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Column 976

Maxwell-Hyslop, Robin

Mayhew, Rt Hon Sir Patrick

Michie, Mrs Ray (Arg'l & Bute)

Miller, Sir Hal

Miscampbell, Norman

Mitchell, Andrew (Gedling)

Mitchell, Sir David

Moate, Roger

Monro, Sir Hector

Morris, M (N'hampton S)

Mowlam, Marjorie

Mudd, David

Newton, Rt Hon Tony

Nicholson, David (Taunton)

Nicholson, Emma (Devon West)

Norris, Steve

Onslow, Rt Hon Cranley

Paice, James

Patnick, Irvine

Pawsey, James

Peacock, Mrs Elizabeth

Pendry, Tom

Portillo, Michael

Price, Sir David

Raison, Rt Hon Timothy

Rathbone, Tim

Renton, Rt Hon Tim

Ridley, Rt Hon Nicholas

Roberts, Wyn (Conwy)

Rowlands, Ted

Sackville, Hon Tom

Scott, Rt Hon Nicholas

Shaw, Sir Giles (Pudsey)

Shaw, Sir Michael (Scarb')

Shelton, Sir William

Shepherd, Colin (Hereford)

Shersby, Michael

Sims, Roger

Skeet, Sir Trevor

Smith, Tim (Beaconsfield)

Spearing, Nigel

Spicer, Sir Jim (Dorset W)

Stanley, Rt Hon Sir John

Stevens, Lewis

Stewart, Andy (Sherwood)

Stott, Roger

Taylor, Ian (Esher)

Taylor, John M (Solihull)

Tebbit, Rt Hon Norman

Temple-Morris, Peter

Thatcher, Rt Hon Margaret

Thompson, D. (Calder Valley)

Thorne, Neil

Thurnham, Peter

Townsend, Cyril D. (B'heath)

Tracey, Richard

Twinn, Dr Ian

Viggers, Peter

Wakeham, Rt Hon John

Waldegrave, Rt Hon William

Ward, John

Wardle, Charles (Bexhill)

Wells, Bowen

Wheeler, Sir John

Widdecombe, Ann

Wilshire, David

Wolfson, Mark

Wood, Timothy

Tellers for the Noes :

Mrs. Teresa Gorman and

Mr. Graham Riddick.

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House requests the Select Committee on Members' Interests to study and report further on the questions raised by its Report (HC 135) relating to :

(i) the definition of outside interests and the enforcement of obligations in relation to declarations of outside interests by honourable Members ; and

(ii) the procedures whereby complaints may be brought before the Select Committee and whereby the Select Committee investigates such complaints ;

together with such other questions as might appear to it to arise therefrom.

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Column 977

Tax System

Motion made, and Question proposed, That this House do now adjourn.-- [Mr. Sackville.]

10.51 pm

Mr. Tim Smith (Beaconsfield) : I am grateful for the opportunity to raise the subject of the administration of the tax system. There can be no doubt that in many, perhaps most, respects, the administration of the tax system has improved out of all recognition since 1979. First, and most important, income tax rates have been cut at all levels, while the yield has risen. In 1979, the standard rate of income tax was 33 per cent. ; today it is 25 per cent. While the rate has been cut by nearly a quarter, the yield has risen by nearly 10 per cent.

When the top rates of tax were 83 per cent. and 98 per cent. on earned and unearned income respectively, the incentive to avoid tax could hardly have been greater. A great deal of time and energy was spent by some bright people in the late 1970s devising tax avoidance schemes. Rossminster, although best known for such schemes, was only the tip of a large iceberg.

Secondly, income tax has been further simplified by the introduction of relief at source for mortgage interest, and by the extension of tax deduction at source to bank as well as building society interest. That means that millions of PAYE taxpayers have a tax coding that consists solely of a personal allowance, and do not need to complete a tax return each year.

Furthermore, as well as the welcome reduction in tax rates, allowances for alimony, forestry and deeds of covenants to individuals have largely been abolished, resulting in simplification in those areas.

Thirdly, Inland Revenue staff numbers have fallen. In 1978, there were 85,000 staff. In 1989, there were 68,000. It is worth noting, however, that in 1960, there were only 56,000 and in 1950, 50,000. Fourthly, receipts per Inland Revenue employee have increased considerably in the past 10 years from about £1.1 million in 1980 to about £1.6 million in 1989. Those changes have occurred at a time when the number of schedule E taxpayers has grown substantially to nearly 30 million in the current year and when the number of self-employed has grown even more rapidly to more than 2.5 million. As a member of the Public Accounts Committee, I am well aware of and welcome the improved efficiency of the Inland Revenue. The Revenue probably publishes more information about its management planning, its budgetary and management information systems, its application of information technology and its work measurement than any other Government Department.

The most recent annual report of the Revenue contains five paragraphs entitled, "Reducing the Burden on Business". It explains that the best administrative procedures simplify the job for everyone--for taxpayers, businesses and the Department. It says that proposals for new legislation or changes to existing policies are all assessed for their likely compliance costs for business. The aim is to assess and where possible to quantify the effect on compliance costs for businesses and other taxpayers whenever the Revenue advises Ministers on policy issues. The report also refers to the annual programme of reviews

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of existing regulations introduced in 1988 to complement the systematic compliance cost assessments for new proposals. As part of that programme, the Inland Revenue undertook a review of PAYE communications with employers. Other recommendations from efficiency scrutinies deal with the construction industry tax deduction scheme and schedule D procedures. All those improvements in the administration of the tax system are most welcome.

However, I believe that the time has come for a much wider review. It should start with the aims and objectives of the Inland Revenue. The 1986 public expenditure White Paper listed 10 factors that are considered when proposals for changes in direct taxation are being evaluated. The sixth was the effect of the proposals on increasing or reducing the complexity of the tax system. The eighth was the compliance burden on employers, businesses and other taxpayers. In the 1990 White Paper, those 10 factors are reduced to five. There is no reference to the effect of proposals on the complexity of the tax system, but the fact is that the tax system is becoming more and more complex each year. The volume of tax legislation is growing at an alarming rate.

In the 10 years from 1980 to 1989, there have been 12 Finance Acts. Between them they contained 1,335 sections and 200 schedules, and they took up 2,185 pages. The Finance Act 1989 was the largest in history. It has 188 sections and 16 schedules and it runs to 275 pages.

There are two reasons why that volume of legislation is unacceptably high. The first relates to the costs that it inevitably imposes on the Inland Revenue and on taxpayers. The second relates to the burden that it places on the House of Commons. I want to deal with each of those reasons in turn.

There is now an overwhelming acceptance within the business community and, I am sure, the Inland Revenue, that our tax system is needlessly diverting an increasing number of highly trained personnel within the accountancy and legal professions, not to mention people building up and running businesses of all kinds, from work of far more importance to the nation. The complexity of tax legislation is undoubtedly one of the main reasons why the Inland Revenue is continually losing expensively trained staff to the private sector. I am convinced that the resources of the Revenue could be used far more effectively--for example, in pursuit of the black economy and in the development of various specialist units.

A further result of fiscal complexity is that many statutory provisions and judicial dicta are in practice overlooked because of the sheer impossibility of tax practitioners and the Inland Revenue being aware of everything in the statutes, statutory instruments, statements of practice, extra-statutory concessions and other Revenue pronouncements.

So the complexity of our tax legislation ties up a lot of talented people who could be put to more productive use, and it brings the law into disrepute, since it cannot be fully enforced. For those reasons, I believe that simplification should be given much greater political priority. I am sorry that it has been dropped as a consideration from the 1990 public expenditure White Paper, and I hope that it will be reinstated. Of course, I understand that Ministers have other important priorities when considering the contents of a Finance Bill, but I firmly believe that simplification

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should be moved up the agenda. Last year's Finance Bill was the largest and probably the most complex in history. I hope that this year's Bill, which will follow my right hon. Friend the Chancellor's Budget on Tuesday week, will not set a new record.

I recognise that if simplification is to be given greater emphasis, the case must first be made that the present system is damaging. As I have said, it creates inefficiencies, and results in the misallocation of scarce and highly trained resources. We now need a full inquiry into the matter. I hesitate to recommend a royal commission as I know that that would not find favour : I simply point out that it is nearly 40 years since the last full inquiry, which was a royal commission, into our system of taxation.

It may be that such an inquiry would conclude that the only realistic way in which we can simplify tax legislation is by abolishing taxes. The abolition of capital gains tax would certainly be most effective in that respect. The inquiry should examine all the options, but it should have relatively narrow terms of reference. It should not be asked to conduct a comprehensive review of United Kingdom taxation, but should be invited to focus on the volume and complexity of tax legislation, and to assess the cost to the Inland Revenue and compliance costs to taxpayers. It should be asked to examine the growth of tax advice as a source of business for accountants and solicitors and to estimate the cost to the nation of that waste of talented resources. It should take into account the cost to the taxpayer of the constant poaching of Inland Revenue staff and should look at all the options for simplifying tax legislation and make recommendations. The Inland Revenue, taxpayers and their advisers should be represented on such an inquiry and it should have an independent chairman.

Secondly, I shall deal with House of Commons procedure and consider briefly the burden that a Finance Bill of the size and complexity of that produced last year places on hon. Members. This is, of course, an old chestnut. As long ago as 1978, when he was shadow Chancellor of the Exchequer, my right hon. and learned Friend, now the Leader of the House, argued in his Addington speech for the introduction of a technical tax Bill.

I am sure that my hon. Friend the Minister is familiar with the argument. It is that most of the clauses in the annual Finance Bill are wholly technical. Those that are political--for example, changes in tax rates and allowances and the introduction of new tax reliefs--are relatively few. Lumping them all into a Bill which is not published until five months of the parliamentary year have already elapsed, means that parliamentary scrutiny is inevitably rushed and inevitably focused on the political elements.

I do not seek to denigrate the efforts of those who serve on the Standing Committee. They do the best they can in the circumstances, but I was responsible when I worked for the Institute of Chartered Accountants in England and Wales for the preparation of our annual submission on the Finance Bill. It was always the most unbelievable rush. We had to allow each of our 90,000 members the opportunity to comment, but we had to finalise our submission within two or three weeks of publication of the Bill if it was to have any influence at all either on Treasury Ministers or on members of the Committee. It is true that in recent years the Treasury has done more to consult interested parties about prospective tax

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