New Clause 4 - UK residents and foreign partnerships (review)

Finance Bill – in a Public Bill Committee at 8:45 pm on 26th June 2012.

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‘The Chancellor of the Exchequer shall review the implementation of section 58 of the Finance Act 2008, and the impact of its retrospective nature on the taxpayers involved, and place a copy of the review in the House of Commons Library.’.—(Nigel Mills.)

Brought up, and read the First time.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I beg to move, That the clause be read a Second time.

People who were affected by section 58 of the Finance Act 2008, which ended a particularly awful tax avoidance scheme, have expressed a lot of concern. I am sure we would all agree that that scheme should have been properly closed down many years earlier, and that the Revenue should have properly litigated at the time against those who implemented it rather than letting it run on and give its users the impression that they were acting lawfully and within the tax code. People involved in the scheme have suffered distress and real financial hardship because the measure taken to close it down was deemed to apply for ever. The law that was introduced in 2008 deemed the new rules to have applied going back as far as one could realistically envisage. It is not like the retrospective measure we discussed in an earlier clause of the Bill, where the retrospection was for a matter of months to tackle a large loss that had arisen, the Revenue’s becoming aware of a scheme and their having an opportunity to close it. The Revenue had been aware of this scheme for many years.

Photo of Fabian Hamilton Fabian Hamilton Labour, Leeds North East

Does the hon. Gentleman agree that retrospection of any sort, especially in taxation, should always be avoided? The people who were involved in that scheme—going back, as the hon. Gentleman has said, a long way—believed it to be legal, but they now find that it was not legal at the time when it was legal. One of the bases of the rule of law is: no retrospective legislation. The House should stick to that.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I agree, and the Committee has debated those points at some length. The hon. Gentleman is in good company. In a debate in the Finance Bill Committee four years ago, an amendment to that effect was moved by Conservatives and Liberal Democrats, which the Labour party voted down. Some of the Members who voted for that amendment are here today, including our illustrious Chairman, under whom we are all enjoying serving. It is interesting to note that Government Members’ strong objection to that principle seems to have softened since then. Maybe that is not true; maybe the Minister will tell us that he is prepared to look at this.

Approximately 2,000 people are affected. They are not necessarily the high-earning multi-millionaires; perhaps some relatively low-earning IT consultants were using the scheme. I have no doubt that the scheme was noxious and should have been closed. However, was it right to give people the expectation over many years that the scheme was legal; to have suggested in “Technical Exchange – Issue 63” that HMRC did not think it could successfully litigate against the scheme; and to impose a retrospective provision that applied for ever? I am not sure that that is a sensible way of conducting tax policy, or a fair way of dealing with taxpayers.

No assessment was made at the time of the impact on individuals’ pay. The new clause simply asks the Government to go back and consider whether what was done was consistent with how the Government now think we should use retrospection, if at all. Was the impact on those individuals fair and reasonable? Would we not be better off changing the law to close the scheme down from the date of the announcement in 2007, then litigating under the old rules to find out whether the scheme was legal? We would normally do things in that way, which would be better and fairer for the taxpayer.

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

I support my hon. Friend. Clearly, there is a lot of unfairness. People have divorced or moved, and their financial circumstances have changed. I saw two constituents in my surgery last week: one is being pursued for £350,000, which is basically his retirement money; the other is being pursued for £150,000, and he may well have to sell his home. The first person was also in Equitable Life, so this is not a good story. A lot of those people who are IT engineers or consultants are getting towards retirement, and they have been hit not only by back taxes, but by penalties, interest and everything else. We need to look at this, because we did take a different view in opposition and there is a degree of unfairness here which needs to be addressed.

Photo of Graeme Morrice Graeme Morrice Labour, Livingston

I am very conscious of the time. We have only five minutes left before we come to a conclusion. I had intended to say a considerable amount about this. Like the two previous speakers, I have also had constituents raise this issue with me. The central aspects of retrospection are of grave concern. The Minister will be aware that I have written to him on this matter and today I received a reply. I have still to go through the detail and digest it. No doubt, he will then receive further correspondence from me. On the basis that we are running out of time and it is important that the Minister has a few moments to respond, I will reserve my position.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

Retrospection is wrong. It undermines the rule of law and if this House does not stand for the rule of law it stands for nothing.

Photo of David Gauke David Gauke The Exchequer Secretary

In the interests of time, I will not deal with all the issues relating to retrospectivity and HMRC’s history in this case. Let me address the new clause, which asks for a review of the implementation of section 58 and the impact of its retrospective nature. The impact of section 58 has been raised previously and it may be helpful for me briefly to say something on this subject. As the right hon. Member for East Ham (Stephen Timms) explained in a written answer in 2009, regulatory impact assessments are not published in respect of anti-avoidance measures where the impact is only upon those avoiding the tax in question. This particular scheme would have resulted in individuals paying income tax at less than 5%. Preventing egregious avoidance is not a regulatory burden, none the less, HMRC reviewed the information it held. Most of the people who would have been affected by the measures were in the top 5% of earners, with a substantial proportion receiving an annual income over £100,000. They have been advised by professional tax consultants. HMRC was quite clear that the legislation would not apply to individuals, other than those seeking to avoid tax through the scheme. Let us be clear, HMRC was challenging the scheme, so its users should have taken reasonable precautions to ensure that they had funds to meet their liabilities. HMRC is not free to distinguish in principle between an individual who spent the money that should have been paid in tax and one who has not. In those circumstances, I urge my hon. Friend to withdraw his clause.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I am becoming less of a fan of these programme motions as time goes on.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

On a point of Order, Mr Bone. I thought the Finance Bill could not be cut short and we could debate finance matters for ever.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

The Public Bill Committee decided that

“the proceedings shall (so far as not previously concluded) be brought to a conclusion at 9.00 pm on Tuesday 26 June.”

So the answer is: you are wrong.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

On a point of order, Mr Bone, is such a programme order valid? Can it overrule the Standing Orders of this House relating to the Finance Bill?

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I thank the hon. Gentleman for his second point of order. First, this is not in the Standing Orders; secondly the House could overrule the Standing Orders anyway.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

This was a probing clause to get some comments from the Minister on the record about an issue of concern to many. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Question proposed,That the Chair do report the Bill, as amended, to the House.

Photo of David Gauke David Gauke The Exchequer Secretary

Before we conclude, I would like to say some brief words about the points of order. We have considered this Bill in great detail, and while we have not considered every sub-paragraph, we have discussed the range and depth of the measures before us. I am sure that the Opposition will shortly ask the Chancellor to put a report in the Library on the impact of our considerations. The hon. member for Kilmarnock and Loudoun said she had lost count. I can tell her, with the disposal of the civil service, that we have not, and that would make it the 28th request for a report.

Despite the lack of policy proposals, Opposition Members have certainly engaged throughout the 10 weeks of our deliberations. We heard the history of the European cup from the hon. Member for Bassetlaw, who made several entertaining interventions—I am sorry that he is not here. I should point out that the cup was won by a team in one of our Committee members’ constituencies, and I am certainly not talking about my hon. Friend the Member for Norwich North.

The hon. Member for Edinburgh East provided us with a detailed inventory of listed buildings in her constituency, for which we are grateful. We also had a reminder of the importance of pubs from the hon. Member for Livingston and from the hon. Member for Easington, who is sitting next to him and whose name escapes me for the moment—[Laughter.] I was never entirely clear during our proceedings exactly which one was Morris Major and which was Morris Minor, but I thank them for their contributions and determination to scrutinise even the drier elements of the Bill.

Shadow Ministers’ contributions have been equally engaging. Such has been their discipline and unity that, by the end of proceedings, they were even dressing the same. I am sorry that the hon. Member for Leeds West is not here. I understand that a refusal to wear a red jacket and a black blouse was the reason why the hon. Member for Pontypridd (Owen Smith) went on to—“bigger and better things” it says here, although I, for one, would dispute that being shadow Secretary of State for Wales was a bigger or better thing. I congratulate him on his elevation to the shadow Cabinet and thank him for his contributions, even if he did accuse us of clever dickery.

We must not forget the work of the hon. Member for Middlesbrough South and East Cleveland and my hon. Friend the Member for Chelsea and Fulham in ensuring that we have got to the end—in the end. Although we may have thought at times that the Mayans were right and the end of the world would come before the end of our deliberations on the Bill, or that we would at least reach Her Majesty’s platinum jubilee, we have seen off the final clauses in fine style and I thank the hon. Gentleman and my hon. Friend for their assistance.

I must not forget the contributions of my hon. Friends, which have been sharp, intelligent and, in most cases, short. Serving on a Finance Bill Committee is sometimes seen as a rather unappealing prospect, but I suppose it is better than being on the library committee, although my hon. Friend the Member for Amber Valley may have that opportunity before long. Together, my hon. Friends have enlivened our proceedings, for which I sincerely thank them, and I hope many of them will sign up for the Finance Bill in 2013.

I also thank my hon. Friends in our coalition party. Whether they had their notes or not, they have been great value.

I thank my hon. Friends the Financial Secretary and the Economic Secretary. Their help has been invaluable, as has been the quick work of my hon. Friend the Member for South Staffordshire.

I thank Mr Hood, Mr Sheridan, Mr Amess and, if I may say so, above all, you, Mr Bone, for your guidance throughout our debates. I was struck when my hon. Friend the Member for North East Somerset used the word “backbone” in an early debate. I thought that “Back Bone” must festoon posters the length and breadth of Wellingborough at every general election. We are grateful for your assistance.

As always, I thank Mr Patrick, the Hansard reporters and the Doorkeepers, who ensured the smooth running of the Committee. I thank them for all their help. I thank parliamentary counsel and officials from HMRC and the Treasury. At times, they have been genuinely inspiring to those of us standing here. I greatly look forward to Report and the Bill’s final stages.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education) 9:00 pm, 26th June 2012

The Exchequer Secretary is a difficult act to follow. He set the tone in thanking you, Mr Bone, who, as my hon. Friends said, are a very decent gentleman. You have chaired extremely fairly and allowed Members to express at length, when that has been necessary, their concerns about particular provisions. That has been much appreciated. Thanks also to Mr Hood, Mr Amess and Mr Sheridan, of whom we have seen less, but who have been equally fair.

I also thank Mr Patrick, the Committee Clerk, the Hansard reporters, who studiously write down every word we utter, and the Doorkeepers, who assiduously pass the notes from Hansard backwards and forwards as we try to explain our speedy mutterings.

The proceedings have been lengthy. I was inserted into the Committee as a replacement for my hon. Friend the Member for Pontypridd, who indeed refused to wear a red jacket and black blouse and for that has been banished to Wales. There was much disappointment in Committee when he left because he dealt with matters succinctly, and I know that my arrival slowed progress somewhat. However, I have tried to improve, and I think that we are all relieved that we have arrived at the end of our proceedings.

We have managed to scrutinise every clause line by line. Although we did not gain sufficient votes to get the reports placed in the House of Commons Library, for which, we still maintain, the Chancellor and the Treasury team should have provided, we have scrutinised the issues and all our concerns are firmly on the record. Today, we have gone from Angostura Bitters to Jammy Dodgers and we are all getting hungry and thirsty as we finish our deliberations.

I thank the representative bodies, which provide enormous help and assistance to the Opposition team in ensuring that the Bill is scrutinised. I particularly thank the ICAEW, which has been very supportive.

I thank the ministerial team, who have responded courteously and fairly to all the concerns raised. I thank my hon. Friends and others on the Opposition Benches, and also Government Back Benchers. All have contributed with great humour and spirit, but also great sincerity as we have debated very important matters. We look forward to further scrutiny on Report.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

Just to remind people, Mr Bone, that there are three parties, I should like to make one brief remark.

The hon. Member for Newcastle upon Tyne North mentioned that people may be hungry and thirsty, and it had been my intention, had we finished earlier, to invite everyone on the Committee to the Terrace for food and drink, not to bought by myself, of course. Those who know me will know that that would be an extremely unlikely invitation, but the annual tax reception of the Chartered Institute of Taxation, of which I am a member, is taking place on the Terrace this evening. I am sure that they will still be there, and there will be plenty of free wine and food, and the really good news is that no one will have listen to the speeches, because the Exchequer Secretary and myself made our speeches during the vote on the Opposition business earlier this evening. The invitation is to pop downstairs and have a free drink—we all deserve it.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Just before we conclude, I should also like to thank the doorkeepers and Hansard, but particularly Mr Patrick, the Committee Clerk, for the enormous  amount of hard work that goes on behind scenes in running the Finance Bill, most of which is never seen. We truly appreciate what you have done, Mr Patrick.

May I say to the Committee that this is the best Finance Bill Committee that I have ever served on? Every member has taken part. The scrutiny by the official Opposition has been very good, as has the scrutiny by the unofficial opposition. It was really pleasing to see so many members attending and paying attention throughout the Bill’s consideration. It is a great credit to all of you, and of course to the Government for the way in which Ministers answered all the questions asked. All of you can be very proud of what you have done.

As a small souvenir, you are allowed to keep your red or green boxes. I am nearly at the stage where I can have my own views again; this has been an awfully difficult 10-week period for me. The only thing that I had better do before we finish is put the Question.

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Committee rose.