Clause 132 - Mandatory e-filing

Finance Bill – in a Public Bill Committee at 11:30 am on 25th June 2002.

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Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury 11:30 am, 25th June 2002

I beg to move amendment No. 227, in page 104, line 7, leave out 'requiring' and insert 'permitting'.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to take the following amendments: No. 228, in page 104, line 38, leave out 'or requirement'.

No. 229, in page 104, line 41, leave out 'or requirement'.

No. 254, in page 105, line 9, leave out 'required' and insert 'permitted'.

No. 231, in page 105, line 20, leave out subsection (7).

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

Good morning, Mr. Benton, and welcome to the Chair. We are dealing with a very important set of amendments, and it is essential to explain the background to them.

Clause 132, as Members and others will doubtless be aware, provides for mandatory filing of payroll returns and information over the internet by 2010. The Conservative party supports measures to encourage electronic communication, but we strongly believe that this provision is totally unreasonable. In view of the Government's lack of success with electronic systems, including, I should emphasise, the Passport Office fiasco and the recent withdrawal of the electronic filing of self-assessment tax returns due to a security failure, this measure is manifestly not a reasonable or even responsible approach.

The essence of the amendments with which we are now dealing—we shall turn to others in due course—is to propose a permissive rather than a prescriptive approach. In other words, by contrast with the Government, we are saying that if people wish to file

their tax returns electronically, now or by 2010, they should be permitted to do so. We are the party of choice. On the other hand, people should be under no obligation to do so if they do not wish to. That is where the Government's prescriptive approach is widely resented.

We hope, even now, at the 59th minute of the 11th hour, that the Government will withdraw. I can say, in a constructive spirit, to whichever Minister responds to the debate, that we would not in any way seek to exacerbate the Government's embarrassment were they now to say, ''Sorry, we accept that we got it wrong. Some powerful representations have been made to us and we have decided to reconsider. We have abandoned prescription in favour of a permissive approach. Will you Conservatives now bank the concession and say no more about it?'' The answer to that would be yes.

I have always taken the view, the more so over the years, that there is no shame in making a mistake, only in failing to acknowledge the possibility of having done so. That is the offer that I make. I ask the Ministers just to think about it. They can do this very painlessly. Hon. Members on this side will not bang on and bore the Government rigid, for months to come, about the fact of their failure and embarrassment. I am dangling a pretty juicy carrot, and Government Members should not dismiss it lightly. Think of the endurance test to which Members will otherwise have to be subject.

The issue is very serious, and I shall deal first with the views of respected tax practitioners. I shall come on to other aspects of the debate in due course, especially under amendment No. 230, but at this stage I pray in aid the tax faculty of the Institute of Chartered Accountants in England and Wales. Its view, I am sure the Minister would agree, is important to our debate, although not the only valid opinion. The tax faculty says:

''The Government and the Revenue should be concentrating their efforts on ensuring that its''—

I presume, the Revenue's—

''e-filing systems are easy to use, robust and reliable and only then encouraging taxpayers to use the service.''

That seems a reasonable position. It goes on to say:

''We object to this clause in the strongest possible terms and believe that is should be withdrawn.''

It continues:

''It needs to be appreciated that the obligation to apply PAYE is not limited to businesses. Many individuals engage nannies, gardeners and other helpers and have an obligation to deduct PAYE from the salaries of such people.''

The clause has its origins in the report prepared by Patrick Carter on payroll services, and I do not doubt that Ministers will invoke that in support. However, it is important to recognise that the tax faculty of the Institute of Chartered Accountants in England and Wales made a representation to that review. In it, it emphasised that it disagreed with some of the conclusions reached in the report, particularly that there should be compulsory e-filing of payroll returns. It said:

''Whilst the future of efficient payroll management, both for employers and for the Inland Revenue lies in an electronic solution, we are concerned at the unrealistic time scales which have been proposed and the element of compulsion suggested . . . Problems within the current electronic solutions need to be resolved before consideration of whether electronic filing should be made compulsory.''

It went on significantly and cogently to add:

''Such a decision should only be reached after further debate in the light of experience of the current electronic filing methods.

We are aware that other representative bodies submitted similar representations and we are deeply disappointed to find that, not only has such a provision been included in the Finance Bill, but the proposed scope of the provision has now been extended to include compulsory e-filing generally.''

The Institute of Chartered Accountants in England and Wales and others question whether the unamended clause is compatible with the European convention on human rights, as the Government somewhat unconvincingly claim. That is the judgment of the ICAEW.

The Chartered Institute of Taxation is presumably of some relevance to our deliberations. It stated:

''We feel strongly that the attempt to make an e-filing regime compulsory is the wrong approach. Whilst supporting the moves towards e-filing we believe the incentives should be by way of carrot, not stick. There are considerable administrative efficiencies to be gained from electronic communications but many of these benefits will accrue to the Revenue. The costs savings need to be shared. It is not fair to impose further costs on the taxpayer and businesses.

We find these particular clauses''—

clause 132 and associated clause 133—

''onerous and un-deregulatory and are most concerned that general empowering clauses, with so little substance, have been placed in a Finance Bill. If compulsory e-filing in specified circumstances is deemed necessary (for employers, following Carter for instance) then proposals of substance should be brought before Parliament for proper debate. Statutory Instruments should only be used to fill in or change minor details. They should not be used to contain the whole legislation.''

In other words, the CIOT is saying that we should know for what we are speaking or voting for or against, if our deliberations are to be accessible and intelligible to the outside world. The Government should not present us with what is, effectively, a skeleton in the Bill, which we are invited to support, on which the flesh will be added only at a later stage by people acting on behalf of the Government. Parliament must be given an opportunity to express a view about the substantial flesh placed on the skeleton.

There may be a simpler way of putting it—I am sure that several of my right hon. and hon. Friends want to contribute to the debate—but that summarises the essence of the undesirability of the Government's approach. They say very little in terms of specifics. They give themselves Henry VIII powers and ask us to trust them. They say that the detail will come later, that Parliament will not have a chance to comment on it, but that they are people of good will who will behave themselves. They say that everyone will be happy—of course, it will be too late to register that one is not happy—and, never mind, they are good chaps and chapesses, lie back and think of England; all will be all right on the night.

As all hon. Members know, I am an extremely charitable fellow. I try to see the best in my parliamentary colleagues of all parties. Therefore, I say gently to the Paymaster General—I do not want to wound her in any way—that I have not been altogether encouraged by her record. I am not willing to be mollified by the soothing bromides for which she is renowned. That is not good enough for me. I am, frankly, more persuaded by the professional concerns of the Institute of Chartered Accountants in England and Wales and the Chartered Institute of Taxation. We want a permissive rather than a prescriptive regime.

That is a compelling argument in its own right, but there is another relevant consideration, especially when we are being invited to take something on trust. I have referred bluntly and perhaps, from the vantage point of the Paymaster General, woundingly to my inability on the strength of the record entirely to trust her, on the basis not of abstract and pejorative comments, but of precedent. I am sorry to say that in addition to the skeleton in the Bill, there is another lurking in the ministerial cupboard on this subject and it is my duty to bring it to the Committee's attention. It is in the form of an exchange between the Paymaster General and her right hon. Friend the Member for Leicester, West (Ms Hewitt), the Secretary of State for Trade and Industry.

On 9 August 2000, the Secretary of State for Trade and Industry wrote on behalf of her constituent, Mr. Jim Fear of 139 Winchester Avenue, Leicester, to the Paymaster General about the Income Tax (Electronic Communications) Regulations 2000. The Secretary of State for Trade and Industry emphasised Mr. Fear's concern—this is important and not a laughing matter—about being forced to use the internet. That troubled him and offended against his principles. The Secretary of State for Trade and Industry, quite properly in her capacity as a constituency Member of Parliament, wrote to the Paymaster General, who sent a two-page reply. Her prose was of the finest and she would probably like me to read out all of it, but I shall resist that temptation. She wrote to her right hon. Friend on headed Treasury notepaper on 21 September 2000. Paragraph 2 of her letter, which started, ''Dear Patricia'', stated:

''You said that Mr. Fear was concerned about being forced to use the Internet and felt that Regulation 4 could be used in this way. I confirm that it is not Government policy to force people to use the Internet, but we are committed to offering them the choice of electronic services. Those who prefer to use paper to communicate with the tax authorities will continue to be able to do so.''

That seems clear, but the Government now propose to have mandatory e-filing by 2010. They believe that they can somehow bridge the gap between the letter of September 2000 and the contents of the Bill, and minimise, if not remove, the Paymaster General's embarrassment by invoking the notion that an intermediary can undertake the e-communication and e-filing. However, with all respect to the Paymaster General, although she may genuinely believe that that is a satisfactory compromise, it can be satisfactory only if the people at whom it is principally aimed judge it to be satisfactory. I am sorry to say that people who, for whatever reason—

some are motivated by conscientious and religious objection—object to being forced to use the internet to file their tax returns, do not consider the concession being offered by the Government as in any way satisfactory to meet their concerns.

In a letter dated 20 June to Mr. Ron Davis of 14 Church Lane, Whitchurch, Bristol, the Paymaster General stated:

''I am able to confirm that it remains Government policy not to force individuals to use the internet personally''.

My hon. Friends will note the insertion of the word ''personally''. The letter continues

''and reassure you that nothing in clause 132 nor the regulations that will follow will create such a requirement.''

The Paymaster General goes on to talk about the use of intermediaries.

People who are unhappy about the clause are not persuaded by the Paymaster General's letter, and it is important to emphasise why they are not. They believe that it should be a matter of choice as to whether they, or those acting on their behalf, use the internet for the purpose of filing tax returns. They are not satisfied that the Government have any such arrangement in mind. They believe—the wording of the clause justifies their belief—that by 2010 the Government will require e-filing of tax returns. That is not something that they want to see.

I would say to the Paymaster General that a certain insult has been added to injury, probably inadvertently, by the fact that on page 7 of the employers bulletin, published by the Inland Revenue on 11 May 2002—importantly, before the passage of the Bill—there is an item rather unoriginally and prosaically entitled, ''The future's bright, the future's e-payroll''. It goes on to say:

''All employers will have to send their year-end returns and forms electronically from May 2010.''

That is a direct breach of the promise that the Paymaster General made in her reply to her right hon. Friend the present Secretary of State for Trade and Industry in September 2000.

We do not believe that the Government have made a compelling case for the U-turn that they have performed. It is in the name of choice and a permissive approach, rather than instruction, prescription and compulsion, that I commend the amendment to the Committee. I save myself a little bit for other amendments to the clause to which we need to turn in due course.

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon 12:00 pm, 25th June 2002

I support the amendment wholeheartedly. I do not believe that it is in the interests of the Inland Revenue, let alone the taxpayers, that e-filing should be mandatory; it should be permissive. We all want to encourage electronic communication, but the Government are taking the power to make e-filing mandatory and that is simply not on. The clause will give the Government unbridled power that would substantially and adversely affect the lives of many

people, especially the elderly who are not conversant with the internet, and who are invariably assiduous and law-abiding people.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

Many people would be frightened by, and feel vulnerable because of, the arrangements of the clause. I am not suggesting that the person to whom I am about to refer is the most obviously vulnerable person or one easily frightened, but one person who would have grave difficulty if the clause were enacted would be my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth), who has gone on the record as saying that he would not recognise a website if it jumped out of his breakfast cereal.

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

The right hon. Member for Bromley and Chislehurst is not alone among Members of the House. There are many of us, and I confess that my knowledge of such matters leaves much to be desired, although I am considering taking courses.

I return to the elderly and other individuals not conversant with e-mail and the internet. Those people will have to pay to go to intermediaries. They will be forced to do so and will incur expenditure that they can ill afford.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

Does the hon. Gentleman not accept that the elderly people doing tax returns that we are talking about will inevitably be going to agents anyway to ensure that their tax returns are properly processed?

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

No, absolutely not. I should like to place it on the record that, for years and years, I acted for a number of owner-managed businesses, and I found that many people, especially at the smaller end, did their own tax returns and filing. They did so for many reasons: first, because they were competent to do so; secondly, because they were honest; and, thirdly, because they could not afford to pay accountants to do it for them.

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

There is, of course, the question of elderly people who employ domestic help. They will certainly not be using professional help.

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

Indeed, that is correct. I believe that that point was alluded to by the hon. Member for Buckingham (Mr. Bercow) when he referred to the major and compelling objections of a number of the professional bodies. Rarely have I seen unity on such a scale when discussing policy measures introduced by a Government. I do not want to repeat verbatim what the hon. Gentleman said, but the Institute of Directors has made it absolutely clear that it is not appropriate to compel people to file electronically. It thinks it deplorable that the regulations will, in effect, require taxpayers to use intermediaries and strongly believes that the words ''or require'' should be deleted.

I refer to the submissions made on behalf of the Institute of Chartered Accountants. The hon. Gentleman has already referred to some of them. The ICA is a distinguished and authoritative body, and the Government should take heed of what it says. It questions whether the clause is compatible with the European convention on human rights, and says, quite clearly:

''We feel strongly that the attempt to make an e-filing regime compulsory is the wrong approach. Whilst supporting the moves towards e-filing we believe the incentives should be by way of carrot, not stick.''

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Will the hon. Gentleman share with the Committee why those institutions believe that moving to e-filing is a good thing?

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

For the very reasons that I, the hon. Member for Buckingham and others in the Committee have adumbrated. The Chartered Institute of Taxation states:

''We are concerned that these clauses impose a burden on all taxpayers not just those identified by the Carter Review and we believe that there should be let-outs for taxpayers who either cannot afford or choose not to use electronic communication.''

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

Does the hon. Gentleman accept that, with the current roll-out rate of digital services, it is likely that, by 2010, people will be able to submit their tax returns through the equivalent of a television set?

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

I am afraid that I disagree with the hon. Gentleman. The year 2010 is slightly less than eight years from now, and there are people aged 50 in my constituency who want and prefer to use paper and do not wish to file their returns on the internet. They are also deeply concerned about confidentiality.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

The hon. Gentleman is developing a powerful argument. I suggest to him that the position of the hon. Member for Preston (Mr. Hendrick) is flawed on both counts. He seems blissfully unaware that he is hoist with his own petard. Does the hon. Member for Torridge and West Devon (Mr. Burnett) agree that if the time scale is unrealistically tight, that is an argument against compulsion; if, as the hon. Member for Preston fondly imagines, it will be easily achievable, what is the need for compulsion?

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

Absolutely right. That is a good very point.

I referred to confidentiality just before those interventions. People are not convinced about the security of such matters and that point of view should be respected. After all, we heard this morning on the news that people can tap in to the electronic communications of the Royal Family and senior Government Ministers, so what hope is there for individuals in small country towns and cities who submit their own tax returns, which often contain confidential details of their lives? It is not on and the Government should think again. The provision should be permissive, but mandatory e-mailing must be dropped. Permissive, yes; mandatory, definitely not.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

I want to reinforce the comments made by my hon. Friend the Member for Buckingham and the hon. Member for Torridge and West Devon, and to raise another matter of concern that would result from this thoroughly ill-thought-out measure.

This debate reflects the complete absence of understanding on the Government Benches of the reality of running a business. The range of businesses in this country is hugely diverse, with different cultures, different experience, different working environments and so on. To tell them that they must

do something with no choice defies all logic and suggests a complete absence of understanding. The Government seem to think that there is a large creature called ''business'' and that rules and regulations can be thrown at it and absorbed. The Government never seem to think through and consider the other end of their actions—the small business man or woman doing their books at home on a Sunday night and coping with the complexities, issues and changes that the Government require them to take on.

The Government, rightly and sensibly, want to encourage e-filing and none of us in the Committee disputes the logic for many business of being able to pursue such a route, but we part company with the Government's absolute insistence that there should be no choice. That is ill thought-out, narrow minded and does no favours for our hard-working business people.

We have heard about the issues that may arise. The hon. Member for Torridge and West Devon referred to people of the older generation and their unwillingness to change their way of working. Why should they? We expect the older generation to work longer in the future and we expect businesses to stay in business longer. People in traditional small craft firms—for example, those with masonry skills who carve elegant repairs on the sides of our cathedrals, those who thatch roofs, and others skilled in traditional crafts—will be asked to change the way that they work as they work into their older years and to buy the equipment to enable them to change the way that they work. That is illogical, unfair and unnecessary.

More particularly, another issue that has not yet been referred to is corporate security. Many companies have taken the decision to have a firm wall around their internal networks to the point where there are no links between those networks and the outside world for security reasons because, whether we like it or not, it is possible to hack into virtually any network anywhere in the world. Some people make a living from hacking their way into networks, finding confidential financial information and using it against those businesses or to cause trouble for them.

I am aware of companies that have taken a specific decision no longer to provide electronic links from their networks to the outside world. They may have a couple of machines in the office from which staff are able to send e-mails, but they do not provide external links. Are the Government telling those companies that they must put in place external links that feed straight through to their financial systems, to enable them to lodge an e-file of their PAYE details, even if they have strategic reasons for being unwilling to provide such links, such as consciousness of the security implications—potentially, national security implications? Will companies no longer have the ability to cut themselves off from the internet if they believe that the risk is not worth while? Will the Government compel such organisations to open their networks to outside links? It would be extremely foolish to do so, for the reasons that we have heard today.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

Has the hon. Gentleman heard of encryption?

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

The hon. Member for Preston demonstrates his naivety in that intervention. If one considers the evolution of technology, it is absolutely clear that there are no guarantees on the internet. There are no guarantees with encryption, because it is breakable. People make a living breaking encryption technology. I know of companies that have specifically said that it is not worth the risk.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston 12:15 pm, 25th June 2002

I speak as a computer scientist and someone who has studied the subject at length. Some codes can be broken, but others would require such tremendous computing power that no machine on earth would be able to break them.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

I simply do not accept the hon. Gentleman's assurances that no machine on earth is able to do something, given the technological changes in the past 20 years and the fact that we are looking eight years into the future when technology may have changed enormously. Furthermore, the concept that a small business will use high-quality encryption technology to protect itself when e-filing is equally improbable.

Photo of Tom Harris Tom Harris Labour, Glasgow Cathcart

Notwithstanding my reservations about some aspects of the Bill, which we will discuss in the next set of amendments, does not the hon. Gentleman accept the Government's reassurances that an intermediary would resolve all the security issues for any firm that has such misgivings? I totally accept that some firms do not want to hook up to outside agencies and may see that as a breach of security but, surely, that is the purpose of an intermediary. There would be no lapse of security for any firm that wanted to employ an outside accountant, for example.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

No, I do not accept that, because companies would be required to work in a different way. They would be required to create links that they may for very good strategic reasons not want to create, whether through an intermediary or not. Companies would not necessarily want to use an external agency to handle their payroll if they have an internal department capable of doing that.

All the points that hon. Members made may have some foundation in truth, but I cannot accept the compulsion element as right or necessary. The Government can encourage and incentivise, but they should not require, and I hope that they will change their mind even at this stage.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

In supporting the amendment, I accept that the Carter report recommended precisely this measure and a mixture of incentives and compulsions. As I understand the legislation, the Government have taken power to compel and coupled that with a few pathetic incentives, such as £250 for a small business, which will not buy much of a computer these days.

There are objections to the measure. I understand some of them, but others I understand rather imperfectly. There appears to be root-and-branch religious objection—there have been moments in my life when I thought that the computer was the

instrument of the devil—but the objections have not been properly explained. On moral objections that have been put forward, some people have suggested that staff should not be given access to the internet or that firms may wish to work in an environment that does not include internet access. In most businesses, that is not really a difficulty, because there are always ways of getting around or getting control of IT apparatus, but there is a problem for the individual who has just one employer.

The fundamental issue appears to be that we allow a multiplicity of payment methods—one can pay by cash, cheque or credit transfer—but for some reason the Government seem to be ruling out multiplicity of ways of form filling. One has to ask oneself who that is good for. Is it good for business or the Exchequer? I think that the Government believe it is good for both. They have a puritanical belief that the more business gets into computers, the more efficient it will be. They see a necessary connection between IT and efficiency. That connection sometimes exists, but as anyone who uses IT will find, it is not always there.

What the Government are demanding goes a little further than demanding that people fill in a form with a black pen. It has consequences for data recording, equipment procurement and security. There are any number of agencies that, according to the Government's own legislation, will have access to anything sent via an internet service provider. The Government are being permissive—from a Home Office angle—in opening up access to records on the part of Government bodies. I think that when people send in their tax records they have a right to know that those records have gone to the tax body, which is where they are retained and not snooped on by anyone else. Hackers are also a problem, which has already been alluded to.

I want to make a further, slightly geeky, technical point, which has not been addressed. The legislation appears to allow the Secretary of State to specify the format by which people may communicate. So it is not simply that one has to communicate via the internet, but one has to do so in a format that is acceptable to the Department. That gives the Government unfettered power to specify a format. They can require or favour particular software, browsers or platforms, whether that is PC, Unix or Mac. I do not want to enter the debate about Microsoft and anti-trust legislation, but we already know that the Government attitude to IT has made it impossible for people to access Government services who do not use proprietary software, which happens in most cases to be Windows-based software. There should be some kind of guarantee in the legislation that no matter what format of IT a firm is using, it should have access to the Inland Revenue, and should not have to buy the necessary software or platform.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

In reflecting on the clause, what assessment has the hon. Gentleman made of line 25, subsection (3), in which the Government elliptically inform us that they propose

''provision for the application of conclusive or other presumptions''?

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

The hon. Gentleman has picked up on my anxiety. We know that the Government are keen to collude with the IT lobby. We do not want the Government colluding with Bill Gates and the Microsoft lobby in every case. That not only flies in the face of what I call decent commercial principles, but flies in the face of the Government's principles, which they adopted in the Enterprise Bill. That Bill is strongly anti-monopolistic and in favour of there not being one IT culture across the board. The House of Commons has sold out entirely to Windows and Internet Explorer. I would like an assurance from the Paymaster General that whatever the Inland Revenue develops, and whatever road it goes down, at the end of the day, regardless of the IT equipment that is used—

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

May I inform the hon. Gentleman that the Inland Revenue already offers an online service for PAYE, which is all that we are talking about today? The provisions in the Bill will ensure that when the intermediary uses another software package it is compatible and capable of being used in the interaction with the Inland Revenue. That follows exactly the point that he has been making for the last few minutes and has been the case for some time.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

I am not responding to what the practice of the Inland Revenue currently is; I am responding to what the legislation says. The Inland Revenue has the right to specify. It may behave itself in a totally appropriate way now, but it might not in future, which is precisely the point.

Photo of Michael Jack Michael Jack Conservative, Fylde

Having had something to do with the establishment of electronic communication between the Revenue, the citizen and business, I have some sympathy with the Government of the day wanting to employ systems that have now established themselves, as the Paymaster General's intervention on the hon. Member for Southport suggested. One could fill up the entire time for the rest of today asking important and searching questions about the security, operation, software and computer issues related to the electronic transmission of data, all of which would be entirely proper. My view, however, is that there is an established protocol there and that the systems work as well as any other bulk transmission system for data.

The Paymaster General has already said that much of the system is already in place and that many big businesses are already benefiting tremendously from the electronic transmission of tax return data under the current regime. No doubt many accountants are doing that on behalf of big businesses and many small and medium-sized enterprises are beginning to experience the joys of electronic returns. However, what saddens and worries me is that the Government have not chosen the route of further persuasion but are being absolutist in the way in which they are going about the matter.

The explanatory notes on the clause reassure us that this is a matter for the employer. However, the clause itself does not say that. It talks about the delivery of information for ''specified persons''. By definition, specified persons are not specified. The part of the clause that my hon. Friend the Member for

Buckingham seeks to amend gives powers to the Commissioners of Inland Revenue to make regulations. For clarification, can the Paymaster General tell us whether that means that the commissioners—I have forgotten how precisely they make their regulations—can make the regulations without their being returned to this House, or can make them with the benefit of the law as specified in this clause?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I can answer that question now. The right hon. Gentleman might remember, from when he was Financial Secretary, that all PAYE regulations are dealt with under the negative procedure in that way. It worked like that under the previous Government. The reason is that discussions with the payroll providers about best methods and the need for constant improvement mean that the service can often be improved. Sometimes that requires some changes to regulations. That is precisely what has happened in the past and there will be no change in future when the matter is under the commissioners.

Photo of Michael Jack Michael Jack Conservative, Fylde

I am genuinely grateful to the Paymaster General for refreshing my memory, but that gives me cause for concern. If the regulations are made under the negative procedure, the chances of this House revisiting the territory are very limited. That is why imposing the measures by compulsion, as opposed to agreement and discussion, is very worrying. In another capacity, serving on the Environment, Food and Rural Affairs Committee, I have been involved in a study of the way in which the European Union decided to introduce a regulation dealing with the disposal of fridges. The lack of consideration, ahead of the agreement's coming into force, of how that should be done was remarkable and has left us with the practical implications of fridge mountains.

I am not saying for a moment that these systems are not in place and that we will not have some robust method of transmitting information to the Revenue. But according to the Government's explanatory notes, there is clearly a lot of work to be done

''to persuade many small employers to remove away from paper.''

Paradoxically, the notes go on to say:

''The report recommended a mixture of compulsion and incentives'',

but the Government seem to be backing compulsion over incentive. I think that they are being premature in producing the proposal now, when there is obviously much more work that could be done by negotiation, education and discussion.

The benefits are clearly there and companies should be able to work out for themselves that if, as in the majority of cases, they keep information electronically, being able to summate that in the form of a return and send it would be to their advantage. As other hon. Members have said, it will not always be the case that particularly an embryonic business, perhaps in the first six months of its existence as it copes with all the complexities of establishing a business, even by the year 2010, will be fully capable of working out what it has to do with year one's tax returns on behalf of its employees. For example, it might have set up a paper system. It might be a collection of individuals who

formed themselves into a company. Even in the year 2010, they might not have got around to doing it, yet the clause offers absolutely no flexibility in such a situation.

I agree with the hon. Member for Preston that by 2010 a new cohort of entirely computer-literate people will be involved in business in the United Kingdom. They may well be able to cope but, even then, there may be people who retire at the age of 60 and look for a second employment without some of those skills. The inflexibility of the compulsion worries me.

Another aspect that worries me is the wording ''specified persons'' in the clause that my hon. Friend the Member for Buckingham seeks to amend. We do not know to what extent specified persons will go beyond the indication in the explanatory notes that they will be restricted to those in the world of commerce. Specified persons could be anyone with an obligation to submit information to the Inland Revenue. It is dangerous to agree now, without let or hindrance, to a clause that empowers the commissioners to make regulations in which they can list, if they so wish, anyone that they want.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury 12:30 pm, 25th June 2002

My right hon. Friend has rightly picked up on a point to which I did not refer; namely, the reference to specified persons. If one considers the clause, there is further reason for anxiety that there will be different categories of specified person. Specified persons will not necessarily all be equal to one another. In subsection (7)(c), the Government arrogate to themselves the power

''to make different provision for different cases''.

There are different types of specified person. What is their nature, and how will they be treated differently? We are none the wiser.

Photo of Michael Jack Michael Jack Conservative, Fylde

I could, but I will not at this stage go through much more of the Bill, partly because I suspect that I might be wandering out of order.

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

I would encourage my right hon. Friend to do that, because subsection (8) goes to the nub of our concerns about the clause:

''the imposition on any person''—

that is who the specified person is—

''of any requirement or the issue to any person of any request''.

There are extraordinarily sweeping powers in the clause.

Photo of Michael Jack Michael Jack Conservative, Fylde

I am grateful to my hon. Friends for embroidering and adding to my point. In the spirit of modernising our tax system and using the benefits of the systems run by Electronic Data Systems on behalf of the Inland Revenue, I would have liked the Government, first, to produce a document showing how the development could be introduced over time, together with a draft of the regulations so that people would have had an opportunity to consider what they were being asked to approve; and secondly, to consult on it and deal with all the proper points of security, technical compatibility and all of the electronic items,

all of which could have been discussed. I do not think that the report to which others have referred went into the detail that is now being invoked by clause 132. I have many concerns; for example, it is difficult to see where dispute resolution comes into the process.

Let me conclude by saying why I am concerned that the Government may be rushing their fences. All members of the Committee receive payments from the House of Commons Fees Office from time to time. I received a piece of paper advising that such a payment had been sent to me electronically. I searched for it on my bank account, but it did not appear. I rang my bank, which told me that there must have been an error that I should check. To cut a long story short, a check was run from the Fees Office via the Bank of England, which showed conclusively that the electronic data had arrived at my bank, but my bank continued to deny that the transaction had ever taken place. I was left in the middle in an electronic no-man's-land. I could not personally, as a citizen, prove absolutely that the transaction had taken place. I could tell my bank that the paying authority had the authority of the Bank of England that the transaction had taken place, but the bank still denied it. Eventually, it accepted the force of the argument, but that is one example of what can go wrong in the world of electronic transmission. I shall not labour the point, but it illustrates that if the Government compel citizens and businesses to go down that route, they must be able to demonstrate, before pressing the e-button, that they have their act together and can answer all the questions that people are rightly posing.

There is no compulsion in this country to vote, yet we are being invited to make an important transaction between the world of business and the Revenue an irrevocable process with the weight of law but without publication of the details of the regulations and without consultation on all the questions that have been asked. On this occasion, supportive as I am of the use of electronics in the Revenue, I believe that this is a misjudgment by the Government.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

That was an interesting intervention from the right hon. Member for Fylde (Mr. Jack). Like him, I support the Government's encouragement for businesses and individuals to be up to date with the e-revolution. However, I have reservations about the compulsory aspect at this stage. I seek reassurance and an explanation of ''specified persons'' and ''specified information'' in subsection (1), although ''specified information'' is adumbrated later in the clause.

The Paymaster General said that we are discussing PAYE, but I do not see that in the Bill and I should like reassurance on that, as well as on the software, to which the right hon. Member for Fylde referred. I am a member of the Select Committee on Work and Pensions, which is all too aware that the software for the Child Support Agency let the Government down on 20 March when the change in the Child Support Agency had to be pulled. That is not the only software difficulty experienced by the Government and, indeed, the private sector has also had huge difficulties with software and computer systems.

The explanatory notes refer to 2010, but that date is not in the Bill. I should like some reassurance from the Paymaster General. I support the project in terms of encouragement, but there are some i's to be dotted and some t's to be crossed.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I shall be brief. The various reasons why people may not want to use electronic communication have been set out and I want to stress the point made by my right hon. Friend the Member for Fylde about evidence, which is crucial to businesses' and individuals' dealings with the Revenue.

It is blindingly obvious to me that many businesses and individuals will use electronic communication in future or are already using it. If they want to do so, that is fine, but the Soviet habit of compulsion that is creeping into the Government is absolutely unacceptable. Death and paying taxes are perhaps the two most important and greatest certainties of life. The Paymaster General may respond by saying that the clause does not matter because the negative resolution procedure is available, but everyone knows that that is bogus. The reality is that the clause would give the Revenue the power to insist with fines of £3,000 for anyone who does not do whatever it insists on. I am sorry, but that is completely unacceptable in a free society.

Photo of Mark Hendrick Mark Hendrick Labour/Co-operative, Preston

The hon. Gentleman talks about a free society. He will remember, as I do, the days when people were paid in cash. It became the norm that people had bank accounts and were paid electronically, as the right hon. Member for Fylde referred to earlier. That was not seen as some big infringement of civil liberties. In the same way that electronic systems occasionally go wrong, pay packets occasionally went missing. Why is the provision such a big infringement?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

With the greatest respect, the hon. Gentleman seems to have a complete mental block as to what the essence of liberty is. Many people still are paid in cash. If people want to be paid in cash, they can be. That is an arrangement between them and their employers. It has nothing to do with their dealings with the state. The payment of tax is a particularly important issue. It touches on people's private affairs, and is potentially vulnerable to leaks and so on. The Paymaster General's letter to the right hon. Member for Leicester, West was entirely right and I shall repeat it:

''I confirm that is not Government policy to force people to use the internet . . . we are committed to offering them the choice of electronic services.''

That is what we are about as a society. The clause is outrageous, and the Committee should throw it out.

Photo of Mark Hoban Mark Hoban Opposition Whip (Commons)

I support the amendment, which would make the requirements to file electronically permissive rather than mandatory. The Paymaster General muttered from a sedentary position earlier that about 94 per cent. of businesses have access to the internet. It is very important that they have access, but businesses use the internet for different purposes, and they are conscious of the risks attached to using the internet for transactions. My

right hon. Friend the Member for Fylde mentioned the issues concerning the electronic transmission of data, and the failure of that in the transaction to which he referred. Other businesses may have concerns about the security of the information that they have transmitted. Hon. Members will be aware of the problems that the Inland Revenue had with its software for the online filing of self-assessment, when it became apparent that people filing returns had inadvertent access to the data of other taxpayers. If we are not sure that the systems will be secure, people will not want to use the internet to transmit end-of-year returns. The security of data once they have been transmitted is a legitimate concern and a good reason why the amendment moved by my hon. Friend the Member for Buckingham should be accepted. The provision should be made permissive rather than mandatory.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

First, it is important to put the debate, and the purpose of the Carter review, in context. The previous Government commissioned work and tried to pay particular attention to the compliance cost to business in running the PAYE system. The clause refers only to the PAYE system. That is for employers with employees who are returning their tax and national insurance information. The previous Government tried very hard in the circumstances, without huge success, which reflects the technological developments of which the Government are now able to take advantage. The previous Government tried to reduce compliance costs, particularly for small and medium-sized businesses, but were unable to do so.

The current Government have continued to look specifically at how compliance costs for smaller businesses could be reduced and businesses, in particular smaller ones, could be empowered and provided with methods of developing their business potential through the use of new technologies that we are developing. The Carter review was commissioned as an independent review to discuss with all the representative bodies that have been referred to today, and the small business representatives, how progress could be made on achieving the dual objectives that everyone wanted: how to try to reduce compliance costs and how to encourage and provide for the greater use of e-technology.

The Carter review, having consulted widely, reported to the Government and that report was published. We then asked for further comments. The Government propose a package of incentives spread over five years to encourage small employers to switch to electronic filing and realise the benefits of IT support for the payroll. The Government are committing, over those five years, £420 million of incentives to be paid to intermediaries. We already provide, through the Inland Revenue sites, the opportunity for direct returns through PAYE, which have caused none of the problems to which hon. Gentlemen have referred—Armageddon has not occurred for those businesses. However, many businesses, especially small ones, have told the

Government that they want to work through intermediaries.

The response to the review was to pay all the money in incentives, but not have the final benefit of electronic communication until 2010. Carter recommended 2007, but the Government decided that we need a little longer and chose 2010. The reason is so that clean data are provided. One problem for small businesses and their representative bodies, mentioned in many representations made during the debates on this Finance Bill, is that there are many reasons why correct information is not provided—paper floating around, returns sent to the wrong place, returns not sent in on time—which can lead to incorrect data being stored by the Inland Revenue. What happens then is that inquiries can occur that need not have been made, causing more compliance costs and pressure on a business; or service to the business can be delayed while there are endless investigations to piece all the data together, or a completely wrong assessment may be made. Small businesses were widely consulted, on this matter specifically—hon. Members can see from the Carter report, which is in the Library, exactly what they said and that it was not only the Government contributing to the review—and concluded that they wanted effective, quick and accurate service from the Inland Revenue on their PAYE. They wanted to ensure that they could attempt to reduce their compliance costs and they welcomed the opportunity to develop their business through e-commerce.

Photo of John Pugh John Pugh Shadow Spokesperson (Education) 12:45 pm, 25th June 2002

Is it recorded that those small businesses also wanted mandatory e-mail filing?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

What they want is clean data. The way to ensure that is to have the data transmitted to the Inland Revenue on time in forms that are acceptable. I would say to the hon. Gentleman that—[Interruption.] That is to ensure that the correct information is collected. It is a burden to ask for information that we do not require—we often receive such information—and businesses want to be able to develop.

Turning to the figures for businesses, the annual Department of Trade and Industry benchmarking study shows that the number of United Kingdom businesses connected to the internet rose from 90 to 94 per cent. during 2001. That is the highest connection rate in any G7 country. The 2001 benchmarking survey also shows that there has been a rapid increase, from 15 per cent. in 1999 to 62 per cent in 2001, in microbusinesses making use of the internet.

Mr. Bercow rose—

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall give way in a moment, if the hon. Gentleman will allow me to finish my point.

The Government's objectives are to listen to businesses, to provide incentives to use an intermediary—an accountant—who files on the internet, to try to reduce the compliance costs for businesses and to make the change in a way that enables them to develop the technology so that they

can grow. Those principles underpinned the review and that is what we are delivering in these provisions.

Photo of John Bercow John Bercow Shadow Chief Secretary to the Treasury

I am sure that I am not alone in being underwhelmed by the Paymaster General's statistical litany. I want to ask her a question that I asked of another hon. Member earlier. If use of the net and e-filing are as popular as she supposes, why does e-filing have to be compulsory?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The Carter review demonstrated that it was necessary to provide an incentive for smaller employers to move to that position. The Government will invest £420 million to do that. If we are to invest the money and tell businesses that we will deliver the service with clean data, we must ensure that we reach that point, hence the requirement for PAYE for small businesses to be made by electronic filing by 2010.

I fully understand that there are exceptions, particularly in a small section of the community with deeply held views about internet use. I shall return to those specific points once I have made the general case and answered the questions about why e-filing will be compulsory for PAYE and for small and medium businesses.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

The Paymaster General has made much of the £420 million investment. She said that the Government want tit for tat and that, if they put money in, they want everyone to be forced into e-filing. What does she mean by investment? I presume that she is saying that programmes will be put in place with a view to saving costs in the running of the Inland Revenue. That is not Government investment; it is merely part of the mechanics of collecting tax effectively.

Photo of Joe Benton Joe Benton Labour, Bootle

Order. Before the hon. Lady responds, I want to clarify something in the light of her comment before the hon. Member for Arundel and South Downs intervened. I am curious about whether she will encroach on amendment No. 230.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Okay. I shall not do that. I apologise, Mr. Benton, but I know that some hon. Members, regardless of the amendments, are concerned about compulsion for everyone and want to know whether there will be exemptions. I shall respond to that point not under these amendments but under amendment No. 230. I wanted to notify the Committee of that, because the point has been behind many of the comments that have been made, particularly with reference to the Human Rights Act 1998 and whether the compulsion would be a breach of others' deeply held views, for which the 1998 Act provides.

In response to the hon. Member for Arundel and South Downs, the Government propose that payments start at £250 for 2004–05. We do not need to include that in the Bill, because we already have the power to pay the incentives. The payment is not for equipment but for the intermediary's bill. It is intended to facilitate the use of the intermediary by way of a direct subsidy to those who use it, so it reduces their costs, because they still have to do tax returns and pay an accountant if they use one. The payment tapers off

during the five years to a final payment of £75 in 2008–09.

The software is not specified by the Inland Revenue. There are many different types of software and methods. There is constant change and communication with the Revenue, and that will grow. Therefore, we are not specifying which software must be used. It will be developed by the industry. I should have thought that the Opposition would encourage the Government to do that, rather than try to create their own. Therefore, it is a direct payment to the intermediary for the services provided, which we would expect to be passed on to the individual business. Small businesses said that that was what they wanted. Having consulted and listened to them, that is what we have provided.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

This is a significant point. The Paymaster General has just said that businesses can choose whatever software they want, yet subsection (2) states:

''Regulations under this section may make provision—

(a) as to the electronic form to be taken by information delivered to the Inland Revenue using electronic communications''.

It appears that a power has been reserved to the Inland Revenue. If I have misunderstood, I would be happy to have clarification from the Paymaster General.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The hon. Gentleman has misunderstood the clause. On a day-to-day basis, the Inland Revenue discusses software development with software designers to ensure that the legal

requirements of the tax system are met. The regulations and the Bill provide for the continuation of such discussions, which take place at present. The measure is not intended to be used in the way that the hon. Gentleman suggests. He probably knows well that software developments and the knowledge and expertise of the IT industry are expanding all the time. It is necessary to ensure that the software can be used to provide the information that the PAYE legislation obliges the employer to give when he makes the return. That is the purpose of the measure.

The Opposition are looking for ghosts, skeletons and reasons why the Government are taking this approach. If they examined the current practices of the tax system with regard to paper transactions, they would see that the measure translates those practices into electronic delivery of the same information. Basically, that is what is provided for and what is happening.

Amendment No. 231 would require that regulations made under the clause could not provide for a penalty to be charged if an employer did not comply with a requirement to send his return electronically. The regulations made under the powers will require employers to send certain returns electronically—

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.