Clause 26

Finance (No. 3) Bill – in a Public Bill Committee at 9:45 am on 19th May 2011.

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

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

With this it will be convenient to discuss Government amendments 102, 103, 10 to 70, 104, 71 to 93, 105, 106 and 94 and that schedule 2 be the Second schedule to the Bill.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I will kick off, if I may. Clause 26 and the amendments to it are extremely complex. I will explain our concern and why we do not support clause stand part. It is not that we are against the principle that the Minister is seeking to advance with the clause, but we do feel strongly that there is concern about the complexity of the clause, its practicality and its objectives as a whole. Clearly, it is extremely important that we get this right.

I am grateful that the Exchequer Secretary—this is a compliment to the Government—consulted on the clauses in the Bill, in December. As I look at the Bill today, I see that it was published in the name of the Chairman of Ways and Means, the Prime Minister and others, including the Exchequer Secretary himself, on 29 March 2011, following that consultation.

None the less, following the consultation and the printing of the Bill, I found myself last week facing 88 to 100 amendments to the clause from the Minister—it was 88 at my last count, but it may have gone up since then—in what is already a complex matter. Although the Government consulted on and produced the Bill as it is currently drafted, the Minister has tabled 88 amendments, so it is important that we listen to him. I will outline some of the concerns that have been expressed to me. We need to see whether the objectives that we share are best served by the structure and framework of the clause and schedule as they are currently drafted.

We tabled amendments to the clause after speaking to and receiving submissions from a range of tax experts. We concluded that the clause is unnecessarily complicated, does not do what it says it should and, even after the amendments, is not clear about its objectives. As I said, I want to make it clear that we support the policy purposes behind the measure, which are broadly to prevent abuse of employee benefit trusts and employer-funded retirement benefit schemes.

Let us look at what the Minister himself said. On 27 January, he spoke at the Financial Executives Networking Group. He said:

“In short, we need a simpler, more stable tax system.”

He went on to criticise the previous Government for “tinkering” and promised that he wanted

“stability and certainty... at the heart of our approach.”

Photo of Ian Murray Ian Murray Labour, Edinburgh South 10:00 am, 19th May 2011

My right hon. Friend talks about the complicated nature of this clause. Surely that flies in the face of the Government’s challenge to cut red tape for businesses. Does he have any comments on that issue?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

As the Committee knows, before my hon. Friend came to the House, he ran a number of successful businesses and knows only too well the difficulties that red tape causes. Once again, I genuinely want to offer the hand of friendship to the Minister on this particular clause. I want him to come back on Report with a well-thought-out and detailed proposal that meets the Minister’s objectives and that we can support, subject to discussions. If, as he says, he wants a simpler and more stable tax system, let me refer him to amendment 105. I defy any member of the Committee, from any party, to say how this will be applicable in their constituencies today. It says:

“554Z16 Employer etc to be treated as relevant third person

(1) If B takes a step within section 554Z17 or 554z18, Chapters 1 and 2 have effect in relation to the step—

(a) as if B were a relevant third person for the purposes of section 554A(1)(d), and

(b) as if the step were a relevant step within section 554B (if it would not otherwise be).

(2) For the purpose of determining whether Chapter 2 applies by reason of the step, Chapter 1 has effect—

(a) as if sections 554F to 554N, 554R to 554T, 554V and 554W were omitted,

(b) if the step is within section 554Z17, as if sections 554P(s)(d), (3) and (4) and 554Q(1)(c) and (d), (1A) and (1B) were omitted.”

I defy any Government Member or anyone in this Committee to stand up and say that they will go back to their constituency and say to their local businesses, “Please ensure you do not contravene amendment 105 to schedule 2, page 96, line 29.” The Minister says that he wants tax simplicity; I simply say to him that that is just one example of many within the 88 amendments that he has tabled today. I defy him to tell me in one sentence what amendment 105, which I have just read out, means. I will certainly give way to him if he wishes to intervene.

Nic Dakin (Scunthorpe) (Lab) rose—

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My hon. Friend has obviously studied the amendment in great detail, and I am sure he will now give me a simple version of it.

Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe

I thank my right hon. Friend for giving way. It is a pleasure to serve under your chairmanship, Mr Gale. I am as perplexed as my right hon. Friend about the amendment that he read out. In his summary of the clause, Colin Ben-Nathan of the Chartered Institute of Taxation said:

“We support the government in tackling tax avoidance involving rewards paid via third parties, but we think the legislation in the finance bill is far too complicated and risks creating problems as well as solving them.”

Is that not what my right hon. Friend is proving in his speech today?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

That is my intention. It is not because I want to cause the Government difficulty on the clause, because I genuinely do not. We support a number of anti-avoidance measures, and this is one of them, but the representations to which I shall refer and which the Minister has received, and the fact that he has tabled 88 amendments to the clause in the past week alone, show that the clause is not simple or understood, and does not catch his concerns clearly and simply.

The Minister said on 27 January:

“It’s our intention to put simplicity and stability first.”

Perhaps it is because I am an arts graduate and do not have the same level of financial skills as the Minister, but I do not understand how anyone can understand amendment 105. It is about growing businesses, but the only business it will grow is accountancy, because accountants will have to help businesses to deal with it.

Photo of Julian Smith Julian Smith Conservative, Skipton and Ripon

The right hon. Gentleman is giving the Minister a hard time, but he is making an excellent general point about over-regulation. I agree with him, and urge the civil service to ensure that whenever it drafts legislation it bears in mind that business people are often incredibly busy and have little time to read the small print. Drafting should be as simple as possible.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to the hon. Gentleman for his support. Let me clarify my point for Members on the Government Benches, because it is them and the Minister whom I must convince. I do not disagree with the Minister’s objectives in clause 26 or schedule 2, but I worry about the lack of simplicity and practicality, and about whether he is starting from the wrong end of the telescope in trying to achieve his objectives. My offer to him is simple. We have tabled an amendment to delete the clause, and it would be welcome if he would withdraw the clause and schedule 2, and introduce on Report, which is a maximum of seven or eight weeks away—it will be at the end of June or in early July—a redrafted clause and a simplified schedule that provide clarity.

The hon. Member for Skipton and Ripon made some good points. We can have discussions outside the Committee, as we always do if we can, as I did when I was a Minister, and as I am sure the Exchequer Secretary will, now that he is a Minister. We can come to an agreement not to oppose the clause or the schedule on Report, and we will have clarified them for the many outside agencies that have made representations to me and to other Committee Members, and addressed their concerns.

As the hon. Member for Skipton and Ripon said, the provision is a dog’s breakfast. If it were not, the Minister would not have tabled 88 amendments to the clause. We are all busy people, and I defy anyone in the Committee who is scrutinising the Bill to be able to read all 88 amendments, to cross-reference them to the 59 pages of the schedule and to the clause, and to put them into context for the people we represent and the businesses that will have to deal with the Bill when it achieves Royal Assent in a few months. I defy anyone to tell me what those 88 amendments mean downstream.

All I am saying to the Minister is that if there is a need for 88 amendments after a consultation, which ran from December until the Bill’s publication on 29 March, can he give me a guarantee that he will not table any more amendments to the provisions? This Committee is about scrutiny and deciding whether to implement a policy that impacts on people’s businesses and lives; the approach that he has taken is not a good way to make policy and legislation.

Photo of Steve Barclay Steve Barclay Conservative, North East Cambridgeshire

Does the right hon. Gentleman believe that such amendments are a new development in the civil service or, from his ministerial experience, does he recall a precedent for such things? Also, one of the difficulties that I am sure officials face is that they are starting not with a blank sheet, but a complex tapestry  of existing legislation. Perhaps if the Government had not inherited such a complex tax structure as a starting point, the tabling of amendments would have been simplified.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I think this is the 36th Bill I have worked on as a Member of Parliament in my 19 years in the House. I might be wrong; it might be 35 or 37. During my 12 years as a Minister, I probably took through 21 or 22 Bills, and I can genuinely say to the hon. Gentleman that I never once tabled 88 amendments to a single clause. I cannot speak for other Ministers in other Departments, because ministerial life tends to mean that an individual focuses on what they are doing themselves. However, I cannot recall ever tabling 88 amendments to a single clause after a period of consultation and, indeed, after trumpeting the fact that the consultation was positive.

Richard Harrington (Watford) (Con) rose—

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I give way to the hon. Member for Watford, who will undoubtedly try to blow my argument out of the water by giving an example of something done by previous Labour Ministers, but that will not hide the fact that the Minister knows he is making a hash of this and that the policy needs to be re-thought properly. The 88 amendments are not appropriate and, whatever the hon. Gentleman says in his intervention, it will not remove the Committee’s concerns.

Photo of Richard Harrington Richard Harrington Conservative, Watford

I am grateful to the right hon. Gentleman for giving way. In fact, I was just going to comment on how well he has done following his arts degree. People may say that arts degrees are a waste of time, but I point to the right hon. Gentleman as an example of why that is absolutely not true. His erudition is very well known to the Committee, Mr Gale, as I am sure you are aware. I should also say that it is a great pleasure to serve under your chairmanship. Having done a law degree many years ago, which I accept was a complete waste of time for myself and the educational institution involved, I feel it is my duty to point out that, from memory—as a former law student, one retains things in one’s mind—in 2008 alone, the Government tabled 226 amendments to the Finance Bill. I cannot quite remember; it may have been 227 or 225.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

That proves solidly that whatever a law degree does, it allows one to read a note passed by someone else. My arts degree may well have been very useful, but one of my contemporaries won an Oscar, and one presented “Blue Peter,” so unfortunately I feel that I have failed in only becoming an MP.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

Much as I agree with my right hon. Friend about the dilemma that we face in scrutinising legislation in an appropriate way when so many amendments have been tabled, the situation is eminently preferable to having 234 amendments tabled to a Bill on Report, as happened with the Localism Bill in the past few days. I suppose that this is the best time for scrutiny. However, from a drafting perspective, I wonder whether we should not just scrap the whole schedule and bring it back amended in the ways proposed by the amendments. Otherwise, it is difficult for us to try to scrutinise it properly, line by line, amendment by amendment.

Photo of David Hanson David Hanson Shadow Minister (Treasury) 10:15 am, 19th May 2011

My hon. Friend backs up the points I am making. The hon. Member for Watford and I have had some fun. There may have been 225 or 226 amendments to the Finance Bill in 2008. I do not know; I was doing something else at the time. I expect that if the hon. Gentleman looks at the Hansard for that day, he will find that the Minister or one of his colleagues made a point on the subject at the time.

Proposing 88 amendments to the schedule indicates that the Minister is not confident that what he published on 29 March meets the objectives he set. I have had representations—I shall read them out in a moment—to say that even post-amendment, the schedule and the clause will not do what the Minister wants. The provisions will still be excessively complex for the people who wish to interpret them. That is a real issue that we need to explore.

Photo of Alec Shelbrooke Alec Shelbrooke Conservative, Elmet and Rothwell

I wonder whether the right hon. Gentleman’s contemporary who won the Oscar was the previous Chancellor of the Exchequer.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I will not go down that route. That was an off remark, but I cannot think of anything witty to say; that is the way of the world.

Let me quote to the Minister the views of the Institute of Chartered Accountants, as set out in the briefing that it sent to all Members of the Committee last week:

“Draft clauses were published for comment on 9 December 2010. At that stage, the draft clauses were only 20 pages long. Although we appreciate that HMRC have listened to the concerns raised and made extensive changes to the draft clauses, the fact remains that the legislation in the original Bill has grown to 59 pages.”

That is the key point. It continues:

“On 10 May 2011 the Government tabled 15 pages of amendments to the Finance Bill provisions. These were published the following day and we have not had time to review them in detail, but our initial reading is that although they make various improvements they will add significantly to the length and complexity of the Finance Bill legislation….We doubt these latest amendments will be the end of the changes, and believe that further amendments will be required as further problems emerge. We appreciate that power is given under s 554X to make further exclusions by way of statutory instrument but this is a wholly unsatisfactory way of drafting tax legislation.”

I repeat that it thinks this

“a wholly unsatisfactory way of drafting tax legislation”.

That is being said of the provisions even after all the amendments brought forward by the Minister to date are made.

Comments made before the amendments were brought forward include the following from Grant Thornton:

“We recognise the policy reason behind the introduction of this legislation. However, as drafted, it has an adverse impact on many commercially driven remuneration packages.”

It adds, backing up the points that my hon. Friend the Member for Scunthorpe and I have made:

“The legislation is also incredibly complex to understand”.

It particularly refers to the Exchequer Secretary’s speech of 27 January, in which he said that simplicity was top of the agenda.

The Government’s decision last week to table 88 amendments shows that the clause is not workable. I am not clear yet whether the 88 amendments will meet the objectives and concerns raised. I want to give the Minister the opportunity to withdraw the clause, and come back with something more on Report.

The Chartered Institute of Taxation initially asked:

“Why is it necessary to have 59 pages of legislation?”

Our discussion is about clause 26 and the schedule as published—59 pages of legislation. That has to be interpreted by small businesses and others across the country to ensure that they do not contravene the legislation, either deliberately or accidentally. It is complex, and it will grow with the inclusion of the amendments that were tabled last week. The institute said:

“The legislation already envisages multiple tax avoidance tests and therefore a clearance system will be needed.”

It continued:

“Is the Government not in effect introducing a GAAR (general anti-avoidance rule) for employment taxes, given the very wide scope of the legislation in principle, but one to which numbers of additional conditions have been superimposed. This would seem to pre-empt the…review” that is coming up shortly. It went on:

“The real concern here is that employers will struggle with these rules in terms of time/cost and the administrative burden, this of course will lead to widespread inadvertent non-compliance. This will be done through accident rather than through design.”

The Minister has a duty to answer those criticisms in light of the amendments he has tabled; the institute has expressed its concerns. When the dust has settled and the schedule and the clause are approved, Her Majesty’s Revenue and Customs will have to monitor and ensure compliance. I worry about the complexity of those issues for HMRC staff across the country and in the constituency of my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East. They will have to look at whether the rules are being monitored in an effective way. When the Bill is given Royal Assent, small businesses will have to agree to the regulations, understand them, implement them and make sure that they are not contravening them. The Bill is currently nothing like simple enough to achieve those objectives.

In the Finance Bill Sub-Committee of the Lords Select Committee on Economic Affairs on Wednesday 4 May, John Whiting of the CIOT, when asked about disguised remuneration, said:

“We have just submitted to the Revenue an 18-page paper on remaining concerns. There is an element of ‘if I wanted to get there I wouldn't start from here’ about these provisions. This has developed into so much detail”.

The 88 amendments will not help with that. He went on to say that the provisions were in danger, at

“59 pages or wherever we are up to, of starting to create further loopholes that people will try and exploit or inadvertently block things.”

He continued:

“We are always in favour, in principle, of having clear legislation that we can say, ‘There is the legislation, that's it’.”

That backs up the need for the simplicity that the Minister himself seeks. In his speech on 27 January, he said that the world would be rosy in the future. However, Mr Whiting said:

“We always prefer tax by law and not tax by concession or whatever. But I think now we are looking at 59 pages and saying, ‘Whoa, this is just getting too much’.”

The Chartered Institute of Taxation is saying:

“Whoa, this is just getting too much.”

Now, I accept that that is not a technical phrase. I may have an arts degree, but my skills do not translate to being able to interpret how that was said in the Committee at the time. However the phrase, “Whoa, this is just getting too much” does, I fear, indicate that—whoa!—it might just be getting a bit too much, and the 88 amendments were tabled after Mr Whiting said that.

Photo of Richard Harrington Richard Harrington Conservative, Watford

I am grateful, as ever, to the right hon. Gentleman for giving way, and for quoting Latin to us. Obviously, “woah” has Latin origins. [ Interruption. ] The hon. Member for Walthamstow is very familiar with that, ceteris paribus, as she would say. The serious point that I would make, having read quite  a lot of CIOT’s arguments over the years, is that its job is to say that that sort of thing is too complicated. Government have another job, which is to ensure that taxation is implemented, and not avoided or evaded.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am afraid that my Latin is not as good as the hon. Gentleman’s.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

Order. I am sure that the right hon. Gentleman will wish to clarify for Hansard how he is spelling “woah”.

The Chairman adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at One o’clock.