiplicity of taxation arrangements burgeoning throughout the world, I can quite understand the position of the United States Government under President Obama and that of the German and French Governments, who have always been strong on this issue, and why we have a particular focus in the UK on strengthening tax function and tax accountability; the words in the Bill speak of all this. It seems inevitable that that should be part of the review that we are having, when so much of the tax take appears to be disappearing overseas. I am not sure that that is directly linked, but I cannot help but feel that it is part of the mentality that has led to this part of the Bill.
I welcome the provisions. The chief finance office should be clearly seen to have an independent role in accounting to the board. When my right hon. Friend the Financial Secretary puts the Government's case, I wonder whether he could tell us whether it is automatically assumed that the chief finance office will be a board member, because the Bill refers to officers or directors. It is terribly important that the person charged with that responsibility should be a director, not some officer who can escape a sense of personal responsibility. A finance office in a major British multinational or international company will feel a heavy personal commitment and a personal burden, which he will have to bear in the interests of the whole company, with a direct responsibility enshrined in law and a fine attached, related to the performance of that function. If a finance officer were to be fined, in all probability he would seek and obtain an indemnity from the company, and rightly so. Nevertheless, the fact that he has been fined will weigh heavily on him, if he is responsible in the exercise of his duties, and therefore reinforce the general sense of this part of the Bill, and the general purpose for which the Government have introduced it—and I am pleased to see it there.
I am sure that the Financial Secretary will reassure us on the need for consultation and the other matters that the industry will bring to him in due course. We look forward to hearing what he has to tell us in that respect.
The proposals are far-reaching in their implications and were introduced without meaningful notice or consultation. I have received representations from groups such as the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, and from companies such as PricewaterhouseCoopers. They have raised a series of concerns with me, as they no doubt have with MPs from all parties, about the potential implications of what we are considering, including what they regard as possibly unforeseen implications. Indeed, Mr. Hoban read out a quotation from the Institute of Chartered Accountants that summed up those concerns precisely.
I propose to highlight three concerns that my party and I have about the Government's proposals, and then to suggest how we might deal with them. The first concern is about the aspect of personal liability. All parties in the House would wish to see companies that failed to comply with the law dealt with accordingly, but the Government's proposal makes a distinction between the organisation and the individual. Mr. Syms asked what implications that might have, and whether they might go further than the Government envisaged. It is therefore important to explore the aspect of personal liability in greater depth in Committee.
Our second concern is about the lack of clear definition. Paragraph 8 of schedule 46 says that only the most recent senior accounting officer will be liable, but there will still be issues if errors have been made in the past. If the most recent senior accounting officer has been in post only for a short period, the provision may not be so satisfactory, whereas if he or she has been in post for a long time, we would be able to go back much further. There is therefore some doubt about how the provision will apply in practice.
No one knows what HMRC thinks will constitute adequate or accurate reporting systems. One person's idea of adequacy may be markedly different from another person's. Indeed, in accountancy, one person's idea of accuracy may occasionally be different from another person's idea of accuracy. As far as I am aware, no guidelines have been published so far to clarify those points.
My final point about the lack of definition is about the implications for UK multinationals based primarily in this country—a point that was made earlier. However, I do not think that the following point has been made: what if the senior accounting officer is not based in the United Kingdom, even if most of the company is? How will the law work in practice then?
The third area of concern that I have identified in gathering together the themes that others have expressed to me relates to the regulatory burden and the costs involved. The rules will be up and running from October, and there is genuine anxiety that this does not provide a fair period for companies to respond and incorporate the new rules into their practices. My understanding is that the Government say that the new arrangements merely formalise the procedure that is often observed by companies, but all the representations that have been made to me by the industry bodies that I have just named suggest that the legislation goes further than that. There are also questions about the cost to business and the anticipated extra yield to the Exchequer, and about whether the additional money raised will be sufficient to justify the potential additional cost to business.
Those are my concerns, based on my discussions with others. Thinking through these issues as carefully as I can has led me to come up with four brief guiding principles for seeking to address the situation. First, my party believes that we should support measures to improve accountancy procedures in the interest of transparency. Everyone would accept that we want to see companies complying with the law in a transparent way, and not unreasonably trying to avoid their obligations.
I completely understand the Government's desire to maximise the tax yield within the laws of this country, particularly when we have such an enormous public deficit. The need for the Government to raise money is obvious for all to see. We also recognise, however, that there are many concerns over the wording, the short notice period, the regulatory burden and the personal penalties in schedule 46. It is therefore reasonable to allow this measure to go to Committee, because although the overall objective of greater transparency is reasonable, there will need to be further consideration of those specific points.
The second point relates directly to the amendment tabled by the hon. Member for Fareham, with which I have a lot of sympathy. It is logical to provide for some breathing space in which the rules can be reviewed, so that companies do not fall foul of them unwittingly. Some concerns have been raised with me, however. First, there could be a tendency for some companies—not those that observe best practice, which are unlikely to fall foul of the rules anyway—to see a year's delay as another year in which they can ignore the problem, and they might not be any better prepared when the legislation comes into force than they would have been if it had taken effect sooner. To be more cynical, one could suggest that other companies could use the year to give themselves more time to think about how to evade the spirit of the law.
The hon. Gentleman is making an important point about how people could use the year's delay. He will know from reading the Bill that there are two certificates involved: a type A certificate and a type B certificate. Certificate B is used when a company cannot sign off using certificate A and some explanation is required. One concern that has been expressed is that in the first year many businesses will have to file type B certificates anyway, and give an explanation of why they cannot comply, not because they are being difficult or because their systems are not up to scratch, but because of the short notice period. There is a danger of confusing the picture by rushing this measure in with undue haste, without properly identifying which companies are not compliant and which are.
I completely accept the hon. Gentleman's point, and his honourable intentions. The trade-off that we always have to grapple with on these occasions is that if a measure has some merit—we all accept that there is some merit in the Government's proposals—we have to decide how long to delay introducing it in order to ensure that it will work even more effectively. There is a strong case for saying that the added benefit of having a more workable measure will justify the year's delay in implementation, as the hon. Gentleman's amendment suggests. However, I believe that such a delay would have potential downsides as well as advantages.
My third point is that I hope the matter will be examined in further detail in Committee. I am sure that the Committee will not seek to remove the clause altogether today, and I hope that I will be able to table amendments in Committee that could reconcile these points, as that might be a more appropriate forum in which to discuss them.
My final point is a broader matter of principle. Objections have been raised about the so-called concept of naming and shaming. I want to put on record the fact that my party is not against naming and shaming per se—the practice might have a part to play—but we want to ensure that it is those who deliberately evade tax who are treated in that way, rather than those who have made a genuine, and in some cases very small, error. The state should not treat individuals and their reputations in a heavy-handed way. If it puts their names into the public arena in a way that damages their career prospects and other private interests, and subsequently finds that that action has been out of all proportion to the offence—which might have been committed unwittingly as well as being modest in scale—it will have exceeded its power in terms of its relative might and the individual over whom it wields its power. We need to observe that important principle in our deliberations. We need to strike a balance between transparency and effectiveness, and between the rights of the individual and the understandable desire of the Government to collect tax revenue legally owed to them.
We accept that there is some virtue in the proposals, but they require considerable further attention, and it might not be desirable to bring these matters to a head this afternoon. After we have heard further representations in the House and externally, we should try to come up with proposals in Committee that are more satisfactory to more people who have a direct interest in these matters.
I declare my interest in today's proceedings on the Finance Bill, as shown in the Register of Members' Interests.
Although I have a number of questions, I am glad that the Minister has already said that he will tell us House more about the definition of a large company, because that will be useful for our debate. Under the provisions, a company will have to notify Her Majesty's Revenue and Customs of the name of its senior accounting officer. I assume that it will also have to provide the company's address, but will it have to provide all the company's addresses for which the officer is responsible? Will he or she have to give their home address, as they will have some personal responsibility for what is discharged? Will the individual in question have to be resident—could they be a non-dom? These are important questions. HMRC does not require people to have DNA tests, but you never know.
We have to be very careful when setting out what we want from senior accounting officers. We have already discussed subsidiaries, including overseas subsidiaries and those that are sometimes set up for particular financial transactions, such as the purchase of plant, and I think that there are difficulties involved in that. I also think that there are difficulties involved in the appointment of a new senior accounting officer. The first thing that he or she will have to do is go through all the accountancy procedures and conduct a risk analysis of every part of the business. In the case of large companies, that could not be done particularly quickly. We shall need to see HMRC guidance on what senior accounting officers have to do.
We know that there will be penalties for inaccuracies, but it would be useful to be given a definition of what would be considered an inaccuracy. In any large organisation it is possible to make small mistakes involving minimal amounts of tax, and no sensible tax authority will take everything to the nearest penny. However, the individuals living under this regime will need to know about scale. In the case of large or significant tax liabilities, that would seem to be a sensible requirement.
We are told that there will be a fine of £5,000 a company per year. If 20, 30, 50 or 150 companies were involved, could a multiple fine be imposed on a company and its subsidiaries, and could it be imposed over multiple years? What is the potential liability faced by individuals? As I said earlier, this is a bit different from limited liability. Could the fines be levied by HMRC, and is there an appeal process? According to the explanatory notes, a "reasonable excuse for...failure" will be accepted as a reason for HMRC not to levy fines, but we do not know how HMRC will be persuaded that an excuse was reasonable. There might be an argument between the tax authorities, which must discharge their responsibility to collect as much money as possible, and the company about what is reasonable.
We need to know much more about the costs imposed on businesses. Even if the Minister qualifies what the impact assessment says about company size, I shall want to know whether the costs will be reduced for smaller companies. Will HMRC insist on the provisions applying to all limited companies at some point, and what impact would that have?
We need much more information about clause 92. I think that it would be very useful if the amendment were accepted so that the implementation of the schedule could be delayed to allow proper consultation. It is important not to reduce the responsibilities of members of boards, and indeed those of auditors. My hon. Friend the Member for Fareham might agree that auditors quite often avoid their responsibilities nowadays, and that many of our financial problems might be caused by that.
There are a great many questions to be answered. I hope that the Minister can reassure us and that, by the time the Public Bill Committee sits, we shall have much more published information so that we can test the Government's proposal. We know that it is important to raise legitimate tax from companies, and the American example might be a useful one, but I shall not be in favour of the proposed arrangement unless I am given a great deal more information about the impact on business and individuals, and about the Government's direction of travel.
Consensus is emerging on the need for a transparent financial and accounting system. There might be a need to improve and tighten up tax accounting arrangements, but I am not convinced of the merit of the Government's approach. The question that I am still asking is, "Why now?"
Mr. Robinson described some ways in which pressure could be put on finance officers in the banking system, but I do not think he was suggesting that there was any evidence that that had already happened. While his observations were valuable as theoretical points, they left me still wondering what specific evidence had led HMRC to require clause 92 to deal with an existing problem. It would be helpful if the Financial Secretary could return to that question.
What the hon. Gentleman says about my comments is pretty well true, but given the entirety of what has happened to investment and other banking systems in America and here, it is hard to escape the conclusion that not just the risk element but the overall finance control system in those banks was nowhere near strong enough.
That is a valid point, but I am trying to establish whether there is a causal link between what happened to the banking system and the introduction of clause 92. So far I have seen no evidence of that, or of a causal link with other things that have gone wrong.
As usual, my hon. Friend makes an interesting observation.
I was not sure whether the hon. Member for Coventry, North-West was saying that it was not a good idea to consult before provisions were inserted in a Bill because that would lead to the distortion of those provisions, but if that were the case, I would not see the point of consultation at all. His argument undermines the whole process and casts an unnecessary pall over what I consider to be the positive and mature way in which organisations such as the Institute of Chartered Accountants have approached consultation on a range of issues with a number of bodies, including the Government.
My basic premise is indeed that it is better to invite consultation once the purpose of proposed legislation has been stated but, as I tried to explain to Mr. Hoban, the corollary is that the Government must be prepared to amend legislation, realistically and willingly, in the course of the consultation.
That is an interesting point, but I do not believe that the trust that is necessary between the bodies being consulted and whoever is consulting them will be strengthened by the fact that they are being consulted only when the structure and philosophy of legislation has already gone quite a long way down the road.
Let me say a bit more about philosophy. Rob Marris made a valid distinction between the philosophical differences between the approaches to the clause adopted by the two sides of the Committee which, I think, are exemplified by paragraphs 23 and 24 of the explanatory note on clause 92. Paragraph 24 establishes what we consider to be the better principle-based approach in stating:
"Ensuring appropriate tax accounting arrangements are in place is no more than compliant companies will be doing already."
There are two points to be made about that.
"Ensuring appropriate tax accounting arrangements are in place" is the principle that we would expect to underlie the clause, while the words
"is no more than compliant companies will be doing already" raise the question of why the clause is needed at all. What evidence will there be of the number of non-compliant companies, and how is that number to be established?
Paragraph 23, which the hon. Gentleman quoted, states:
"Currently, there is no legal obligation on any particular director...to ensure that the company has appropriate tax accounts arrangements."
To me, that illustrates a tendency towards a rules-based system which, in my view, has a number of negative effects on companies' positive approach to organising their affairs. I am in the principles-based camp; I do not think that we should tie things up unnecessarily.
I wish to turn to the Sarbanes-Oxley Act comparison, because a number of issues arise there. Given that a comparison has been made with that measure and that reliance has been placed on the experience of it, I wonder whether any reasonably substantial and detailed work has been done to examine its effects. It is fine to talk in terms of generalisations and broad comparisons, but we need detailed experience if we are going to rely on it. We have seen one aspect of how that measure could materially affect companies: the additional costs and obligations that it puts on them. I understand that the accounting profession takes the firm view that additional costs arise from the measure.
The other issue that Sarbanes-Oxley raises has already been touched on in relation to materiality. The Act introduced something related to financial accounting rather than to tax accounting. As I understand it, built into that system is a concept of materiality. We need an indication from the Minister as to whether we are now accepting the concept of materiality in tax returns as well as in financials.
It would be useful to understand a bit better the way in which what is required by the clause will interact with the existing accounting framework. Most accounting systems comply with UK generally accepted accounting principles, but are we now saying that changes will be needed to UK GAAP to reflect the tax aspects of the measure? Are we saying that, for tax purposes, we will need additional requirements above UK GAAP? The measure does not address the question of integration within one system and how we judge, in terms of the prospect for revenues, other accounting regulations—not just UK GAAP but overseas regulations.
For the reasons that I and that many hon. Members have given in the light of the uncertainty surrounding the clause, I support the amendment.
We have had a useful discussion on this important measure. In the Budget, the Government took difficult decisions to support fiscal consolidation, taking steps to support businesses and households, but also setting out the credible path that we must follow to return public finances to sustainability in a fair way. Protecting tax revenues is an important part of that. It is right that as part of our fiscal consolidation, we act now—I recognise that there is some urgency—to lock in tax compliance and to protect tax revenues.
The majority of senior accounting officers are already ensuring that appropriate tax accounting arrangements are in place in their companies or groups. For them, the burden of the new requirement will be minimal, requiring little more than to certify the existence of what is already in place. However, a minority—I think it is quite a small minority—of companies do not have robust systems and processes in place. It is difficult for either the company or HMRC to know whether the right tax is being paid. We want identified individuals to take responsibility for putting that right. I will give a couple of examples.
Let me give the hon. Gentleman the examples that I have in mind. There have been companies where tax computations are calculated incorrectly each year due to known accounting system problems. We want it to be clear whose job it is to sort that out. One group had systems problems every year, could not identify the source of the problems and could not satisfy HMRC that the tax computation was correct. It needs to be crystal clear whose responsibility it is to resolve such an issue. Therefore, this is not about human error or genuine mistakes, as paragraph 1 of schedule 46 makes clear. It is about systems problems leading to persistent under-reporting of tax.
Clause 92 therefore places a legal obligation on senior accounting officers to establish and maintain appropriate tax accounting arrangements. It builds on the approach that HMRC has been taking since the 2006 review of links with large business, which I think has been widely welcomed, enabling companies to work with HMRC and to establish a low-risk tax relationship through transparency, picking up the point rightly made by Mr. Browne, and through co-operation. Clause 92 simply provides that existing good practice among the majority of large companies is spread across all large companies. The measure reflects what should already be in place. We are clarifying the responsibility for ensuring that tax accounting arrangements comply with established good practice.
As we have established, the detail of the measure is set out in schedule 46, and I look forward to the full debate that has been presaged in this exchange, when we will discuss the detail in Committee. We said at the Budget that we would move quickly to consult on detailed implementation. I recognise some of the concerns that have been expressed in this debate; indeed, they have been raised with me. In response, we will table amendments to schedule 46 in Committee. I agree with my hon. Friend Mr. Robinson that that is the right way to deal with these matters. Let me outline the amendments that I envisage tabling.
First, as I said earlier, we need the right balance between safeguarding revenues from larger companies and the compliance cost for business in terms of what counts as a large company. I am now satisfied that the base of companies within the scope of the measure can be narrowed to strike a better balance. Our current thinking is to limit the measure to those companies with a large business relationship with HMRC, and a customer relationship manager reflecting that—fewer than 2,000 companies in total, compared with about 15,000 under the definition set out in schedule 46 as drafted. We will have further discussions about that approach before we take a final view, but we will then table amendments in Committee, rather than introduce regulations under paragraph 17 of the schedule.
Secondly, schedule 46 as drafted—the hon. Members for Fareham (Mr. Hoban) and for Taunton commented on this—requires senior accounting officers either to certify that the company's tax accounting arrangements are appropriate or otherwise to explain the respects in which those arrangements are not appropriate, with different certificates for each of those two cases. I am now satisfied that that would work better with a single certificate, on which the senior accounting officer sets out either one position or the other, rather than two different types of certificate as provided for in the draft schedule.
I accept that the requirement to notify the company's auditors as well as HMRC of the respects in which the tax accounting arrangements are not appropriate could pose operational difficulties for businesses which are disproportionate to the importance of that measure, so an amendment will be tabled in Committee to remove that requirement from the schedule.
On amendments, may I suggest that the Minister looks at the definition of a senior accounting officer? Currently the definition is
"the director or officer of the company who has overall responsibility".
I think that it should be a director; it should not just be an officer, who could be below board level. I want the focus to which I referred in one of my interventions on the generous hon. Member for Fareham (Mr. Hoban).
I will certainly reflect on that, but it should be for the company to determine who will have the overall responsibility that the schedule sets out, so I would be hesitant about being more prescriptive.
The point of the person being on the board, as opposed to being an officer, is that being on the board carries certain specific personal liabilities. The chief financial officer or the person with tax responsibilities might in many cases be taken off the board precisely so that they avoid that sort of responsibility, which a directorship carries with it. Will my right hon. Friend undertake to look into this point?
I will be very happy to reflect on it, but it should be the company concerned that makes the judgment as to which individual should carry this significant personal responsibility, which is rightly set out in this part of the Bill.
The hon. Members for Fareham and for Taunton asked when guidance would be ready, and I agree with them about the importance of getting the technical guidance right. The legislation must be implemented in a way that is consistent with the intention that I have set out. There should be minimal impact on companies and their senior accounting officers who already have robust systems in place, and HMRC is having some good discussions with those involved. It will work with them to develop and agree the guidance, and I will ensure that draft guidance is with the Committee before it considers the schedule.
The hon. Members for Fareham and for Henley (John Howell) talked about the reference to Sarbanes-Oxley in the impact assessment, and I understand why they did so, but we need to make it clear that we are not here importing Sarbanes-Oxley legislation to the UK. Sarbanes-Oxley is very extensive and covers a far wider range of issues than the quite limited measure in question, such as corporate governance, financial reporting and company law, rather than tax. No specific element of Sarbanes-Oxley is replicated in clause 92 or schedule 46. There is an analogy in that an element of personal responsibility is a characteristic of both the Sarbanes-Oxley legislation and this measure, but none of the specific Sarbanes-Oxley measures is replicated here.
Let me pick up on some of the other points that have been raised in the debate. I hope that former accountants enjoying their retirement in Sandbanks and elsewhere will be reassured to learn that because the obligations imposed apply only in relation to financial years beginning on or after Royal Assent, there is no question of any senior accounting officer being held retrospectively responsible for any shortcomings in a company's tax accounting arrangements.
I have mentioned one set of regulations that the draft schedule gives us the power to introduce: those to restrict the number of companies. As I have made clear, we will not be introducing such regulations, because we will take the action through amendment instead. We will be able to bring forward in draft form the other set of regulations, on penalties, that schedule 46 allows us to introduce before we reach that part of the debate in Committee.
The Government should be able to expect senior accounting officers to be satisfied that they have the appropriate systems in place to ensure that they can submit accurate tax returns. As I hope I have suggested, there is a problem, which clause 92 addresses.
Will the right hon. Gentleman comment on the issue of materiality? We discussed this point earlier in the context of the materiality that auditors use to sign off accounts. What level of materiality will HMRC employ when looking at the appropriateness of tax accounting systems and the accuracy of returns?
As the hon. Gentleman knows, companies already have an obligation to deliver correct and complete returns. The measure ensures that the minority of senior accounting officers who do not oversee systems that generate correct and complete computations take responsibility for addressing that. That is the level of the bar that we envisage applying.
There may be a systemic problem in a system that means that the calculation of tax on each transaction is out by as little as a penny or as much as a pound, and clearly those different amounts will have a different impact on the tax liability. How precise does the Revenue expect to be in applying these sanctions to senior accounting officers?
That is a perfectly fair point and we will certainly need to address it in the guidance, but what is important is that this is about ensuring that the systems are sound and robust, rather than about the dangers of mistakes that might from time to time occur.
I do not know the precise figures in that case. The hon. Gentleman mentioned the figure that we set out in the Budget documentation on Budget yield over the next few years arising from this measure. We estimate that in the first year there will be an additional tax yield of £40 million, and a rather larger sum in the years after that. Cumulatively, we are therefore talking about significant sums, and this is an important contribution that is needed for the fiscal consolidation that we require.
As I have said, we need to make some amendments, including in the light of perfectly fair points made in this debate.
There is a natural preoccupation that systems should be robust, but it has always struck me that systems can be as robust, detailed and complicated as we like, but they are only as good as the people who operate them. It is good that this complementarity has been introduced. Systems must be robust, but in order to make sure that they work properly, the first officer responsible has to see to it that the sanction and responsibility put on them will achieve just that end.
My hon. Friend is right and I am grateful to him for making that point.
The hon. Member for Taunton is right that it does not make sense to defer this measure for a year. There are certainly some detailed measures that we need to introduce and debates that we need to have, and as I have signalled, some amendments will need to be tabled. There would, of course, be a cost in deferring for a year. We need to get on with it, and the Government's response in terms of the fiscal consolidation we have set out needs to proceed. I therefore hope that the hon. Member for Fareham and his hon. Friends will feel able to withdraw their amendment. If they do not, I hope the Committee will reject it.
I am not convinced by the Financial Secretary's response to the debate. He talks about what we are considering being an appropriate measure of fiscal consolidation that will raise £40 million in the first year. This is in the context, of course, of a budget deficit of £175 billion. I asked him about the monetary amount of the systems error that he prayed in aid in respect of this measure, but he did not know how much that was going to be. I worked out, not in a systematic way but on the back of a notional fag packet, that the amount involved per business covered by this measure would be £30,000 to £40,000, which is not a material sum. I am just not persuaded yet that the Financial Secretary has made a case as to why we should impose this legislation on large businesses, notwithstanding the welcome concession that he has made in restricting the number of businesses to which it will apply. Why would this measure be imposed without any real work having been done by the Government on the costs that businesses will incur as a consequence of its introduction?
Mr. Robinson takes a very bullish view on consultation, and it is important that we get tax legislation right. The Financial Secretary has accepted that there will be amendments in Committee, and I welcome that. However, there are examples of legislation that has been rammed through quickly and which we have had to come back to in successive years to get right, and I just do not think that the Government have taken sufficient care over this measure to warrant its introduction when this Bill receives its Royal Assent some time in July. More work needs to be done by the Government to get this right, and to understand issues associated with materiality, who the senior accounting officer will be and the application of this measure. It is right to delay implementation by a year, so that the Government get it right and do not impose an unnecessary cost on business without a firm grip on the benefits that this is due to bring. I therefore ask my hon. Friends to support amendment 4.