Clause 27

Finance (No. 2) Bill – in a Public Bill Committee at 9:00 am on 28th October 2010.

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

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Good morning, Mr Caton. Whatever happens, this is our last day in Committee. We shall debate from clause 27 to clause 33, as well as the new clause tabled by my hon. Friend the Member for Nottingham East, and I hope that we shall make progress as speedily as we can.

The Opposition have no problem with the policy objectives of clause 27, but I would like to test the Minister, because the clause gives him and the Treasury wide powers to implement provisions at a future date. Subsection (2) states

“Schedule 11 comes into force on such day as the Treasury may by order appoint.”

Will the Minister say which day and which time the Treasury might by order appoint for implementation of the said provision following Royal Assent? I ask that because the clause gives him a wide implementation power.

Subsection (3) states:

“An order under subsection (2)…(a) may commence a provision generally or only for specified purposes, and…(b) may appoint different days for different provisions or for different purposes.”

That, too, gives the Minister a wide power to reflect on the issues and bring in, at different times, provisions relating to the specified purposes under clause 27. I would welcome an outline of his thinking on implementation of the clause.

Subsection (4) is also a very wide provision, so the Minister needs to put on record his approach to the issues. The subsection states:

“The Treasury may by order make any incidental, supplemental, consequential, transitional, transitory or saving provision which appears appropriate in consequence of, or otherwise in connection with, that Schedule.”

I know that it is probably common practice to put in place such a wide power, but it is important that the Minister gives some indication of the circumstances in which he would exercise it. In the event of the clause receiving the approval of both Houses, we will be giving him great power to vary the penalties for failure to pay tax.

Subsection (5) states:

“An order under subsection (4) may…(a) make different provision for different purposes, and…(b) make provision amending, repealing or revoking any Act or subordinate legislation whenever passed or made (including this Act and any Act amended by it).”

This is a fairly strong Henry VIII power. It is incumbent on the Minister to explain the circumstances in which he would use it, in the same way as, when I was a Minister, I had to explain the circumstances in which I would use a power. I remind the hon. Gentleman of that because I served for 13 years as a Minister in the previous Government and on numerous occasions, in relation to numerous Bills that granted similar powers, Opposition Members questioned me on exactly how I would use the powers downstream. Therefore, it is only fair that I give the Minister the opportunity to reflect on these matters accordingly.

Subsection (6) states:

“An order under this section is to be made by statutory instrument.”

It is important that we know whether the Minister believes that such a statutory instrument would be subject to the affirmative procedure. Alternatively, would the Opposition be required to pray against the instrument if we want to examine matters in a more detailed way? Again, we have no objection to the clause in principle, but we want clarification on certain points.

Subsection (7) states:

“A statutory instrument containing an order under subsection (4) which includes provision amending or repealing any provision of an Act is subject to annulment in pursuance of a resolution of the House of Commons.”

Will the Minister give some indication of how that will work?

I do not wish to cause the Minister too much grief on the principle of the clause. We support it, because penalties for failure to pay tax are important. Schedule 56 to the Finance Act 2009 is important; it was passed by the previous Government. Given the wide-ranging nature of the powers that we are seconding to him, however, will the Minister give some indication of how he might choose to exercise them?

Photo of David Gauke David Gauke The Exchequer Secretary

It is a pleasure, Mr Caton, to serve under your chairmanship for one last time on the Bill.

Before dealing with clause 27, I return briefly to schedule 2, which we considered earlier in our proceedings. We did not debate the schedule, and as a consequence I have failed to mention something that could be usefully put on record: the changes to venture capital schemes introduced under that schedule will made through a commencement order, and it is our intention to bring in the changes from next April. I hope that the Committee will forgive me for digressing.

I now turn to clause 27 and the points made by the right hon. Member for Delyn. As we heard, the clause is part the ongoing review of Her Majesty’s Revenue and Customs, and it marks the completion of the third stage of penalties reform under the review. There are currently a variety of different penalties for late payments across different taxes, and some have no sanction for late payment. The changes before us add 15 further taxes and duties to the new aligned structure that was legislated for last year. As with the changes made in clause 26, these new taxes are all indirect taxes or excise duties. The new penalty structure will be more effective in influencing behaviour, as well as fairer and more proportionate. It is important that HMRC makes every effort to support taxpayers in meeting their tax obligations, but it is equally important that the consequences for failing to meet those obligations are made clear.

An extensive series of consultations led to the first tranche of legislation in the Finance Act 2009. Following that Act, HMRC published a draft of the current provisions on 9 December 2009 and invited comments. We listened to the many responses from key stakeholders and representative bodies and made changes as a result. For example, we refined the VAT payments on account mechanism to be as easily understood as possible. Throughout the consultation, the reforms were broadly supported by key stakeholders and representative bodies.

The new penalty structures and safeguards will require changes to HMRC’s IT systems and business processes. It will also require substantial advance publicity to taxpayers and their advisers to ensure that people are ready for the changes. That is why the schedule is to be brought into force by Treasury order, which will allow for implementation in stages. HMRC plans to implement the changes as and when resources permit and when sensible opportunities arise. That touches on one of the questions raised by the right hon. Gentleman.

The right hon. Gentleman also asked when the changes in clarification to the law will come into effect. For amendments that relate to last year’s enactments, which have already come into effect, HMRC intends to lay an appointed-day order before the House shortly after Royal Assent. The changes will mainly affect the operation of late payments penalties for pay-as-you-earn, which came into effect on 6 April 2010. However, as they are based on an annual appraisal of an employer’s payment obligations, penalties will not start to be issued until May 2011.

The right hon. Gentleman also raised the question of Henry VIII clauses. He said, quite fairly, that he frequently had to defend such clauses as a Minister. In a spirit of candour, it is fair to say that I often queried them when I was an Opposition spokesman.

The harmonisation of penalties requires the untangling of a great deal of old and complex tax legislation, and the clause is designed purely to enable HMRC to make necessary amendments, savings or repeals easily. Given the nature and scale of the changes, the broad power of amendment is needed to facilitate accurate consequential amendments or transitional provisions, as it is not possible to predict what changes to the current law will be required in the future. An identical approach was taken under the Finance Act 2009 in respect of measures that introduced the basic structure for the alignment of penalties, and I hope that the right hon. Gentleman will appreciate that the powers relate clearly to that specific area and not more broadly.

The right hon. Gentleman asked whether the orders will be subject to the affirmative procedure. They will be made under the negative procedure, which is consistent with what has been done elsewhere within the penalties regime. As always, HMRC will publish a draft order in advance, which is particularly important if the statutory instrument amends primary legislation. The Government will make sure that there is proper consultation on changes of the law. I hope that he will accept my assurances on that point.

The provisions have been subject to thorough consultation. They were well supported by most respondents and have been refined to reflect their comments. The result is a major step forward in modernising and aligning penalties. It is important that HMRC supports taxpayers to meet their tax obligations, but it is equally  important that the consequences of failing to meet those obligations are clear. Effective and proportionate penalties will tackle late filing and reassure the compliant majority that the system is fair. I therefore hope that the Committee will support the clause.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Schedule 11 agreed to.