Clause 50 - Chargeable consideration

Finance Bill – in a Public Bill Committee at 5:45 pm on 3rd June 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

We come to a very important clause. I shall restrict my remarks to clause 50. Others may also wish to do that, under your guidance Sir Nicholas. Although some aspects dealt with specifically under schedule 4 relate to clause 50, I would prefer to restrict my remarks to the clause.

The clause deals with what is termed a chargeable consideration. It does so by referring to schedule 4. However, subsections (2) and (3) provide the Government with the ability to amend or appeal any part of that crucial definition. It gives the Government the power to do that as and when they choose. Although we fully recognise that the Government need the ability to amend legislation to reflect changing circumstances and practice, I must register the concern felt on our Benches and by outside practitioners about the inadequacy of the drafting of the clause, and the huge uncertainty it creates for those who will seek to comply with it.

Is the Government's aim fairness, and if so how can the ability to change the way in which a tax affects people be justified? If the Chief Secretary's purpose is to reduce tax avoidance, why seek to enact a new tax that is so open to misinterpretation? We shall debate later what a chargeable consideration actually is, but I am concerned that there is a serious question of clarity for the taxpayer in relation to clause 50. People need to know where they stand in their tax affairs to be able to plan their private lives and their businesses. Many small businesses find it difficult to cope with the fact that the tax regulations chop and change. That is the root of our concern and I hope that the Chief Secretary will reflect on that in his response.

Photo of Michael Jack Michael Jack Conservative, Fylde 6:00 pm, 3rd June 2003

I apologise for being ever so slightly slow from the starting blocks, but I want to reinforce and underscore my support for the argument that my hon. Friend has put forward. Interestingly, in the notes on clauses we are told that the negative resolution procedure will be used to make the changes to which he referred. That means that the chances of such measures being properly debated in the House are to say the least, from the Opposition's standpoint, slim. A more generous interpretation is that that will be totally in the gift of the Government of the day.

We do not know by what mechanism the changes will be made. The clause states:

''The Treasury may by regulations amend or repeal the provisions of this Part relating to chargeable consideration and make such other provision as appears to them appropriate''.

That is a three-way bet. The Government can knock the provision on the head, introduce something new or do something completely different. We have no indication as to the scope, scale or contingency that the provision seeks to address, yet we are being asked to

give carte blanche to Treasury Ministers to make changes in the law contingent on events of which we have no knowledge. That is bad legislation.

In another dimension, I have been faced with drafting legislation to reflect subsequent changes in the real world, but it was then possible to give some indication of the scope and scale of what might have to be done. Occasionally, the use of regulatory powers is useful so that primary legislation need not be revisited. However, the theme of our debates on this part of the Bill has been that it is complex, detailed and difficult territory and already the Minister, in an act of reckless generosity, has indicated his willingness to reconsider and redraft. I appreciate some of the difficulties. When I was responsible for Finance Bills, we occasionally got things wrong and had to sort them out, but that was in the context that we knew what we were trying to get right. Here, there is an open-ended opportunity to change.

It would be helpful if the Chief Secretary would sketch in for my and the Committee's greater understanding the circumstances in which he envisages using that sort of power. I do not recall seeing such a power conferred upon the Treasury to do whatever it wants in amending something that starts out as primary legislation, but my memory is not infallible and if there was a case that I cannot remember, I shall apologise.

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

I join the hon. Member for Hertford and Stortford and the right hon. Member for Fylde in deprecating the procedure that the Government are seeking to arrogate to themselves to change particularly complex legislation. I agree that there will be changes and some of them, according to the Chief Secretary, could be in favour of the taxpayer. Change must, of course, take place and sometimes it will involve primary legislation, but the far-reaching provisions on stamp duty affect virtually all our fellow countrymen and it is essential that they are properly scrutinised, consulted upon and debated in the House. The negative procedure is not good enough and I join the right hon. Member for Fylde and the hon. Member for Hertford and Stortford in strongly condemning the procedure and asking the Chief Secretary to reconsider the matter and, at the very least, to have the affirmative procedure so that we know that it will go before the House.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

At least the hon. Member for Torridge and West Devon does not have any form on negative resolutions, nor is he likely ever to have such form because the higher responsibilities of government are unlikely to come the way of his party. Were they to do so, I have no doubt that the burden of responsibility of office would fall on his shoulders; however, that is unlikely to happen. As he does not have any form, he is entitled to take us to task, as he did, for using the negative resolution procedure. If I were in his position, I would do the same.

However, the right hon. Member for Fylde has form as long as your arm in Finance Bill after Finance Bill. For him to suggest that the Government are doing something untoward in using the negative resolution procedure beggars belief. Of course, the Government will use the procedure because it makes sense to have available to the Treasury powers with the most rapid and flexible disposals for making necessary changes to correct unintended hardships or—this is very important—to deal with changing commercial practices.

There is nothing untoward, suspicious or at all reprehensible about the use of such a power. Given the mass of new legislation, it is inevitable that from time to time small problems will be identified. When they are, it is necessary to deal with them in the most expeditious way possible, which is why we have the regulatory power in clause 50.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I enjoyed the Chief Secretary's theatrical performance of shock and horror at my right hon. Friend the Member for Fylde. [Interruption.] He even brings along his own Greek chorus—what a lovely prospect.

However, I hope that the Chief Secretary will respond to my concern. We have already discussed the fact that the measure is ill conceived and ill considered—that is the outside view of professionals. The consultation was scrapped and a parallel consultation is taking place at exactly the time that we are trying to consider the measure in Committee.

We also have what I can describe only as adding insult to injury. I would be pleased to hear from the Chief Secretary what the limits are to clause 50(2). As I see it—I have no form, according to the Chief Secretary—there is no limit under subsection (2) to how the Treasury may change the provision with which we are dealing. That concerns us as parliamentarians, but it also concerns our constituents. I hope that the Chief Secretary will respond in a more positive manner.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

The hon. Gentleman may have no form, but he certainly has a positive intention, if ever given the opportunity. Our intention is to keep the mens rea and actus rea completely separate for as long as possible. I do not mean to pull his leg unduly and I do not blame him for making his point. However, I do not accept that the legislation is ill conceived or ill considered. It has been extensively consulted upon and the Government continue to consult on the remaining concerns.

I reject the notion that we should do other than what we are doing, which is finding a sensible way forward and tackling avoidance while allowing flexibility to respond to issues that have been identified in the lead-up to the operation of the new regime. We are bound to do that if we are to exercise responsibly our powers and avoid some of the pitfalls into which he suggested that we would otherwise fall. Therefore, I cannot accept his arguments about the entirely reasonable and sensible powers.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Does my right hon. Friend feel able to assure the Committee that these broad powers will not be used retrospectively to increase an individual's tax bill?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I can give my hon. Friend the assurance that the measures will at all times be used fairly and in a way that represents the best interests of the taxpayer. We will maintain our commitment to flexibility, avoiding hardship—that is very important and addresses my hon. Friend's point—and ensuring that we properly reflect current commercial practice in a way that is consistent with our intentions, which are always to examine substance not form. We want to ensure that we bear down on ingenious avoidance schemes that manipulate the legislation to the advantage of a few and the disadvantage of the many.

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

I am sure that the Chief Secretary agrees that it cannot be in the best interests of taxpayers retrospectively to increase their burden of tax.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I do not want to go down the road of retrospectivity, or respond to hypothetical cases where something may or may not apply to individual taxpayers. That is not desirable. We are committed to fairness and to modernising this area of the law. We are committed—I do not want to labour the point, but I shall—to the best interests of the majority of taxpayers. I must always have in mind the majority of taxpayers, rather than individuals who may or may not be the subject of one of the hon. Gentleman's interesting hypothetical examples.

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

So, is the answer to the question of the hon. Member for Wolverhampton, South-West (Rob Marris) that the Chief Secretary is not ruling out possible retrospective application?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I really am not going down that road, as it would not be helpful. On individual cases, it is tempting to make promises, but it would not be helpful to do so. We have no intention of going down a road that is justified by anything other than the principles that underpin the legislation. Those principles are an emphasis on substance rather than form; an emphasis on fairness and modernisation; and bearing down heavily on avoidance mechanisms. I can do no more than give those assurances.

Photo of Michael Jack Michael Jack Conservative, Fylde

I do not find the Chief Secretary's words on retrospection or his response to the concerns that have been raised at all satisfactory. The explanatory notes to subsections (2) and (3) contain the words:

''and as to how chargeable consideration should be calculated in specific cases.''

What concerns me—it is why I challenged the Chief Secretary on the negative approach—is that although he is right that the situation is not unknown in Treasury circles, this is a new tax. In his remarks on the exercise of powers conferred under clause 50, the Chief Secretary offered no comfort to the Committee or bodies beyond it that there would be any form of consultation about the measures. He knows exactly how the order-making power works and that once the

order has been laid, after a certain number of days it effectively comes into operation unless the House annuls it.

I am concerned that the Revenue could, if it did not like the look of something in specific cases on a transaction-by-transaction basis, propose an order to change the basis on which the chargeable consideration calculation was made—almost on a whim. Therefore, if I have understood the words correctly, the citizen would have no opportunity to mount a challenge through the commissioners on a decision that has been made and no chance of going to court to challenge whatever happened. It is almost like saying, ''Well, if we do not like it, we'll introduce a regulation, slam, bang, thank you m'am, and it's all gone.'' That is not the way to operate a brand new tax. Perhaps I do not understand it. The Chief Secretary has given us no comfort. He talked about changing circumstances and the need to act quickly if he noticed an avoidance scheme.

The Chief Secretary knows well that when the Inland Revenue spot an avoidance scheme—there are many, it is fertile territory—an Inland Revenue and/or Treasury press notice is normally issued, giving due notice that a particular activity will be dealt with in law and indicating the time scale in which events will occur. There is no reassurance that any such mechanism would be employed in the operation of the clause. Given the nature of a new tax, it is incumbent on the Chief Secretary to be a darn sight more specific than he has been in telling the Committee how the powers will operate. The notes on the clause say:

''should be calculated in specific cases''.

That could almost mean that I could, on a transaction-by-transaction basis, change the rules if I did not like the numbers and the way they were worked out. How on earth is the taxpayer to know where he is? The Chief Secretary should do the Committee the courtesy of being a little clearer about how the powers would operate in the real world.

Photo of David Wilshire David Wilshire Conservative, Spelthorne 6:15 pm, 3rd June 2003

I rise to speak partly because I have been sitting here quietly all day and I can at least stretch my legs, and partly because I did not like what the Chief Secretary said.

I know that it is the conventional wisdom that the usual channels try to keep out of debates and do not get their minds round the technicalities. However, I heard a generality that bothered me, and I would like the Chief Secretary to put me out of my misery and tell me he did not really mean it. I think he said that he was interested in what was best for the majority, not in what was best for the individual. He told the Committee about his desire to be fair and his belief in fairness. I am not sure how one can be fair and say that one is not interested in what is good for the individual. I like to think that I have misunderstood the right hon. Gentleman. I am sure that he can confirm that I have and that he will tell me what he really meant.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I said at the beginning of the debate that we hoped there would be a clear response from the Chief Secretary that would, in the interests of law-abiding taxpayers, provide some clarity about how the clause would affect them. I have considerable reservations about the fact that it will allow statutory instruments to put things through. However, I wanted to hear the Chief Secretary and listen to whether he was willing to make positive noises. There was no real attempt to answer the hon. Member for Wolverhampton, South-West on retrospectivity, or the question asked by my right hon. Friend the Member for Fylde. That is a grave omission, and I hope that the Chief Secretary will correct it. If he does not, the Opposition are minded to vote against the clause on the strict understanding that we are not satisfied that he has set out the justification for why there is an all-encompassing power for the Treasury to change the new tax in any way it chooses. He was not clear about that. I hope that he will correct his omission. If he does, we will support the clause; if he does not, we shall not.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Let me be as clear as I possibly can. To my hon. Friend the Member for Wolverhampton, South-West, let me say for the avoidance of doubt that we have no intention of using the regulations retrospectively. I hope that that answers his question.

I make no secret of, nor do I apologise for, my concern always to ensure that nothing that I say in the Committee can bring any comfort to those who, given half a chance, would exploit the regulations for their own personal interest and develop new avoidance schemes. I have a high regard for the hon. Member for Spelthorne (Mr. Wilshire), but I would never in a million years be tempted to put him out of his misery. However much he might find himself in that condition, I am happy that he should remain in it. However, I can set his mind at rest and say that it was in the context of concern about those who would exploit the regulations that I made my remarks about the individual taxpayer in relation to the generality of taxpayers. I cannot have it said that the generality do not benefit if an avoidance mechanism is closed off for one taxpayer, because a loophole or an avoidance scheme that benefits one individual may work very much against the interests of the majority. I would be failing in my duty if I were not concerned about that.

I hope that the next point is clear to the hon. Member for Hertford and Stortford. The notion that was suggested by the right hon. Member for Fylde that if the Inland Revenue dislike something, they can change the legislation on the basis of what is contained in the clause, and that the clause is therefore a sign of a new tax, is not correct. That is not what the explanatory notes imply. We must work on a transaction-by-transaction basis. I have given an assurance that the provision will not be used retrospectively. It cannot be used in the way that the right hon. Gentleman suggests.

I believe that we have struck the right balance. The intention is to allow SDLT changes to be made quickly and at the earliest opportunity by regulation—if necessary, between Finance Bills. We recognise the

concern of hon. Members about negative resolution. We all understand that concern, and have expressed it ourselves. However, there is nothing sinister about that which is proposed—it is perfectly clear.

I do not believe that I can give any further assurance. I hope that the hon. Member for Hertford and Stortford will not press the clause to a vote.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

It would be ungracious of me not to recognise and welcome the concession from the Chief Secretary on retrospective tax and the way in which the provision might be changed. However, after listening to his response, I do not believe that those whom we represent are any clearer at the end of this debate as to how their tax matters will be handled. Therefore, I shall oppose the clause.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 16, Noes 9.

Division number 18 Adults Abused in Childhood — Clause 50 - Chargeable consideration

Aye: 16 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 50 ordered to stand part of the Bill.