Office of Tax Simplification

Finance Bill – in a Public Bill Committee at 3:45 pm on 7th July 2016.

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

With this it will be convenient to discuss the following:

Amendment 140, in schedule 25, page 569, line 2, at end insert

“, subject to subsection (4A).

(4A) The chair of the OTS will be appointed by the Chancellor of the Exchequer with the consent of the Treasury Committee of the House of Commons.”

Amendment 141, in schedule 25, page 570, line 21, leave out from “considers” to end of line 22 and insert

“sufficient for the OTS to fulfil its duties.”

That schedule 25 be the Twenty-fifth schedule to the Bill.

Amendment 142, in clause 173, page 254, line 32, after “contributions” insert “and tax reliefs”.

Clause 173 stand part.

Amendment 137, in clause 174, page 255, line 5, after “Exchequer” insert

“or as the OTS considers appropriate”.

Amendment 138, in clause 174, page 255, line 13, leave out “Chancellor of the Exchequer” and insert “OTS”.

Clause 174 stand part.

Amendment 139, in clause 175, page 255, line 26, leave out “Chancellor of the Exchequer” and insert “OTS”.

Clauses 175 to 177 stand part.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

Clause 172 and schedule 25 place the Office of Tax Simplification and its governance arrangements on a permanent statutory footing. I will also cover the other clauses in this group. The Government are making these changes to reinforce the OTS’s independence, ensure that it can play a greater role in public debate, and expand its role and capacity to advise the Government on tackling complexity in the tax system.

I would like to provide hon. Members with some background to the changes. The Government established the OTS as a temporary, non-statutory office of the Treasury in July 2010 to provide the Chancellor with independent advice on options for addressing existing complexity in the tax system. Since then, the OTS has made more than 400 recommendations to simplify the tax system, almost half of which have been implemented by the Government. To ensure that the OTS continues that important work, the Chancellor announced at summer Budget 2015 that the Government intended to put the OTS on a permanent statutory footing in this Bill.

The changes made by clause 172 and schedule 25 put the OTS on a statutory footing and strengthen its governance and operations. The OTS board must include the OTS chair and tax director and representatives from the Treasury and HMRC. In addition, the chair may nominate up to four further non-executive members to be approved by the Chancellor to provide the board with additional challenge and guidance.

Clauses 173 to 175 specify the enhanced functions and operations of the OTS. As part of the OTS’s expanded role, it will be able to provide advice on the simplification of the tax system as it considers appropriate, which is something that it has never been able to do before, as well as undertake reviews on areas of the tax system at the request of the Chancellor of the Exchequer. Where the OTS has conducted a review at the Chancellor’s request, he must publish a response.

The new OTS will also be more accountable and transparent. Clause 175 requires the OTS to publish an annual report on the performance of its functions. To ensure the OTS’s long-term effectiveness, clause 176 requires the Treasury to review its work every five years and stipulates that such reviews must be published. Clause 177 gives the Treasury power to appoint the day when the legislation establishing the OTS will take effect. That will be done by the end of 2016.

If I may, I would like to respond briefly to amendments 137 to 142, which would amend clauses 174 and 175 and schedule 25. Amendment 137 would allow the OTS to conduct reviews on aspects of the tax system as it considers appropriate. Clause 173 makes a provision for the OTS to provide advice to the Chancellor on aspects of the tax system as it considers appropriate, which is a power that the OTS has never had before. That is appropriate to its advisory role.

Amendments 138 and 139 would provide for the OTS to lay reports before Parliament. The OTS’s role is to advise the Chancellor on aspects of the tax system. It does not have a scrutiny function. It is therefore right that the Chancellor, who is accountable for the Treasury and its independent offices, should publish and lay the OTS reports in Parliament. The Chancellor also has the ability to make statements regarding OTS reports when laying them in Parliament. The OTS does not have that ability.

Amendment 140 would require the Chancellor to seek the approval of the Treasury Committee before appointing a new OTS chair. The role of the OTS is to advise on the simplification of the tax system; it does not have an Executive function. It is for the Chancellor to make the final decisions on tax policy while balancing the competing objectives of simplification, fairness and growth. The Government are nevertheless clear that the independence of the OTS is critical to its success and that is why we have strengthened the OTS’s board and introduced legislation that will put it on a statutory footing. The Bill will allow the OTS to advise the Chancellor on the simplification of the tax system as it considers appropriate, which it has not been able to do before. The Government believe that these measures, as well as the Treasury Committee’s right to hold a post-appointment hearing for the OTS’s chairman and tax director, are sufficient to achieve the independence proportionate to the function of the OTS.

Amendment 141 seeks to ensure that the OTS has the funding it needs to carry out its functions. The amendment is not necessary. The Treasury has increased the OTS’s budget by nearly 50%, expanding its capacity with up to 10 full-time employees—an increase from six in the previous Parliament. Finally, amendment 142 looks to include tax reliefs in the OTS’s remit. That is not needed as tax reliefs are already in the scope of the OTS’s remit. Clause 173 provides for the OTS to give advice on the simplification of the tax system, which encompasses tax reliefs. I therefore urge Members to reject the amendments.

May I take this opportunity to thank John Whiting for his services to the OTS as tax director and congratulate him on his recent appointment as a CBE? He has served the OTS with much distinction and he will be greatly missed when he moves on. He has put a huge amount of effort into getting the OTS not only up and running but functioning well over a number of years.

The Government are committed to a tax system that is simple to understand and easy to comply with. The OTS has a key role to play in that. By tackling the big complexities in the system, the OTS can make a genuine difference to taxpayers. Establishing the OTS on a permanent, statutory footing will reinforce its independence and ensure that it can continue to provide robust and independent recommendations to the Government on simplifying the tax system. I hope that the clauses and schedule will stand part of the Bill.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee 4:00 pm, 7th July 2016

We will not press our amendments to a vote, but I want the Minister to understand our rationale for tabling them. As he has already explained, these clauses and schedule 25 make provisions for the OTS’s governance, operation and functions. We support the measures, as we believe that the OTS made some valuable contributions during the previous Parliament to informing debate about taxation and challenging the Government, but we believe strongly that it should be clearly independent. As such, we have tabled amendments to try to beef up the Bill in that regard.

Amendment 140 would amend schedule 25 to specify that the chair of the OTS should be appointed by the Chancellor of the Exchequer with the Treasury Committee’s consent, as is the case with the Office for Budget Responsibility. We think that that is a sensible approach to ensure the impartiality of the OTS. I am sure that the Minister is aware that Labour has placed on record its concerns about the OTS being used for political purposes. We therefore think that the consent of the Treasury Committee to the appointment of the OTS’s chair would be beneficial, and it would be helpful to hear the Minister’s thoughts about that idea in principle.

Amendment 141 would ensure that the Chancellor was not able to refuse to provide funding for OTS inquiries that he did not deem to be within its remit, as I understand could be the case as the Bill currently stands. The amendment would make it harder for the Chancellor to refuse to fund inquiries.

Amendment 142 would insert tax reliefs specifically into the OTS’s functions, allowing it to review the best way to simplify the ever-growing number of tax breaks and reliefs. The Opposition are concerned that there does not seem to be an effective process to review the efficacy of those tax breaks and reliefs in achieving their desired aims, and it would therefore be sensible to insert tax reliefs directly into the functions of the OTS.

Amendments 137 and 138 relate to the reports and reviews that the OTS will produce. Amendment 137 would clarify that the OTS could produce reports as it considered appropriate, not just at the request of the Chancellor, and amendment 138 would allow the OTS directly to lay reports before Parliament. As the Bill currently stands, the OTS will report to the Chancellor, who can then lay those reports before Parliament. The amendments would give the OTS greater independence and accountability to Parliament, not just to the Chancellor.

We will not press the amendments to a vote, but I hope that the Minister will take time to consider and address the Opposition’s concerns about the Bill as drafted and that the Government will be willing to move on those issues in due course.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I am grateful for the hon. Lady’s remarks in support of the OTS. I addressed many of her points in my earlier remarks, but let me briefly come back to the point about independence. The role of the OTS is fundamentally different from that of the OBR. The OBR is a scrutinising body. Rather than the OTS having an Executive function, its role is to provide advice to the Chancellor on simplification of the tax system. Ministers then make the final decisions on tax policy and are held accountable for those decisions.

The hon. Lady expressed concern that the OTS’s independence is at risk because the Chancellor could withhold funding because the Treasury do not like what the OTS is doing. I do not think that is a real risk. It is worth making the point that the OTS budget has been expanded, providing it with the funding that it needs. It is also worth highlighting the OTS’s expanded role in providing advice on the simplification of the tax system as it considers appropriate, as opposed to where it has been given a specific remit.

I touched on many of those points in my earlier remarks, but I wanted to take this opportunity to reiterate them. I am pleased that there is cross-party support for the existence and role of the OTS and welcome that this afternoon.

Question put and agreed to.

Clause 172 accordingly ordered to stand part of the Bill.

Schedule 25 agreed to.

Clauses 173 to 179 ordered to stand part of the Bill.

We now come to new clauses. Before I start with Government new clause 7, it might be helpful to point out to the hon. Member for Aberdeen North that we will take the free-standing new clauses in the name of her hon. Friend the Member for Kirkcaldy and Cowdenbeath at the end of the Government new clauses. She has been very patient and if she hangs on a bit longer, her moment will come.

New Clause 7