I am sure that on both sides of the Committee the title of this clause will cause hearts to sink. I suspect that people would much rather we were discussing something else. The only reason why I comment on it is that there have been reports on the provision in the media along the lines that hon. Members are being granted a special exemption from the new tax avoidance legislation. We are being portrayed as trying to get away with something that ordinary members of the public would not be able to get away with and as being up to our old tricks again.
When I talked about getting away with our old tricks, I was talking about the way the media and, perhaps, some members of the public portray the matter. I was not saying that I believe that old tricks are being got up to, apart from a small number of people who, in most cases, are getting their just deserts now. It is probably best not to start digging in that minefield.
I appreciate that the Exchequer Secretary wrote to all Members about this clause and the schedule to explain that, as the new rules are intentionally broad, this exemption is one of several necessary to ensure that legitimate behaviour is not unintentionally caught by them. In particular, an exemption is created for the accommodation expenses of Members where they are paid by the Independent Parliamentary Standards Authority directly to a third party such as a landlord, rather than to the Member. That results from a change IPSA made last November that allowed such direct payments to be made. Previously, we had to pay the landlord direct and then claim it back. That seems reasonable. Individual Members cannot change the way they are paid because it is statutory, so they should not be caught by anti-avoidance rules. In my view, this clause should not be necessary. Some Members might say that this clause would not be necessary if we had not moved to the IPSA regime, but that is a can of worms that we do not want to open in Committee right now. More importantly, the clause would not be necessary if the rules that the Government have proposed were not so complex. The clause is intended to ensure that the rules do not have unintended consequences. The rules are very difficult for the ordinary person to understand, so it is not too surprising that the media raised concerns. John Whiting, the director of the Office of Tax Simplification, was concerned about the provision. He said to the Economic Affairs Committee that the new rules had
“developed into so much detail it is in danger, at its 59 pages or wherever we are up to, of starting to create further loopholes that people will try and exploit or inadvertently block things."
My right hon. Friend the Member for Delyn quoted him as saying
“Whoa, this is just getting too much” and we had quite a debate about that. Specifically on Members’ expenses, the Chartered Institute of Taxation has said:
"The fact that the parliamentary draftsman felt that Members might be caught by the legislation, is indicative of the wider problem...of it unintentionally catching legitimate arrangements which have nothing to do with tax avoidance, as well as the tax avoidance schemes that are its target.”
It has also said that the fact that the draftsman was still not sure that the rules would not catch Members, even after the changes that have been made to the draft clauses since December,
“shows the difficulties inherent in this kind of approach.”
How many more such clauses will the Government have to add to the Bill? That is quite a difficult question to answer, but it highlights the fact that the legislation has created a great deal of uncertainty in this area of the tax system. That goes against the Government’s own aims set out in their framework for tax policy making.
I am very concerned about this clause, because if there is a question of expenses of this nature being subject to tax, it is essential that they come out of the right IPSA budget. In my own case, I have had accommodation expenses for my London flat taken out of my office budget by IPSA. I wonder whether that might cause me a problem in income tax terms.
I hesitate to start advising my hon. Friend on his tax arrangements, or to venture into advising him on his problems with IPSA. I suspect that if I showed myself willing to do so, I would be besieged by hon. Members asking me for advice. It is best not to go there.
I find it hard not to add my two penny-worth, as I threatened to do last week in Committee. I thank the hon. Member for Bristol East for what she has said regarding IPSA. To draw this part of the Committee to a close, would the hon. Lady welcome the proposals that were put forward by my hon. Friend the Member for Windsor (Adam Afriyie), who is not on the Committee, for a resolution of the problems that Members from all parts of the House have had to date with IPSA?
Thank you, Mr Hood, for coming to my rescue. My stance in respect of that debate has been to keep well out of it and let other people have the discussion. That may be rather cowardly of me, but given the other demands on my time I think it is probably quite sensible.
The Government have the stated objective of creating simplicity and predictability in the tax system. Some of these measures do not seem to be particularly helpful in meeting that objective. I would appreciate the Minister’s comments.
To be clear, this clause is not about disguised remuneration rules, but as the hon. Lady has pointed out it makes a minor change to the legislation on the income tax treatment of accommodation expenses that are paid to MPs under the scheme that is administered by the very popular Independent Parliamentary Standards Authority. She has asked whether we will see further changes coming through. The answer I would give her, which is perhaps the answer to many questions in life, is that it depends. It depends on any future modifications that IPSA makes to the rules.
The clause does not grant MPs any new special tax treatment. It broadly continues the tax treatment that has applied for accommodation expenses payable under the MPs’ expenses scheme, which was introduced by IPSA at the start of the current Parliament. With effect from 1 November, IPSA introduced a minor simplification, which allows it to make payments in respect of MPs’ rental charges direct to a third party such as a landlord or letting agent, on the authorisation of the claimant MP. The existing exemption from tax for residential accommodation expenses payments applies only to payments made by IPSA directly to the MP. So the Bill will merely address the consequences of this simplification.
Legislation which provides an income tax exemption for expenses paid to MPs that are necessarily incurred on overnight accommodation required for the performance of their parliamentary duties, whether in Westminster or their constituencies, has existed for many years. That legislation was updated in the second Finance Act last year so that, following the introduction of IPSA’s new expenses scheme on 7 May 2010, it applies to overnight accommodation expenses paid under this scheme where appropriate. As I said, from 1 November 2010, IPSA introduced a further minor simplification to the way it pays MPs’ expenses in respect of rental charges on constituency and residential properties. From that date, IPSA’s rules allowed such expenses to be paid direct to another person, such as a landlord, at the direction of the claimant MP. It is clear that the clause does not grant MPs any new special tax treatment as that would not be appropriate.