Clause 26 - Penalty for contravention of relevant rule

Finance Bill – in a Public Bill Committee at 10:45 am on 20th May 2003.

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Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General 10:45 am, 20th May 2003

I beg to move amendment No. 125, in

clause 26, page 22, line 3, leave out subsection (3)

The amendment is linked to clause 25, which introduces civil penalties for evasion of import and export duties. Clause 26 contains a compliance rule, which carries a penalty for transgressions—subject to the concept of a reasonable excuse, which is a limited concept in VAT terms—and for the breach of certain rules and requirements in circumstances other than evasion.

My approach to clause 26 is twofold. First, I seek clarification of the part to which the amendment does not relate. I suspect that we will therefore find ourselves having a stand part debate and I hope that that is what you will rule, Sir Nicholas, for the convenience of the Committee. My point, which comes from the Institute of Chartered Accountants in England and Wales, is that although the maximum penalty for contravention is £2,500, it is not clear whether that is an absolute penalty for a given series of breaches or the maximum that could apply to each breach. If 20 invoices covered the import of a consignment of the same goods, all destined for different customers, and there was a common breach, would the fine be £2,500 or £50,000?

If the maximum fine was limited to £2,500, that would not be a criminal matter. On the other hand, if the fine was £50,000, any enforcement procedures would have to follow the Police and Criminal Evidence Act 1984. Given the answers that the Economic Secretary has already given on this part, and his reference to the position under article 6(2) of the European convention on human rights, a question arises of whether PACE would apply. The example used to express the ICAEW's concern might be debateable, but the fundamental point about the maximum fine is important and we seek clarification.

My second point relates to the amendment. The problem that I have identified and highlighted through it centres on the understanding of the phrase ''without further qualification'' in subsection (3). Does it mean that Customs and Excise does not have to give reasons for designating someone a prescribed person? If so, it might be difficult for the person concerned to argue against the designation. My recommended solution to the problem is simply to delete subsection (3). We believe that it is wrong for Customs to be able to name any person under that rule—a point that can be generally understood in terms of the fair and appropriate balance of justice. Instead, Customs should be required to show that an individual falls within a designated category.

Under the current provision, a person could have no knowledge of why they were being designated a prescribed person, and no redress. We regard that as a penalty and it is of concern to all our constituents who potentially could be in that situation. Customs and Excise is being given too wide a power. The power proposed by the Government in the clause could ultimately allow Customs to prevent someone from arguing whether they should be a prescribed person, because it could simply include them by name without giving an explanation or reason.

I hope that the Economic Secretary will consider the matter in the serious way in which it has been put, and that he will accept the amendment.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

Subsection (3) is an enabling power. I though that the outline given in subsection (1) would be sufficient, but I then had a closer look at the wording. In the definitions, ''prescribed'' is defined as meaning specified in or determined in accordance with the regulations made by the Treasury. That leads me to ask the Economic Secretary a few questions.

When the definition refers to the regulations made by the Treasury, does that mean that the Treasury must bring those regulations to the House for approval, or can it make them up as it goes along? Is subsection (3) intended to get around the need to bring regulations to the House by allowing the Treasury to do what it wants, even if it must bring regulations to the House on other occasions? The provisions seem to be circular and I wonder whether subsection (3) is a way of getting round subsection (1).

Photo of John Baron John Baron Conservative, Billericay

I, too, have one or two concerns about the clause's infringement of civil liberties. Clauses 25 and 26 will make it easier for Customs and Excise to take action against individuals evading customs duties or import VAT. The introduction of civil penalties will bring the customs regime into line with other regimes administered by Her Majesty's Customs and Excise such as VAT, where civil penalties have been used to improve compliance. In general, it seems sensible to approve of a step that provides for civil penalties to increase compliance with the rules rather than to leave criminal sanctions as the only option. In that respect, the Government's move is welcome. However, I have one or two concerns and I would appreciate it if the Economic Secretary were to address them.

I seek an assurance that the move to civil penalties will not be detrimental to an individual's civil liberties. For example, my hon. Friend the Member for Eddisbury has already mentioned the important phrase ''without further qualification''. It means that Customs and Excise does not have to give reasons for designating someone a ''prescribed person'', which has all sorts of ramifications. Under the current provisions, a person could have no knowledge of why they were being designated as such and would therefore have no redress.

The amendment is designed to prevent Customs and Excise imposing a penalty simply by naming any person as falling within the description ''liable to a penalty''. That is important, because the power could prevent someone from arguing that they should not be included, because Customs and Excise could include them by name without giving an explanation or a reason. That point should concern the Committee and I should like to hear the Economic Secretary's views.

The burden of proof in evasion cases falls on the individual, who must prove that they have not been avoiding paying their liabilities—a point on which we have already touched. Clause 26 introduces civil penalties for a breach of certain rules and requirements in circumstances other than evasion such as negligence. Would it not be better if the Government had to prove that an individual is guilty of evasion? For example, an innocent trucker could make an administrative error through negligence or oversight and find himself automatically liable to civil penalties at the discretion of Customs and Excise. The

burden of proof and the right to redress particularly concern me, and I look forward to the Economic Secretary addressing those issues when he sums up.

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

Civil penalties are being introduced to encourage businesses to comply with their legal obligations. Where businesses are suspected of evading duties, the law will provide Customs and Excise with an alternative to prosecution—the imposition of a civil evasion penalty.

There will be two types of penalty. The evasion penalty established in clause 25, with which we have just dealt, will be used as an alternative to prosecution in less serious cases of evasion. It is not a substitute for prosecution, and businesses or individuals that evade or try to evade duties or taxes will continue to be penalised either through a civil evasion penalty or, where appropriate, criminal prosecution.

The other penalty, which is set out in clause 26, will deal with general non-compliance where evasion is not involved. It will be used in cases of failure to comply with legal requirements and obligations—for example, a business that makes persistent errors on import declarations. It will also be used to deal with the small number of businesses that fail to comply fully with legal requirements and obligations in seeking to gain a competitive advantage over other businesses; and to encourage those businesses that persistently make mistakes to improve their performance. It will not be used to punish occasional, minor errors.

The maximum penalty for a contravention not involving evasion through dishonesty will be £2,500.

Photo of John Baron John Baron Conservative, Billericay 11:00 am, 20th May 2003

The Minister states that the power will not be used to punish minor indiscretions. Who will make that decision, how will it be made and does the Bill contain guidance, because ''minor errors'' is a subjective term?

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

I used the phrase in an attempt to underline the fact that the process is proportionate to persistent non-compliance, and the penalties in clause 26 are similarly proportionate. I am not trying specifically to define what ''minor'' will mean in this instance.

Initial contraventions—I hope that this will reassure the hon. Member for Eddisbury—will be dealt with by issuing a warning letter. Members of the Committee would regard that process as a sensible, proportionate first response from Customs and Excise, although I intend to review the policy when the regime has operated for about 18 months.

Photo of Michael Jack Michael Jack Conservative, Fylde

I am grateful to the Economic Secretary for giving way and for his assurance that he will keep the matter under review. I seek an assurance from him that he will publish a commentary in his annual report on Customs and Excise on how the penalty regime is operating to allow everyone to gain an annual overview of how the regime operates, its effectiveness and any questions that have been raised.

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

In monitoring and reviewing the regime, Customs and Excise and I, as the Minister

responsible, will provide the degree of disclosure for which the right hon. Gentleman is looking. I am perfectly prepared to give an undertaking that an assessment of the operation of the regime in its first 18 months will be published. I cannot tell him for certain that the annual report will be the appropriate time or place to do so, but I hope that he accepts and appreciates the general commitment and principle.

I shall explain how the scheme is likely to operate to reassure hon. Members. After the initial warning letter, similar contraventions will begin to attract penalties. The penalties will usually be stepped and will be imposed at a low level to begin with. Should the first penalty fail to deter or to encourage better compliance, the business concerned will attract further penalties if it does not improve its record. The penalties can rise to a maximum of £2,500.

Photo of Norman Lamb Norman Lamb Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury)

The Economic Secretary may be about to deal with this point. He referred to the maximum fine of £2,500. In its submission, the Institute of Chartered Accountants in England and Wales raised this question: if there were a common breach in 20 invoices covering the import of a consignment of the same goods, all destined for different customers, would the fine be £2,500 or £50,000? Perhaps the hon. Gentleman would deal specifically with that question.

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

Specifically, the maximum fine in such circumstances would be £2,500. In a situation such as that put to me by the hon. Member for Eddisbury, in which Customs discovers a series of identical contraventions—that is also the point of the hon. Member for North Norfolk—Customs will treat the contraventions as a single event and, if appropriate, issue a single penalty which may be up to the maximum of £2,500 as set out in the clause. I hope that that settles hon. Members' concerns.

The hon. Member for Billericay asked about the burden of proof. It will be for Customs to prove that on the balance of probability, which is the standard of proof that we discussed earlier, a liability to a penalty exists.

On amendment No. 125, I say to the hon. Member for Eddisbury that by deleting clause 26(3) he would jeopardise the ability of Customs to ensure that the person who is responsible for the contravention is penalised. I hope that by briefly explaining the purpose of the clause I can set his mind and that of the hon. Member for Billericay at rest. Clause 26 provides for penalties for contraventions of relevant rules. In most cases, national and European Union Customs law specifies in the relevant rules the person who is responsible for compliance; for instance, the importer or the warehouse keeper. However, in some cases, the law is less specific and contravention may be committed by any person. Clause 26(1) provides the power to impose a penalty on a person of a prescribed description. Clause 26(3) ensures that, if appropriate, the description may include any person.

For the reassurance of members of the Committee, clause 26(3) does not and cannot extend liability for a penalty to anyone who is not responsible in law for meeting a relevant obligation or requirement. I hope

that with that explanation Opposition Members will withdraw the amendment. If they do not, I ask my hon. Friends to resist it.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I pay tribute to the Economic Secretary for having dealt with the clause and the issues raised by it with care. I found the argument that my hon. Friend the Member for Huntingdon presented in his interesting and proper probing amendment intriguing, but the Economic Secretary demonstrated that there is a difference in the interplay between subsections (1) and (3). I also welcomed the support and the arguments of my hon. Friend the Member for Billericay.

The Economic Secretary mentioned a warning letter, a stepped approach to penalties and a maximum penalty of £2,500. In parenthesis, I wish to note that anyone who has ever been caught speeding in their car by two cameras in succession would welcome his approach to penalties. I have often wondered whether I will be guilty of such an offence, but I have not yet succumbed.

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

Is the hon. Gentleman suggesting that Customs should take on responsibility for the operation of traffic Acts?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

On the contrary. Like all things, it takes time to prove one's worth. In any event, I understand that the Attorney-General has overall supervision of the prosecution affairs of Customs and Excise from recent times.

I listened carefully to the way that the Economic Secretary explained the interaction of subsections of clause 26. Therefore, in view of the undertaking that he gave my right hon. Friend the Member for Fylde that the matter would be kept under constant review, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.

Question agreed to.

Clause 26 ordered to stand part of the Bill.

Clause 27 ordered to stand part of the Bill.