Clause 93

Finance Bill – in a Public Bill Committee on 23rd June 2009.

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Publishing details of deliberate tax defaulters

Photo of David Gauke David Gauke Shadow Minister (Treasury) 4:30 pm, 23rd June 2009

I beg to move amendment 81, in clause 93, page 45, line 27, leave out ‘£25,000’ and insert ‘the greater of—

(i) £25,000 or

(ii) a percentage of the person’s income as determined by an order made by the Treasury.’.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

With this it will be convenient to discuss the following: amendment 82, in clause 93, page 45, line 30, after ‘deliberate’, insert ‘and concealed’.

Amendment 83, in clause 93, page 45, leave out lines 32 to 40.

Amendment 84, in clause 93, page 46, line 14, at end insert—

‘(5A) No information may be published without the consent of the Chief Executive of Her Majesty’s Revenue and Customs.’.

Amendment 85, in clause 93, page 46, line 18, at end insert ‘and

(c) inform the person of his right of appeal under subsection (11A) below’.

Government amendment 305

Amendment 86, in clause 93, page 46, line 36, at end insert—

‘(11A) No information may be published until the person has had the opportunity to appeal to the First Tier Tribunal for an in-camera hearing against the decision to publish details of that person.

(11B) The Treasury may by order made by statutory instrument make provision for and in connection with appeals to the First Tier Tribunal under subsection (11A).’.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I welcome you to the Chair, Mr. Atkinson. From the outset, I make it clear that we do not necessarily object to the use of the naming and shaming provisions in clause 93. However, we have a number of specific concerns, some of which we have addressed in this group of amendments.

Clause 93 sets out a new regime for publishing details of deliberate tax defaulters. This is, as we will debate at slightly greater length, an arrangement that was not consulted on before the Budget and, with the publication of the Finance Bill, a number of specific concerns have been raised about the regime. I will briefly set out the concerns that we attempt to remedy in the amendments,  the first of which is that the application of the naming and shaming regime applies where there has been potential lost revenue, in relation to the relevant penalty, of more than £25,000. That can be an amount that applies to a number of different taxes and may have accrued over a number of different tax years. The particular concern of a number of outside bodies is that the £25,000 limit is a blunt instrument. Clearly, £25,000 in lost revenue would be quite considerable for most individuals or small companies. However, for a very wealthy individual or a large company or partnership, £25,000 is not particularly considerable and there is a danger that this naming and shaming regime may apply to relatively small amounts.

Consequently, amendment 81 seeks to make the £25,000 test a bit more sophisticated, if I can put it that way, in the sense of still having a de minimis requirement of £25,000, but for an entity or for a person with a large income there shall also be a test of a percentage of that income. That would prevent the concern, raised by a number of outside bodies, that persons may be caught for what is, in their overall tax liability, a small amount of money.

We are keen to hear the Minister’s assessment of why the £25,000 figure was chosen and whether it is possible to have a differential rate so that we can assess the scale of the mischief, or the scale of the tax default, by the person concerned.

Amendments 82 and 83 look at the issue of a relevant tax penalty and what sort of activity should fall within that. It is an attempt to tighten this definition set out in clause 93(2). We are not wedded to any particular wording in this area, but we would like to explore the thinking here. There is a reasonable argument to be made that a new penalties regime has just come into effect, that this naming and shaming regime is being bolted on to it and that, at least in the initial months and years of this regime, it should be focused upon the very clearest cases of tax default, where we are looking at deliberate inaccuracy and concealment, rather than being broader. A criticism could be made of this regime that it is not focused as much as it might be, but I would put this in the context of a new regime—why not start it off in a fairly narrow circumstance with a view to broadening it out?

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I give way to the hon. Member, who is looking quizzical.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

I may have misunderstood the hon. Gentleman, but the thrust of his amendments appears to be to protect the privacy of those with very substantial net worth who may have significant tax liabilities on which they deliberately default. Am I right in thinking that that is the thrust of what he is attempting to do here?

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I think that the concern that he is raising is with amendment 81, rather than 82. The concern behind amendment 81 is a relatively small error on the part of a large taxpayer. I suspect that the hon. Gentleman is going to make the point about deliberate inaccuracy, and, do not get me wrong, these are not people whom we are desperate to protect. None the less, this is a new  regime coming in which is in addition to the existing penalties regime. If we are going to have something in addition to it, it is right to test the scope of it. In particular, the concern raised by outside bodies is that this new regime may be a bit broader than it should be in its initial stage. There is an argument for extending it as we see how it works. For most of us, a sum of £25,000 is a very considerable one, but not so in the context of a larger business. The point has been made by, I think, the Chartered Institute of Taxation, that a relatively small failure to account for tax on a transaction between a company and a director may involve additional PAYE, National Insurance contributions, VAT and tax under the beneficial interest rules and that these quickly accrue to a sum greater than £25,000.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

Surely the test is deliberateness, is it not? One would agree that honest errors are dealt with in a different way. Quite how one establishes deliberateness, other than by a paper trail showing that someone conspired to achieve this, is another matter, but that is the critical test.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

Of the various levels of misbehaviour, the highest test is deliberate inaccuracy and concealment, and we are suggesting focusing on that because that is the clearest case of what, not to put too fine a point on it, most of us would consider to be of a fraudulent nature. Why not focus on the most egregious cases? Outside bodies argue that the measure is broader than it might be, so let us explore that.

The other amendments, which are less controversial, focus on the issue of publication and the circumstances in which publication should be made. Amendment 84 proposes that consent should be given by the chief executive of HMRC before information is signed off with regard to a tax defaulter. Again, this is partly a probing amendment. I hope that the Minister will be in a position to reassure the Committee that publication will occur only after a senior executive from HMRC has signed off these matters. Naming and shaming should not be a decision that is taken lightly.

Amendments 85 and 86 relate to the issue of a right of appeal. It is worth making the point that naming and shaming in this way is very much a penal action. It is likely to have a very significant effect on the reputation of the person being named and shamed. In the stand part debate, I hope that we will be able to examine in a little more detail the potential human rights angle to this and concerns about a breach of privacy. Clearly, in defending their case against an action brought on the basis of the Human Rights Act 1998, it will be helpful to the Government to have a satisfactory appeal mechanism. Clause 93, as currently drafted, does not seem to address that particular concern. It may well be that the Minister can give the Committee some reassurance on that particular point. The need for an appeal mechanism is addressed by amendments 85 and 86.

I have various broader points that I do not intend to go into at this stage, but we would be grateful for the Minister’s response on a number of points that seek to ensure that clause 93 works as effectively as possible.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

Welcome back to the Chair, Mr. Atkinson. Clause 93, as set out by the hon. Member for South-West  Hertfordshire, provides for HMRC to publish details of deliberate tax defaulters. The clause has been introduced to send a clear signal that evading tax is wrong, to deter people from doing it, to reassure those who pay the right tax and to encourage those who do not do so to come forward and make good. Amendments 81 to 86 and Government amendment 305 all seek to ensure that clause 93 is closely targeted and that strong safeguards are in place. I should like to reassure the Committee that the Government support both those aims.

The clause relates to a deliberate intention to give HMRC inaccurate documents or not to meet obligations so as to gain a tax advantage. Careless errors or failures, whether or not penalised, will not trigger publication whatever their size, nor will taking a reasonably arguable view of the tax situation, even if it is not upheld. There will be exemption from publication for those who make a full disclosure of their defaults, either unprompted or prompted by HMRC. That means that everyone will have the chance to escape publication by coming forward and making good.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Although I am reassured that there has to be some deliberate intent, is there not a concern that powerful people with deep pockets and concern about their reputation and libel laws will be able to muscle their way in to ensure that their position is protected. Notwithstanding any Human Rights Act opportunities, it will be the less powerful who fall foul of the measure. The overwhelming concern is that individuals who realise the potential for reputational damage and the risk of going to court—the cost and everything else—will have an opportunity to ensure that officials are persuaded not to put them on a list, whereas the less powerful will be voiceless in that regard.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury 4:45 pm, 23rd June 2009

I do not agree with that premise. We will probably come on to that matter when we debate clause stand part. The clause will strengthen our ability to bring people who deliberately withhold information and default to account.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Minister, is the problem not that there are normally two points of view to an argument? If the Revenue says, “This is a deliberate error,” the client will say, “No, actually it wasn’t a deliberate error.” The Revenue will then go back to them and say, “If you make a full confession now, we won’t publish, but if you don’t, we will name and shame you.” My advice to the client would be to say, “Even if you haven’t done wrong, accept a confession because your name won’t be published.” Is that not very unfair on the taxpayer?

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. Before I call the Minister to reply, I should say that this is moving into clause stand part territory. I would be grateful if the Minister answered the hon. Gentleman’s question later.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I take your advice, Mr. Atkinson, and will answer that question when we come to the clause stand part debate.

Both amendments 81 and 82 deal with the criteria for publishing the names of deliberate tax defaulters. The Bill states that the deliberate understatement must be at least £25,000. Amendment 81 would change that to the greater of £25,000 or a certain percentage of the person’s income, but it does not specify what the percentage could be. Two things are wrong with the amendment: it is wrong in principle and in practice. The Bill states that at least £25,000 of tax must have been understated. That is the amount of tax uncovered in an investigation, which may include more than one tax, more than one period and more than one type of deliberate default. A number of factors were taken into account in arriving at £25,000: international comparisons, sentencing guidelines for non-tax financial frauds and the need to send a clear message that tax evasion is wrong.

I think that most people agree that evading tax to that extent is a serious matter, whatever the level of income. There is no justification for taxpayers on higher incomes to be subject to different limits. To impose such limits would be wrong in principle and unfair. Taxpayers on higher incomes and large companies who evade tax should face the same consequences as others and, like any other taxpayer, they may avoid publication by making a full disclosure to HMRC, even when challenged. I also think that the amendment is technically flawed. The £25,000 limit relates to the tax lost. That might be a reference to income understated, as suggested by the amendment, but it could just as easily relate to understated capital gains, VAT or excise duty on goods misused. I urge the hon. Gentleman to withdraw his amendment on that basis.

Amendment 82 would narrow the scope of the scheme, so that it applies only to those whose defaults are both deliberate and concealed. However, clause 93 already ensures that publication is restricted to where a person knowingly and intentionally gives HMRC an inaccurate return or deliberately does not tell HMRC of a new taxable activity to gain an unfair tax advantage. Concealment, such as submitting false evidence to HMRC, is aggravating conduct and attracts a higher penalty. All deliberate understatements, whether involving concealment or not, are fraudulent. It is important to send a clear signal that all tax evasion is wrong, and consequently the £25,000 limit is a better restriction than using the deliberate and concealed category of the penalties.

Amendment 83 would reduce the scope of the scheme so that it covered only inaccurate documents—returns, claims and accounts. It would exclude other forms of tax evasion such as deliberately supplying false information, causing a tax return to be inaccurate or, for example, knowingly supplying red diesel, which is subject to a lower rate of duty, to commercial haulage firms rather than for agricultural use as permitted. Each of the other categories specified in the Bill creates an illegal, unfair advantage for the perpetrator. Some categories, such as the misuse of red diesel, represent a significant attack on the tax system. It is estimated that £350 million is lost to the Exchequer each year from the illicit market in petrol and diesel. It is important that HMRC has the full range of tools at its disposal to combat such attacks. Those responding to HMRC consultations have consistently called for HMRC to come down hard on those seeking an unfair advantage. For that reason I cannot support amendment 83.

Amendments 84, 85 and 86 concern safeguards within the scheme. Amendment 84 would require the chief executive of HMRC to authorise publication of all details. Amendments 85 and 86 seek to create a separate appeal right against a decision by HMRC to publish details and to create a requirement to inform the person of their right to appeal. I want to emphasise and put it on the record that the Government agree that there should be robust safeguards. These are already built into the scheme and the penalty regimes on which it is founded. Government amendment 305 further strengthens the safeguards. There is a right of appeal to an independent tribunal against all the tax and penalty decisions that determine whether a name will be published. The criteria for publication are tight and are laid out in primary legislation. Everyone will have an opportunity to escape being named by making a full disclosure, even after challenge by HMRC. Taxpayers will be informed prior to publication and may make representations to HMRC that naming would not be appropriate. Names will be removed after 12 months. Both HMRC and I recognise the importance of getting this right. A senior HMRC officer and a central team separate from the investigators will be responsible for pre-publication checks to ensure that the details published are accurate. I do not think it necessary or practical to include such authorisation in the Bill.

We have concluded that a separate appeal right against publication is not appropriate for a number of reasons. There is an appeal right to the independent tribunal against all of the decisions that underpin publishing details: the amount of tax and penalty, the behaviour category—whether the default was deliberate—and the quality of the taxpayer’s disclosure. Government amendment 305 further strengthens taxpayer safeguards by ensuring that all considerations about disclosure, including its timing, will be taken into account when arriving at the penalty level and will be appealable. All of these appeal avenues must be exhausted or expired before details may be published. This leaves the only element of discretion within the publication scheme itself at the start of 93(1) which provides that

“The Commissioners may publish information”.

To ensure consistency and fairness, the presumption will be to publish where the criteria are met, unless there are exceptional circumstances after consideration of the taxpayer’s representations. Examples might include prejudice to an ongoing criminal investigation or risk of physical harm.

The appropriate route for a taxpayer to challenge such administrative decisions is directly with HMRC or by judicial review. Although amendments 85 and 86, as I have already said, would create a separate right of appeal, it is difficult to see what the grounds for such an appeal might be. An appeal against publication would also be a one-way bet, with the taxpayer having nothing to lose by appealing. We are concerned that tribunal resources would be unduly tied up with spurious appeals and the impact of this important deterrent effect would be undermined.

By contrast, Government amendment 305 reflects a small but significant change in policy in the taxpayer’s favour. It will reduce the extent of HMRC’s discretion and provide greater clarity to taxpayers as to how they can avoid their details being published, namely by making a full disclosure, whether prompted or unprompted,  which would qualify for the full reduction under the penalty legislation. That means that all consideration as to whether a taxpayer’s disclosure is sufficiently complete and timely to warrant exemption from publication will now be subject to appeal to an independent tribunal. That will be under the penalty appeal provisions. This strengthens taxpayers’ safeguards and addresses concerns underlying amendments 84 to 86. The amendment will also bring greater clarity for taxpayers about what they must do to escape publication. First and foremost, the message is not to evade tax in the first place but, if they have done so, taxpayers should come forward to HMRC swiftly and make good in full. One of the lessons learned from the Irish experience is the importance of having clarity and certainty in this area. The amendment should help to achieve that. The safeguards we already have in the Bill together with Government amendment 305 are robust and sufficient. I hope that I have managed to satisfy the concerns of the hon. Member for South-West Hertfordshire and would ask him to withdraw his amendments.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I thank the Minister for her response. She has dealt adequately with amendments 81, 82 and 83, and I accept her arguments. I may not have taken it in, but I am not sure whether she made a specific commitment on the signing off by senior staff.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I apologise to the Minister for not picking that up.

I am grateful to the Minister for acknowledging that all the amendments that we tabled attempted to make the provisions closely targeted or to ensure that they would work. I am grateful to the Government for amendment 305, which is an attempt to address the concern over the appeal process. I am not sure that I was persuaded by her argument about a taxpayer having the ability to appeal to HMRC or to seek judicial review. That is a very high test. However, I note her comments on the various opportunities that a taxpayer would have in the appeal process. I am not sure that the questions over that process are entirely resolved. However, I will not press the amendment to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: 305, in clause 93, page 46, line 27, leave out from ‘paragraph’ to end of line 36 and insert

‘10 of Schedule 24 to FA 2007, or

(b) paragraph 13 of Schedule 41 to FA 2008,

(reductions for disclosure) to the full extent permitted.’.—(Sarah McCarthy-Fry.)

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

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

With this it will be convenient to discuss new clause 4—Publication of taxpayer ‘gold list’—

‘(1) The Commissioners may publish a list of taxpayers who, in the opinion of the Commissioners, have performed their tax paying and reporting obligations in an exemplary manner.

(2) The details of a taxpayer identified under subsection (1) shall be as agreed between the Commissioners and the taxpayer.

(3) In making an assessment of the inclusion of a taxpayer for publication under subsection (1), the Commissioners shall take into account the size and complexity of the taxpayers’ affairs.

(4) The Commissioners shall not refuse to list a taxpayer under subsection (1) on the grounds that—

(a) the taxpayer has taken reasonable measures to minimise his tax liability, or

(b) the taxpayer, acting in good faith, is in dispute with HM Revenue and Customs.

(5) The Commissioners must publish guidance as to the criteria that shall be used in assessing whether a taxpayer should be identified under subsection (1).

(6) The Commissioners must consult with stakeholders before publishing any guidance under subsection (5).’.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

Let me reiterate that we share the Government’s objective in clause 93 of having an additional sanction to take against those who deliberately do not pay the appropriate amount of tax. We welcome the use of social pressures in that context. It may be that the Government are waking up to the nudge agenda that is so popular among the Opposition. We also recognise that countries such as the Republic of Ireland have made use of this kind of regime. The objectives are worthy, but we have some practical concerns, many of which the Minister has allayed with the amendments that we have discussed.

I shall begin by asking where the naming and shaming measure came from. There was no indication prior to the Budget that the Government intended to do anything like this. When it has been considered in the past, the Government have been unenthusiastic about it. On 22 May 2002, the then Paymaster General, the right hon. Member for Bristol, South (Dawn Primarolo), stated in evidence to the Treasury Select Committee:

“I have to say that I am not at all attracted to it because of naming and shaming incorrectly or the consequences and the balance with taxpayer confidentiality.”

It would be helpful to know why the Government changed their mind. Why was there no consultation before this proposal was announced in a Budget notice?

This debate is similar to the one we had this morning on the new signing off requirements for senior accounting officers, because this measure appears to have emerged from nowhere. Has it been sitting on the back burner for years before being suddenly plucked out? Was it introduced because of changing economic circumstances and the crisis in the public finances? What caused the Government to bring it forward this year, when they previously had no interest in it?

I also raise the point about timing in the context of the new penalties provisions that have just been brought in. Given that we spent a great deal of time last year and the year before debating penalties, why was this measure not dealt with then? If it is something that the Government have come to relatively recently, was there any thought of holding it back, at least until we see how the new penalties regime works? It seems that the Government are somewhat open to the criticism of making policy on an ad hoc basis.

I seek some clarity from the Government. Presumably they have looked closely at the extent to which the naming and shaming provisions will actually be used. In implementing the new penalties regime, I believe that  they looked at several dead cases to see how the new regime would have applied to them. Have they looked at those cases also in the context of clause 93 and the naming and shaming provisions? Do the Government have a view as to how many cases the provision will apply to in the course of a typical year? What scale of offence are we talking about?

The next area of concern relates to privacy implications, and I say this in the context of the Human Rights Act. I know that the Government are reluctant to reveal any legal advice that they have received, but the Chartered Institute of Taxation brief on the clause states:

“We understand that HMRC have taken advice and consider that the right to privacy in such cases will not apply on account of the exception for economic wellbeing of the country given the current economic climate.”

It would be helpful to the Committee if the Minister could say as much as possible about the legal advice on this matter. What concerns do the Government have that there is not a privacy issue, or at least not one that cannot be overcome, and is that on the basis of the economic circumstances?

Photo of Peter Bone Peter Bone Conservative, Wellingborough 5:00 pm, 23rd June 2009

My hon. Friend raises an important issue. It would appear that the measure has been introduced only because we are in the depths of this terrible, Government-caused recession. Does that mean that it would disappear after a few years, or do the Government believe that we will be in recession for so long that it will not be a temporary measure?

Photo of David Gauke David Gauke Shadow Minister (Treasury)

My hon. Friend makes a good point.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. Whatever the merit of the point, it seems to be wide of the clause.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

Thank you, Mr. Atkinson. I accept that the Government-made recession is wide of the clause, but there is a legitimate question. If the human rights angle on privacy is overcome only because of the exception for the economic well-being of the UK, which is acute, given the crisis in the public finances, if that is right—this is based on what I received from CIOT—and if that is how the legal concern of privacy will be dealt with, what will happen if and when we are not in a public finances crisis?

My hon. Friend the Member for Wellingborough raises an interesting point about whether the legal analysis allowing the clause to exist will hold together only as long as we are in a crisis. He makes a good point, and there is all the more reason for the Minister to provide a little more guidance to the Committee about the basis on which the Government are confident that they will not run into any legal difficulties with the clause. If it is the case that the clause will work only for a few years and then the privacy issue becomes more acute, the Committee is entitled to know that.

In relation to privacy, outside bodies have raised concern with regard to the information that is provided about the tax defaulter, in particular the address. That sounds similar to a debate that we have had more generally in this House about the publication of addresses. Some people have raised concern that revealing that information may cause particular difficulties to, say, family members and so on. So I would be grateful to the  Minister if she could give some guidance about how HMRC will use its discretion—it has discretion in this area—in the publication of addresses.

My hon. Friend the Member for Wellingborough touched on another interesting point a moment or so ago about the behavioural effect that the clause will have on individuals, in particular whether they are more likely to settle a case or fight on. I can see that matters could go in one of two directions. On the one hand, the clause could be a sanction that may encourage someone who has a dispute with HMRC to settle, for fear of being named and shamed. That was the concern that was raised by my hon. Friend. There is a particular concern in the context of technical disputes in which a party is acting in good faith and HMRC says, “You must settle”. I do not think that that is too great a concern, because we are talking about deliberate failure to pay. However, I am very keen to ensure that the clause is not used to put pressure on a taxpayer who has a legitimate and honest disagreement with HMRC. I do not think that that is a major concern, but perhaps the Minister could say a word or two on that issue.

Mr. Toddrose—

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I give way to the hon. Member for South Derbyshire. I have already acknowledged the point about deliberate non-payment.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

The hon. Gentleman has indeed acknowledged that point, and he has been gracious in giving way. Surely the point here is not just that the failure to pay must be a deliberate act. In addition, as the Minister acknowledged, if the taxpayer had an honest dispute and an arguable case, they would also not fall within the scope of the clause.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

That is exactly the point that I am making; I want to ensure that honest disputes do not fall within the scope of the clause. So I do not think that the hon. Gentleman and I have any disagreement on that subject.

Photo of Robert Syms Robert Syms Conservative, Poole

I think that it would help the Committee if the Minister could give some indication of how many names are likely to be published. Are we talking about 10, 20, 50, 100 or 1,000 names? Also, as people who have been named might well end up in our surgeries, is there any kind of procedure to determine, for example, how many people in Poole will be named and shamed? I would just like to have some indication of what HMRC thinks the numbers will be.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

My hon. Friend is absolutely right; indeed, I touched on that point a moment or so ago. Can the Minister break down her estimate on a constituency basis? I am sure that the good people of Poole will not be affected by the clause. However, my hon. Friend makes a very reasonable point.

The other point that I was going to make in the context of appeals goes in the opposite direction, as it were. Some taxpayers may be reluctant to settle when they might otherwise do so because they are afraid of being named and shamed, and if they bring finality to a dispute they will be more vulnerable to being named and shamed and might be more inclined to fight on.  Presumably HMRC has considered whether that is likely. That concern has been raised by some outside bodies, and it will be helpful if the Minister lets us know whether she has any thoughts on the matter.

I also want to touch on an issue that the Minister raised during our previous debate on disclosure and protecting taxpayers. Have the Government considered providing a definition of unprompted disclosure in the Bill? That might provide additional clarity.

We have raised various issues in an attempt to probe the Government’s thinking, but we recognise the benefits that may be gained from using social pressure to change behaviour. We tabled new clause 4 to start a debate on how to take that approach further. Clause 93 is the stick, but the new clause could provide the carrot. We are suggesting a published list of taxpayers who have performed their taxpaying and reporting obligations in an exemplary way. That list could be published with details to be agreed between HMRC and the taxpayer. The requirements would depend on the size and complexity of the taxpayer’s affairs, and inclusion on the list would not be prevented because of an honest and technical dispute. We would seek to provide some certainty about how that would work by requiring HMRC to publish guidance and to consult with outside bodies.

Will the Minister let us know whether the Treasury and HMRC are considering something similar? A gold list of companies that co-operate with HMRC, pay when they should do, are open when they should be, and provide information when they should do would be a useful and positive addition to HMRC’s armoury. It is likely that large plcs and accounting practices would be keen to demonstrate to the outside world that they have exemplary tax processes and co-operate with HMRC. It would be a badge of honour to be on such a list, and that would encourage a culture of tax compliance. If the Government are not already doing so, we urge them to consider such proposals.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I just want to go over a case from a few years ago, when I was advising a client—it was at the time of Customs and Excise, and before the combined service was created—who had taken advice on the treatment of their turnover, which was partly overseas. They had followed that advice to the letter, but some years later, a different VAT inspector said that they were wrong and that they had been deceiving Customs and Excise, which proposed not only recovery of the VAT, but penalties. The new procedure benefited my client, who became entitled to a repayment overall. In their case, it was acceptable to say, “We’ve done it wrong, we’ll accept penalties and, when we recalculate it, we’ll actually get a refund of VAT.” They were lucky. However, the managing director was livid because he had followed the advice of the original VAT inspector and was absolutely certain that he had done nothing deliberately wrong.

I always advise my clients to accept any liabilities and penalties, because the cost to the business of fighting them is far more than any penalty imposed. If someone overcomes that hurdle and says that they want to fight a case, the Revenue will name and shame, whereas if someone agrees that they have done something wrong, the only thing they end up with is a penalty.

I can see the Government’s reasoning, but, in practice, I believe that more people will accept that they have done something wrong when they have not, and that they will not test the case, because being named and shamed will do enormous damage to their business. I understand what the Government are trying to do, but there are some practical difficulties.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury 5:15 pm, 23rd June 2009

It has been an interesting debate. On the stand part debate, we regard the clause as necessary and proportionate in relation to the response to serious non-compliance. The clause is carefully targeted and contains robust safeguards. It also sends a clear signal that evading tax is wrong, and will be a deterrent for people who are doing that.

The penalty regimes on which the publication is based were the subject of extensive public consultation, and respondents consistently supported HMRC taking a harder approach towards those who have deliberately flouted the rules. HMRC has already met with interested external representative groups about the publication scheme and will continue to do so up until 1 April 2010 to sort out the practicalities for implementation, including draft guidance. I emphasise that that will be introduced only for any penalties after April 2010.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am grateful for what the Minister is saying, but does she not accept that, ideally, the consultation should be done and the guidance should be issued before, and not after, we legislate?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

We are talking about a point of principle. A lot of the consultation that we have done has shown that people want HMRC to take a harder approach, and the provision is part of that.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am sorry to interrupt the Minister before she has a chance to get going. I accept that the provision is part of a harder approach, but it is a different type of sanction from those previously implemented. I do not disagree that tough penalties are necessary; that is not our concern. This is a new type of penalty and we think that it is justifiable to use it, but, ideally, surely she agrees that, as far as this type of penalty is concerned, one should consult first, rather than produce something out of the blue and then begin the consultation process.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

If we as a Government, the Committee and the House agree on a way forward on the issue that will help, and the consultation is ongoing as legislation makes its way through the House, I think that that satisfies our twin aims. We are trying to bring in a harder line while also ensuring that we bring stakeholders with us in the way that it is implemented.

The hon. Member for South-West Hertfordshire asked why, in 2005, the Paymaster General declared her opposition to naming and shaming, but there have been wider changes since 2005 and there is a worldwide move towards more robust regulation and responses to financial misconduct. Our recent reforms of the tax penalty regimes mean that it is now possible to create a scheme in law that is carefully targeted at the most serious offenders, which was one of the Paymaster General’s caveats at the time. As regards the Human Rights Act,  I assure the Committee that HMRC has carefully considered all the issues in developing the publications scheme, and believes that it is, as set out in law, necessary and proportionate.

The hon. Gentleman took an extrapolation too far; it is a justifiable interference in the right to privacy to protect the economic well-being of the country and prevent crime, but that refers to the economic well-being of the country at any time. Tax evasion in general is a threat to the economic well-being of the country. We have carefully designed the scheme so that any interference with the right to privacy is kept to an absolute minimum, while still achieving its aims, which is why the law requires published details to be removed after 12 months.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The Minister is providing helpful clarity. The briefing that we received from CIOT was that the question of privacy did not apply due to the need to protect the economic well-being of the country, but in addition, it said:

“given the current economic climate.”

Can she assure the Committee that there was nothing in the legal advice that focused on the current economic difficulties and the state of the public finances and that this is a general requirement to address tax evasion.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I can certainly confirm to the hon. Gentleman that it is about the general economic picture and is not specific to current economic difficulties. Currently the names of those convicted for deliberate tax defaults are published, but those of people subject to a civil penalty for such defaults remain confidential. We are bringing the publication of the details of those subject to civil penalties for deliberate defaults into line with those convicted in a criminal court.

The hon. Member for Poole asked how many names were likely to be published. The measure is prospective and applies to penalties after 1 April 2010, so it is difficult to say. We expect the number published to be low initially, but it could be up to hundreds each year if people do not change their behaviour as a result of the measure. At this stage I cannot begin to think what the figures per constituency would be.

Photo of Robert Syms Robert Syms Conservative, Poole

When we talk about published, what do we mean? Do we mean put on the web? How do you remove a name from the web after 12 months? Are we talking about the London Gazette or will there be a press notice every quarter? Can we have a little more information about that please?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

We can put such details in the guidance and consult further on them. It will be published in a way that meets the requirements of the legislation, so the names will be removed after 12 months. I take on board the hon. Gentleman’s point.

Photo of Brian Binley Brian Binley Conservative, Northampton South

As Members of the House we have been subjected to a degree of innuendo that has been translated into an untruth by people out in the big wide world. What is to stop somebody taking the list for a given 12 months and using it for four or five years thereafter to create a situation of fear or of considerable embarrassment for  people, when that should not happen? Are there any remedies that a person who has been on the list, but is then taken off might take to prevent that happening?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

HMRC will put processes in place to ensure that names and details are removed. We anticipate publishing details on the website quarterly with a press notice. We will remove them from any official publications and from archived press notices. We are not responsible for whether details remain in the public domain in media outside our control, such as newspapers. That also applies to those who have evaded tax deliberately and are subject to the criminal rather than the civil procedure.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

This is a pretty unsatisfactory state of affairs, as my hon. Friend the Member for Northampton, South points out. It is not simply a matter of having something on a particular website, because information gets transported to blogs and other websites. Other than through an extremely extensive and costly mechanism, it will not be possible to cleanse the entire web of references. Even with not particularly well-known people, a quick Google search will immediately bring up a range of blogs containing such details.

To return to my earlier point, more often than not, wealthy individuals will be able to bring libel cases against newspapers. If such a case is victorious, they will ensure that there is an ongoing cleansing of the web along those lines. For the less well-off, there will be no such safeguards.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I return to the point that we are not responsible for other media. The same applies to those people who have deliberately defrauded and are subject to criminal penalties. That is the same if cases are reported in the media. I think that we have the balance right in pushing this forward. We have the safeguard that the proposal covers only deliberate actions, which we have debated at length. Taxpayers will also have the opportunity not to have their name published if they make a full disclosure. I have explained umpteen safeguards as we have gone through this clause.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

I am puzzled by the turn of this debate because a large amount of activity through our minor courts ends up in the public domain and is then manipulated and used freely by other people for years to come. Minor county court judgments against people can become widely available. I am not sure why the thrust of this argument applies to this particular circumstance.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I think that we are spending a little too long on this point, given that most people agreed at the beginning that it was a good measure that would help in the fight against fraud and in changing people’s behaviour through deterrence.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

Perhaps I can attempt to answer the point raised by the hon. Member for South Derbyshire. He is right that once something has been published, it is in the public domain. That brings into question the value of subsection (9), which states:

“No information may be published (or continue to be published) after the end of the period of one year beginning with the day on which it is first published.”

Although the information will be taken off the HMRC website, it will be in the public domain. I do not think that that is an enormous deal, but it brings into question whether subsection (9) is a worthwhile safeguard.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

It is important because HMRC will take the information off that list. If there is subsequent referral to, that list was for that period of time.

There was a question about refraining from publication when there are security issues. As well as exemptions for those who make full and timely disclosure, HMRC will not publish names in exceptional circumstances in which doing so would not be appropriate. Taxpayers will have an opportunity to make representations.

I got a bit confused over the two conflicting arguments. One was that people would fight on, but not settle. The other was that people would not settle, but fight on. I think that we have sufficient safeguards in the clause to enable taxpayers to go through the appeal procedure, which means that whether their tax disclosure is sufficiently complete and timely to warrant exemption from publication will be subject to appeal to an independent tribunal. That strengthens the taxpayer’s safeguards.

New clause 4 would allow HMRC to publish a list of taxpayers whose record in paying tax and reporting their liability HMRC considers exemplary. I welcome the motives behind the clause and the implicit recognition that publication can affect taxpayer behaviour, whether it be publication of those who are exemplary or those who have deliberately defaulted. In many ways, new clause 4 is a mirror image of new clause 3. I share the view that an exemplary payment and reporting record is something to be encouraged.

Clause 93 reassures taxpayers that there is a level playing field. Under later clauses, we will examine how the Government propose to reform the penalties for late filing and late payment to change the behaviour of those who fall short of this high standard. We will also look at how the Government aim to make it easier for businesses and individuals to pay on time using managed payment plans. HMRC is continually reviewing its relationship with taxpayers, both large and small, to identify what motivates them to file accurately and pay on time, and what changes could be made to improve voluntary compliance.

There are some practical issues in the clause itself, which means that I must resist it today. HMRC consulted on the idea of a tax clearance certificate scheme in June 2007 and in November 2008. Such a scheme is similar to the aim of the new clause: an assurance that the taxpayer is in good standing with HMRC, because of the filing and payment record. I have to say that support for the proposal was lukewarm, with many unsure how the certificate would be used and seeing it as an additional level of bureaucracy. For example, the LITRG in their response said:

“What will such a certificate be needed for? There is little point in introducing a system which lacks purpose, as this simply creates a burden of cost, administration and complexity”.

In addition, we think there would be significant resource implications from the proposal and it might help if I gave the Committee a flavour of these. HMRC receives around 23 million returns each year across all the taxes.  It collects around £450 billion, of which around two thirds is paid on time. Based on those figures, HMRC would be faced with a significant burden in potentially publishing the names of the many million taxpayers whose record appears exemplary. Such a lengthy list would be of little benefit to taxpayers if their details were buried away and might not influence the behaviour of others. Employees with simpler affairs, whose tax is all dealt with through PAYE, should, by rights, also be on the list and that would render it meaningless. Furthermore, what would “exemplary” mean in practice? A taxpayer might file their return on time and pay the liability shown on that return, but what if the figures on that return were simply understated? HMRC focuses its resources on high risk cases in order to deter non-compliance. However, it cannot know the risks in all cases and cannot check every return to find out more. Doing so would not only require much greater resources, but would also inconvenience many compliant taxpayers.

Publishing the names of people whom HMRC describes as exemplary, but who are known to others to be otherwise, could have a detrimental impact on voluntary compliance. The clause includes several areas where HMRC would have to exercise discretion: “may publish”, “in their opinion” and “acting in good faith”. As hon. Members know, safeguards have always been a key feature of our work to modernise tax administration. I should have thought that we would need to see some statutory safeguards here. For those reasons, I would resist new clause 4 and ask hon. Members not to press it. However, I repeat that we are sympathetic to the sentiment behind it and we will continue to look at the best way to encourage taxpayers to file and pay on time, and we will keep this suggestion in mind.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 5:30 pm, 23rd June 2009

I thank the Minister for her remarks on clause 93 as a whole. I am not sure that she answered the concern about whether more taxpayers will fight on rather than settle. In my remarks, I stated that it could affect behaviour in two different directions. I welcome her comments that the intention of new clause 4 is correct, however, I am not sure that all her objections were particularly strong. There is a case for targeting it towards larger entities, so it would have a beneficial effect in the corporate area rather than on every individual taxpayer. I note her comments that the Government focus on the high-risk areas and do not necessarily dig in to ensure that the information provided is necessarily correct, but of course it is a further sanction available to the Government—loss of gold list status would be something that a large company would be very reluctant to lose.

I acknowledge the point that there is more that can be done on safeguards in primary legislation. I hope that this clause will encourage HMRC to look further on this and to allow a debate to begin on this particular point. As I said, the measure would add value, particularly in dealing with larger companies. When we reach the relevant point, I do not intend to press new clause 4 to a Division—although I think it would be a valuable addition to our armoury. I am pleased that the Minister appears to be suggesting that HMRC and the Treasury will continue to look at the matter.

Question put and agreed to.

Clause 93, as amended, accordingly ordered to stand part of the Bill.