House of Commons Hansard Debates for 8 Jul 1992

Column 401

discussed in Committee, the Leeds building society pointed out that if the 1986 regulations were validated retrospectively, that would throw out the composite rate tax for one or more years because of the way in which the rules calculated it.

The Revenue's regulations, in measuring the tax by reference to the period of a year, mean that if the period is more than a year the calculation is bound to be incorrect. It said that that would happen, and it did. That is why we have had to return to the matter in the Bill, and why it contains a retrospective clause, adding to the trail of retrospection.

8.30 pm

The Leeds obtained leave to bring judicial review proceedings and it has been joined by four other building societies--the National and Provincial, the Bradford and Bingley, the Scarborough and the Yorkshire. It is because of those proceedings that the Government have sought to block that avenue and to prevent the court from hearing the grievance and resolving the matter.

The Minister made much in Committee of the fact that the ground had shifted and that the building societies inevitably are now arguing a different part of the argument from where they started. That is because of the way in which the Government have dealt with the matter at every stage. Every time the societies have tried to have a real argument before the right court and have their grievance dealt with properly, the Government have taken from them the power to pursue the matter in that way. However, in doing so, the Government inevitably get it wrong and produce invalid legislation--so the societies can pursue their argument in subsequent proceedings.

All that the societies want or ever wanted is the right to have their original grievance heard and the right to the repayment of any tax that the courts find that they were overcharged--no more and no less. The societies have made depositions limiting their claims under the litigation so that they cannot involve anything more than the original grievance.

The amendment would not extend beyond the cases already entered upon and therefore could not open up the possibility of other building societies finding new grievances or claims that they could bring before the courts. The amendment is designed to enable the building societies with the original grievance to pursue it, but to gain no more. In Committee, we offered a perfectly satisfactory way by which the Government could contain the matter to the original grievance. However, they argued that if the matter could be pursued, theoretically £15 billion of revenue could be at stake. The amendment that I moved in Committee was designed to ensure that that could not happen and this amendment is similarly so designed. When combined with the clear declaration by the building societies, the matter would be confined to the original grievance.

It appears to us, to many outside the House and to many of the Inland Revenue's clients who are observing what is happening that in circumstances such as this the Revenue looks rather like a heavily armed, overcoated, trilby-hatted gangster, saying, "Nobody goes to court and gets the better of us--and certainly nobody goes to court, gets the better of us and lives to tell the tale." That is no stance for a revenue collection Department to take, least of all in relation to building societies.

Column 402

The societies ask for no more than that their grievance be properly heard in a court of law and that their opportunity to pursue the matter in the courts not be removed by retrospective legislation. The amendment would meet that need. I hope that the Minister, even at this hour and even though he did not accept the case in Committee, will feel able to accept the amendment.

Mr. Tim Smith (Beaconsfield) : The right hon. Member for Berwick- upon-Tweed (Mr. Beith) said that the Inland Revenue was not adopting an appropriate attitude in immediately moving to change the result of a court case that was not resolved to its satisfaction. I can understand why any revenue department would want to do that. The question is whether it is right for Parliament to endorse that decision--and that is what we must decide tonight.

As the right hon. Gentleman said, we considered the matter in considerable detail in Committee, so I do not want to rehearse its long history, even though I have been associated with it from the start. The position is now quite simple. Originally, there was considerable doubt about what Parliament intended. Whatever the Government may have said, in the debate on the Finance Bill in 1985, there was some doubt about what Parliament intended. However, whatever hon. Members may say, there can be no doubt about what Parliament intended when we debated the matter last year. Not one of the building societies could be in any possible doubt about that, because we had very long debates in Committee. John Maples, the then Economic Secretary, produced a great chart showing in graphic form how the income tax years matched the payment to be made of composite rate tax by the building societies. No one could be in any doubt about what was intended by Parliament and the Government last year. Whatever the building societies have said subsequently, they could quite clearly read what was intended in the Hansard of last year's debate.

I did not agree with last year's decision, because I thought that there was sufficient doubt about what Parliament had intended in 1985 not to warrant the introduction of retrospective legislation. However, the position is now different. The Leeds has, as it is perfectly entitled to do, had another try. Three sets of regulations relating to the payment of composite rate tax could have been subject to doubt for a long time as the case wended its way through the High Court, the Court of Appeal and the House of Lords.

The Government moved immediately to deal with that possibility, and I believe that they were justified in doing so, because there can be no doubt about what Parliament intended last year. There was originally some doubt about what was intended for the payment of composite rate tax in the transitional period. The Treasury's intention was to put the building societies on the same basis as the banks. They were paying interest quarterly, but the building societies were paying it annually. The dispute related to the transitional period. There was doubt about words that were uttered in this House and elsewhere about the Government's intentions, but no one who reads the Official Report of last year's proceedings can be in any doubt about what was intended.

Although I appreciate that there is a case for giving special consideration to those who brought legal proceedings before the date in the amendment, I still do not think that the House would be wise to accept it.

Column 403

Mr. Peter Bottomley : My hon. Friend the Member for Beaconsfield (Mr. Smith) made a helpful speech, although I take a different view. I pay tribute to him, because he and Patrick Jenkin first raised the issue in 1985.

I am prepared to accept that there was some ambiguity in the Government's intention in 1985. If they had clearly considered what their intention should have been, it would be that there should be no taxation for a period for which the tax liability had already been satisfied. Indeed, I do not think that the Government intended to impose taxation for a period for which the tax had already been collected--until part way through the year when, I suspect, the position changed from an excess of income to the Government saying, "It's getting a bit tight", and then to, "Where are the ambiguities, where are the opportunities?" I may be wrong, but it does not really matter. There was ambiguity : I concede that point to my hon. Friend the Member for Beaconsfield.

I made a mistake last year. The affected building societies were willing, prepared and keen to write to every one of their members asking them to raise the matter with their Members of Parliament and with the Government. I advised them not to do so, because I thought that there were signs that the Government would recognise that it was politically impossible and unjust to try to draw a division between the Woolwich and the Leeds. I declare a non-interest, as my mortgage is with the Woolwich, not the Leeds. The Woolwich has got its money. I was wrong last year, and I am prepared to say so. I feel some guilt because I realise that I was wrong. If 1 million letters had been written to Members of Parliament, the Government would have reconsidered dropping the gate after the Woolwich had applied for a judicial review--not a tax appeal--and then the Leeds would have had its money. It is interesting that it took more than five months after the House of Lords announced its result for the Government to decide and declare that they would not let the Leeds have the money. I have since discovered that, even if there were a tax appeal, let alone a judicial review, the Inland Revenue does not have to pay back money that is unlawfully levied on, demanded or accepted from taxpayers. I look forward to receiving in the next few days a whole series--a first wave--of parliamentary answers to certain questions. However, I do not intend to bring that into the debate.

I may have to apologise for the fact that, in an early-day motion, I described a certain calculation as a mathematical hoax which did not really demonstrate whether the composite rate was appropriate. If that accusation proves wrong, I will happily make a public apology to those concerned. I believe, however, that, given the exact calculation that is in the nature of composite rate tax, it is impossible to match the proceeds with the tax revenue that would have been there had taxpayers paid.

Let me give the Government some encouraging news. I do not think that many European Court decisions have been made about United Kingdom taxation. The Leeds case is clearly unjust, because a division cannot be made between the Leeds and the Woolwich ; that simply would not wash, no matter how many times retroactive primary legislation was sought. Once domestic remedies had been exhausted, any European action would abolish susidiarity and open the gates in a thoroughly undesirable way.

If the amendment is not accepted and cannot be rephrased, it would be right for it to be replaced by primary legislation. The Government used such legislation

Column 404

to try to clear up a possible ambiguity that could have operated in favour of the Revenue--or, at any rate, against the interests of the Leeds. I mention the Leeds again because it was that building society that first told the Government and the Revenue what the effect of the original regulations would be. There is some doubt about whether regulations 11 and 12 can be balanced ; let me stick to regulation 3. Regulation 3 clearly imposes a massive extra disadvantage on the Leeds and other building societies.

I may speak after the Minister if that is allowed ; or I may wait, and try to introduce primary legislation. I suspect that the Government would be beaten if a million letters were written to Members of Parliament. It would be necessary to find only about 10 hon. Members who accepted the injustice of what had happened--I refer not to the interpretation of last year's law, but to what has happened over the past five or six years--to resolve the matter by means of primary legislation.

As my hon. Friend the Member for Beaconsfield implied, what has happened in regard to the judicial review of composite rate tax is no surprise. Last year, I made an announcement on the Floor of the House. There was no need for the Government to act after the general election, and nine months or so after I had warned them that last year's legislation would not work.

Let me make a suggestion to my hon. Friend. I am not trying to bring in all the hon. Members who advanced other ideas in Committee ; but I suggest that, although it is acceptable for the Government to keep their £15,000 million minus £90 million, it is reasonable to allow the £90 million to be decided by the courts. The Government believe that they have an overwhelming case--so overwhelming that they are introducing primary legislation to ensure that they do not lose. If the matter is not put to the vote, we shall return to it again and again--not just in Europe, but here as well.

Mr. Dorrell : I am acutely conscious that the whole story of the change in the basis of composite rate tax, as it affects banks and building societies, is not a particularly happy saga. I know that I am the latest in a run of Ministers who have had to deal with various aspects of that transition. I assure the House, and in particular my hon. Friend the Member for Eltham (Mr. Bottomley), that if I felt that there was a way of producing an agreed resolution of the problem--based either on the formal wording of the amendment or on what my hon. Friend and others have said in the weeks since I took responsibility for such matters--no one would be keener than I to find a compromise which was fair to all taxpayers and ensured that the will of Parliament was implemented as it concerns the transition from the old basis of collection to the basis which applied between 1985 and 1988. Indeed, no one has a stronger vested interest in that regard. I do not believe, however, that such a compromise is possible.

8.45 pm

The House must be clear about the issue that is addressed in clause 63--as it has now become, following the Committee stage. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) offered a brief history of the evolution of that issue, and I do not dissent from the bare bones of what he said. The building societies' sense of grievance arose because they thought, and still think, that the imposition of the transitional tax during the "gap"

Column 405

period in 1985-86 was unfair ; they felt that it constituted what my hon. Friend the Member for Eltham described, in shorthand, as double taxation.

Although that was not the issue which was decided in the Woolwich case, it did underlie that case. As a consequence, the House and the Standing Committee considering last year's Finance Bill addressed the issue head-on, and concluded after detailed debate--this is the important point--that the transitional arrangements provided in last year's legislation should be implemented in law.

Mr. Peter Bottomley : May I clarify the issue for the sake of those who may occupy the Financial Secretary's seat if he is promoted before the next legislative stage? The courts did not decide the double or extra taxation for a period for which taxation liability had been satisfied because the first set of retroactive legislation had established that the matter was settled by Parliament and not by the courts' interpretation of the first part of the primary legislation and the regulations.

Mr. Dorrell : I shall not seek to interpret the rulings of judges. I am clear about the basis on which I am advised that the Woolwich case was decided ; I am equally clear--and I do not consider it a subject of dispute --that the issue on which the case turned was not the issue of double taxation. Even if it was, however, that issue was addressed head-on in last year's Finance Act, which confirmed provisions for the collection of tax during the transitional period. Parliament considered the grievance felt by building societies during consideration of last year's legislation ; it examined the arguments in detail and rejected them. Parliament confirmed that it wanted composite rate tax for 1985-86 to be collected on the basis provided in last year's Act.

Because the building societies accept that last year's Act provides a clear and proper basis for the imposition of tax during the transitional period, a case has been brought which seeks to challenge not the tax levied during the transitional period, but the mainstream collection of composite rate tax during the four-year period between 1985 and 1988. As more than one hon. Member has pointed out, the composite rate tax yield in that period amounted to £15 billion. Because the practical effect of the case currently in the courts is to undermine the legal basis on which £15 billion was collected, the Government introduced clause 52, which has now become clause 63. I agree entirely with my hon. Friend the Member for Beaconsfield (Mr. Smith). I make no apology for saying that we were right to introduce that clause to remove any doubt about whether that £15 billion was properly collected.

As I said in the Standing Committee, I do not think that it is possible to consider the arguments put forward in Committee and on the Floor of the House last year about the imposition of tax during the transitional period and fail to conclude that it was understood in all parts of the House and by all parties outside that what was under discussion was the imposition of transitional tax in addition to the collection of composite rate tax during that four-year period. I put it to the House that it was understood last year that, once we had agreed the transitional tax, the only practical effect would be to net the transitional tax off the mainstream composite rate tax liability so that the taxpayer would pay no more than he

Column 406

would have done if last year's provisions had never made it to the statute book. If it were otherwise, why on earth did the House spend hour after hour discussing last year's Act? It is patently absurd to suggest that we spent hours discussing tax legislation which would not make a penny piece of difference, either to the total amount of tax paid or to the conditions in which it is levied.

Mr. Bottomley : Let me put my question in a different way. Why on earth should the Leeds have had a duplicate application for judicial review --it used the same firm of solicitors on exactly the same piece of law-- when the Government came along and used a pair of scissors between the Woolwich and the Leeds? I do not blame the Government or the Inland Revenue ; it is up to Parliament to decide what ought to be the law, and it is for the courts to interpret it. At Somerset house there is a taxpayers' charter which says that cases between taxpayers and the Revenue can be heard by an independent tribunal, but we are being told today that that cannot be done. The House understands the point about the £3,000 million. The amendment would allow the Government to keep the £15,000 million, minus up to £90 million which might be at risk if the Leeds and other building societies were to continue their cases. It seems to me that that is an unanswerable answer to my hon. Friend.

Mr. Dorrell : My hon. Friend invites me to look at the difference in treatment between the Woolwich and the Leeds. Both societies have a year end of 30 September and are, broadly speaking, in comparable positions with regard to the transitional arrangements. It is not in dispute that, from its own perspective, the Leeds has not been treated so generously as the Woolwich. Clearly that is true, but the issue was faced head-on in last year's debate. This has not been landed on the House as a surprise ; it was consciously considered during the passage of last year's Bill. As hon. Members know very well, the disparity between the two building societies is the result of the fact that the Woolwich won its court case on a different point. The judgment went in its favour and the Government, in accordance with well-established precedent, took the view that they could not legitimately take away what are loosely termed the fruits of victory.

The effect of the court ruling was that the Woolwich was treated more generously than the Leeds, but that did not arise as an unintended consequence of last year's legislation, which was designed to confirm Parliament's intention.

Mr. Bottomley indicated dissent.

Mr. Dorrell : My hon. Friend shakes his head. Surely the intention is that taxes should be collected in accordance with the legislation. Nobody argues that last year's legislation is ambiguous. I do not need to enter into the argument, which was mentioned by my hon. Friend the Member for Beaconsfield and by my hon. Friend the Member for Eltham, about whether the earlier legislation was ambiguous. The House considered last year's legislation, knowing that it produced a disparity of treatment between the Leeds and the Woolwich and, weighing all the factors, concluded that it should be passed. Now we have a building society which, because it does not like the decision that Parliament reached last year, is bringing a legal action concentrating on a quite different point as a proxy for the argument that it lost.

Column 407

Mr. Bottomley : My hon. Friend is being very helpful, but I should like to offer a couple of thoughts. In the mid-1980s the Leeds did not want to pay the tax, and did its best to avoid paying. The Government came along and changed the law. Obviously Parliament is more important than the Leeds or the Woolwich and can try to get away with that sort of thing. What had clearly been accepted as being unlawful became lawful, and the Woolwich won the money in the House of Lords. Then the Government came back to divide the Woolwich from the Leeds. For the sake of this discussion, I shall leave the other societies aside.

It was argued in Committee and on Report that it was open to the Leeds to come to an agreement with the Revenue so that the benefit of the Woolwich case would apply to it. Padmore was quoted. In my view, that was not a parallel. We all accept that in a tax appeal case one cannot necessarily expect to secure the benefit. However, I believe that in the case of judicial review there is not one precedent of the Revenue's asking for agreement that judicial review should apply to somebody else. In what circumstances and for what purpose does the benefit of a statement of the law in the House of Lords apply to the taxpayer? It is automatically assumed that it applies to the taxpayer. Therefore, the basis on which the House proceeded last year was pretty well flawed and certainly unjust.

Mr. Dorrell : The House needs to understand the background to the decision that was reached last year. The courts did not rule that the transitional arrangements were unjust or that they constituted double taxation. I have deliberately skirted round the subject. To clarify the issue, to ensure that the House is clear about why we proceeded as we did last year, I remind hon. Members that the Woolwich ruling was handed down not on the ground that there had been double taxation and that, therefore, the transitional arrangements were ultra vires, but on the ground that the rate at which the transitional tax was collected had not been properly calculated. We were talking about a relatively small variant at the margin ; we were not talking about an attack in the judge's ruling on the central provisions of the transitional arrangements. That is why it would have been wholly unjust to conclude that, because the Woolwich won its case on that technicality, it was right to throw away the whole basis of the transitional tax arrangements.

That was the issue that Parliament had to address last year, and Parliament concluded that it would not be right to waive the transitional arrangements during that four-year gap. That is why the House concluded last year that, despite the undoubted disparity of treatment between the two building societies, it was right to confirm that the original intention was to levy transitional tax during the four-year period. This year, the Leeds and its co-litigants, having had that issue decided against them last year, are seeking to use the law courts to prolong what is essentially a political argument. The point that I feel most strongly about is that it is not a proper and legitimate use of the law courts to seek to pursue through the law courts a disagreement that the Leeds building society and its co- litigants have about a decision that Parliament reached last year. The judge has no status for providing a ruling.

Column 408

9 pm

Mr. David Trimble (Upper Bann) : Nonsense.

Mr. Dorrell : The hon. Gentleman says nonsense. The judge is perfectly entitled to rule that something is ultra vires, but if this House reaches a decision by proper and due process I do not believe that in a parliamentary democracy it is open to a judge to seek to reconsider a decision that has been properly reached by due process. The effect of the action that the litigants are now bringing has led to the Government tabling clause 63 in this year's Finance Bill in order to put the matter beyond doubt.

Mr. Trimble : I apologise for intervening as I am not entirely familiar with the background, but surely the Leeds is entitled to go to law and to make an application for judicial review. At the very least, the proper course to take is to allow the Leeds to go to court for a decision.

Mr. Dorrell : I do not dispute for one second the right of the Leeds building society to go to law. Everybody is entitled to access to the courts. I am seeking to ensure that the £15 billion of revenue--

Mr. Trimble : What has that to do with it?

Mr. Dorrell : I will tell the hon. Gentleman precisely what it has to do with it. The effect of the clause is to remove from the judge the opportunity to rule that £15 billion of revenue was improperly collected. It is avowedly retrospective--something about which the House is properly sensitive ; it flows inevitably, however, from the consequences of the decision that the House reached last year.

Mr. Matthew Carrington (Fulham) : I was not a member of the Committee which considered this year's Finance Bill, but I was on the Committee which considered last year's Finance Bill, and I remember that these matters were debated at considerable length and in considerable detail. The Government's position with regard to the Leeds building society was made very clear at that time. The Leeds can be under no misapprehension : it knew that this legislation was going to be passed this year to establish the position. For the Leeds to complain now that this has come as a surprise and that it was not expecting retrospective legislation is unreasonable in the face of the very long debates that we had last year.

Mr. Dorrell : I agree entirely with my hon. Friend. He is an expert witness. He will remember better than I the arguments in Standing Committee and on the Floor of the House. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) and the whole Opposition Front Bench team remember it in great detail. The effect of the decision that the House reached last year was to confirm the transitional tax arrangements during the transitional period.

Both last year's legislation and this year's legislation are avowedly retrospective. The effect of the amendment would be to revisit the decision that the House made last year. I have not been convinced by the arguments that I have heard this evening, and have heard at length both in the Standing Committee and outside the House from those interested in the case, that we should revisit that decision. I believe that the House reached the right decision last year, and I invite it to confirm that decision today.

Mr. Beith : Talk of revisiting last year's decision is a bit rich coming from the Government, who framed the

Column 409

legislation in such a way that we were bound to revisit it. If they had got the arrangement right last year, there would be no debates this year, no basis for the judicial review and nothing for the Government to be frightened of.

If the Minister is so confident of his case, why does he not let the court go ahead, and make arrangements to appear there on behalf of the Revenue, arguing with similar confidence that the litigants do not have a leg to stand on? That would be a more impressive way of handling the matter.

The Minister is wrong to keep waving the figure of £15 billion at us. It is clear that the combined effect of our amendment and the depositions already made would restrict the sum involved to precisely that which was at issue in the first place.

I am perplexed by the Minister's fundamental argument. He sought to persuade the House that we should not revisit last year's decision because the House had clearly decided last year, after a controversial debate, the basis on which the tax should be collected. The Minister said that the mechanism of allowing the judicial review to proceed was therefore not a satisfactory way to deal with what he acknowledged was a serious grievance. Without admitting the argument, he acknowledged that there was a reasonable matter for dispute here. At the beginning of his speech he said that if he could find a way to secure a compromise which would allow the grievance and the dispute to be considered and dealt with, he would have found one, but that he did not wish the House to revisit its decision on last year's Finance Bill.

During his speech the Minister advanced no satisfactory reason why he could not find a compromise and devise a method of his own choosing to deal with the matter. He has not convinced those of us on both sides of the House who have shown concern about the issue that the societies should not be permitted to go to court. Even if we accepted his argument that it would be undesirable for the court proceedings to go ahead, and undesirable for the House this year to put into question the decision that it made last year, we should still ask why he did not seek methods of his own choosing to find out whether a voluntary arrangement could be made with the societies. He has dismissed all the proper legal routes and refused to make any compromise. In view of that, I cannot do other than ask the House to vote for the amendment.

Question put, That the amendment be made :--

The House divided : Ayes 127, Noes 258.

Division No. 58] [9.07 pm

AYES

Ainger, Nick

Ainsworth, Robert (Cov'try NE)

Banks, Tony (Newham NW)

Barnes, Harry

Battle, John

Bayley, Hugh

Beggs, Roy

Beith, Rt Hon A. J.

Bell, Stuart

Berry, Roger

Betts, Clive

Bottomley, Peter (Eltham)

Boyce, Jimmy

Bruce, Malcolm (Gordon)

Burden, Richard

Byers, Stephen

Callaghan, Jim

Campbell, Ms Anne (C'bridge)

Campbell, Menzies (Fife NE)

Campbell-Savours, D. N.

Cann, James

Chisholm, Malcolm

Clapham, Michael

Clarke, Eric (Midlothian)

Clarke, Tom (Monklands W)

Coffey, Ms Ann

Connarty, Michael

Cook, Frank (Stockton N)

Corbyn, Jeremy

Cousins, Jim

Cryer, Bob

Cunningham, Jim (Covy SE)

Dafis, Cynog

Dalyell, Tam

Davidson, Ian

Davis, Terry (B'ham, H'dge H'l)

Next Section

Home Page