Clause 5 - Taxation

Legislative and Regulatory Reform Bill – in a Public Bill Committee at 10:45 am on 7 March 2006.

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

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I have some questions regarding clause 5 that I hope the Minister can answer.

Why are the Government proposing the exemption in clause 5 when almost everything else seems to have been included? Under the clause, does taxation include stealth taxes? Many people regard the power to increase administrative fines and penalties as effectively stealth taxes. Indeed, yesterday, there was a debate on orders that would allow local authorities to impose penalties for what is described as “mass dog-walking”. At the moment, those penalties are limited to £80 per dog, or perhaps per incident per dog. However, it was suggested that that was effectively a stealth tax. As I understand it, under the legislation before us, that could still be introduced as a stealth tax, notwithstanding the provisions of clause 5.

Photo of Oliver Heald Oliver Heald Shadow Secretary of State (Justice), Shadow Secretary of State

My hon. Friend made an important point. I recall that when the Pension Protection Fund was brought into force, the amount that was to be paid into the fund was not called “taxation”, but a “levy”, which raises the question of whether it would be possible, under clause 5, to raise a levy across industry which would not count as taxation. Does my hon. Friend think that the Minister should address that point?

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I do indeed. The Minister was helpful when he wrote us a letter in which he defined “local Act”. Perhaps he could write us another letter to explain the definition of “taxation”, for the purposes of the Bill, because it is not defined on the face of the Bill. Obviously, that is a controversial area.

The other question that I have for the Minister is regarding the connection between subsections (1) and (2). Subsection (2) states that

“Subsection (1) does not apply to provision which merely restates legislation.”

As I understand it, if legislation restates taxation, the Government have the opportunity to increase those taxes without offending against the provisions in the Bill before us. It seems that the Government could restate legislation and increase taxation at the same time, and not be caught by the provisions in clause 5. Will the Minister confirm that that is an accurate reading and interpretation of the powers that the Government are taking?

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office)

I think that the hon. Member for Christchurch (Mr. Chope) has done a valuable job for the   Committee in questioning the meaning of “taxation” in the context of the Bill. I have a further two information requests for the Minister.

Many statutory instruments will deal not so much with taxation as with fees and charges, which, if unavoidable, come to the same thing as taxation, particularly local authority fees and charges. If a person is required to buy a plastic bag in which to put their rubbish and the cost of that bag goes up, that is effectively an increase in their tax. For business, that can be a relatively large amount in the context of its turnover. Are we to assume that the word “taxation” includes fees and charges, or not? I suspect that the latter is the case and therefore that the apparent protection there is not as real as it might seem.

The other important point is that there is no provision to prevent an order made on this basis from mitigating any form of credit against tax. In other words, one could reduce a tax credit, which has the effect of increasing tax, but the instrument is silent on that matter. This is a way that the Government very much like to do business: they like to set a tax and then have a variety of complicated measures which reduce the impact of that tax on individuals. Rebates sometimes appear in an election year, for example council tax, and then disappear like the winter snow after the election. That would be an example of a rebate against taxation which it would still be possible to change in the context of the clause in that it does not affect the taxation, but the amount that is given back from tax as a result of an instrument of Government. I should be grateful if the Minister could explain exactly what the scope of the clause is.

Photo of Oliver Heald Oliver Heald Shadow Secretary of State (Justice), Shadow Secretary of State 11:00, 7 March 2006

I have just one point. How does that interrelate with the tax rewrite provisions that have previously been agreed? Clearly we would not want to sanction or agree to a major reform of the law of taxation similar to the tax rewrite proposals being dealt with under this order-making power. We would expect it to continue to be dealt with in the way that it has been. Perhaps the Minister can give us an assurance about that.

Photo of Jim Murphy Jim Murphy Parliamentary Under-Secretary (Cabinet Office)

Again, we have had a brief debate and I will try to address the points that hon. Members have made. Any visitor to our Committee in the last 10 minutes or so might think that they had walked into a Finance Bill debate rather than a regulatory reform debate. This restriction was not in the 2001 Act and it forms a new safeguard to ensure that the power is used appropriately. The restriction in clause 5 is one of a number of restrictions on the power in clause 1. Other topic-specific restrictions are contained in clauses 4, 6 and 7, along with the conditions in clause 3 and the procedural requirements that we have already discussed in some detail, not least the veto principle.

This protection would prevent the imposition of tax under the Bill. There is a standard definition of tax and rather than exchanging different interpretations of any agreed definition of taxation I accept the suggestion   made by the hon. Member for Christchurch and will share with him the acknowledged definition of tax, which has operated through time regardless of which Government have been in power. That is not a contentious request. Fees and charges would not be considered to be taxes under the Bill’s definition. I hope that that reassures the hon. Member for Somerton and Frome (Mr. Heath). Removing a tax credit in the way he described it would appear to be an increase in taxation and so equally that would not be appropriate.

As I said, this protection was not in the 2001 Act and any proposal would have to be part of a statutory public consultation. It is important to emphasise that. The Minister would have to lay an explanatory memorandum and the relevant committees would make a judgment and would have this new veto power. It is a new protection with additional safeguards and I will provide the hon. Member for Christchurch and others with the legal definition of taxation.

Photo of Jim Murphy Jim Murphy Parliamentary Under-Secretary (Cabinet Office)

I have finished my remarks, but I will briefly give way to the two hon. Gentlemen.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I am disappointed that the Minister says he has finished his remarks because he has not addressed my question about interaction between subsections (1) and (2). My reading of the interaction of those two subsections is that the Government could restate income tax law with a new income tax Act, purporting just to be a restatement, but in the same tax Act increase the rates of income tax. If that is not a fair interpretation, why will the power to increase taxation remain even in legislation that is restated?

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

The Minister has not dealt with the simple point raised by the hon. Member for Christchurch, who asked why taxation is allowed to constitute a restriction on the purposes for which the Bill can be used, but human rights are not. In every other debate the Minister talked about procedural protections and the Committee veto, which is not yet in the Bill, yet the Bill restricts the purposes to which it can be put. Why the distinction between taxation and human rights?

Photo of Jim Murphy Jim Murphy Parliamentary Under-Secretary (Cabinet Office)

I was bringing my remarks to a close, but I will refer to those points. The hon. Member for Cambridge mentioned human rights and as he and other members of the Committee well know, the protection of human rights is contained within the clause 3 preconditions about necessary protections and continuing to exercise any right or freedom, which is the right and appropriate way to deal with the protection of human rights.

I say to the hon. Member for Christchurch that subsection (2) makes it clear that it does not prevent an order merely restating legislation which itself imposed or increased taxation. Restating legislation means replacing legislation with alterations only of form or   arrangement; removing an ambiguity is not restating legislation for these purposes. I hope that the hon. Gentleman finds that helpful.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

This is a Committee and I hope that there can be an iterative process when matters are still not clear. Is it possible for a restatement of legislation to include a provision for an increase in the rate of tax? It seems in the Bill that it is.

Photo of Jim Murphy Jim Murphy Parliamentary Under-Secretary (Cabinet Office)

The hon. Gentleman asked a straightforward question and I will give him a straightforward answer; no.

Photo of Oliver Heald Oliver Heald Shadow Secretary of State (Justice), Shadow Secretary of State

I asked the Minister if it was envisaged that the tax rewrite programme would in future be dealt with using this provision or whether the current safeguards were to be retained, but he did not address that question.

Photo of Jim Murphy Jim Murphy Parliamentary Under-Secretary (Cabinet Office)

The hon. Gentleman is right; I omitted to do so. I will correspond with him on that specific technical question, certainly before Report. I cannot give him a technical explanation this morning.

Clause 5 ordered to stand part of the Bill.