---

Mr. Andrew Smith: Has not the Financial Secretary dug the hole deeper for himself by saying that the CSA's problems arose because it did two things at once? Are not the Government doing the same by changing to self-assessment and changing the basis for assessment from the previous year to the current year? They may be separate exercises, but they will greatly complicate procedures for the self-employed, and the experience will not be dissimilar from that of the CSA.

Mr. Jack: I shall deal with that in a moment. Thehon. Gentleman will be aware that there is already confusion in the way in which the current tax system operates. For example, for a business that has trading profits and an income from, say, renting accommodation, the accommodation is dealt with on a current year basis, and the trading profit is dealt with on a previous year basis. Self-assessment is about bringing them on to the same timetable. Surely that is a recipe for clarity, not confusion.

My hon. Friends the Members for Beaconsfield(Mr. Smith) and for Carshalton and Wallington(Mr. Forman) shone an important light on the reality of what we are dealing with, in their sage, short, but very important interventions. My hon. Friend the Member for Carshalton and Wallington helped to tease out the fact that self-assessment will not affect some 20 million taxpayers. For them, the world will not change. Their only instruction, if one likes, at this stage is to ensure that they keep hold of their records, because their circumstances might change in future, and they could become the subject of self-assessment. For those who do not receive a tax return, the basic message is that nothing will alter. We are discussing the situation for the 9 million taxpayers who receive a tax return.

My hon. Friend the Member for Beaconsfield was right when he pointed out that the matter has been thoroughly debated in the House. It was unworthy of the Opposition to worry people unnecessarily by picking up in the press at the beginning of the year a number of factors on self-assessment, for what I deem to be rather cheap party political advantage, when we are striving to reassure and educate people.

We have been working very hard on information for the taxpayer. None of this has been the invention of minds in the Inland Revenue or the Treasury. We consulted very thoroughly indeed in all the preparations. We havethe self-assessment consultative committee. It is representative of individual taxpayers, all sections of business, whether large or small, and it has contributed fulsomely to ensure that we refine the system to a state where it will work.

25 Jan 1996 : Column 528

My hon. Friend the Member for Beaconsfield touched on the trial in Leicester. I am not certain whether thehon. Member for North Warwickshire has been to one of our presentations in the House.

Mr. Mike O'Brien indicated assent.

Mr. Jack: I am delighted to see that he has. He will know how thorough we are on self-assessment. I wanted to know whether it would work, because I had rehearsed in my mind some worries, which hon. Members put before me this evening.

I was advised that a real-life trial was under way in Leicester, with 5,000 real taxpayers, who had been recruited by the Inland Revenue, which had written to employers, including local authorities and individual taxpayers, some with advisers and some without. The trial was proceeding successfully. The tax office was dealing with the forms. I said that I did not want to go on a glossy trip or just to see the computer screens. I wanted to meet some of the real taxpayers who were taking part.

Six people were selected. They included representatives, agents, self-employed people, a consultant--a whole range of individuals, even PAYE. They gave me quite a hard time. They gave a candid assessment of what it was like. It was interesting. Some had difficulty--those who, like me, take the video recorder out of the box, plug it in, press the buttons and wonder why it does not work. But those who read the carefully tailored instructions and went through them completed the form successfully. They made points to me about revising and refining the questions, and, as myhon. Friend the Member for Beaconsfield said, we have substantially cut the paperwork involved. We learned from the practical trial.

6.30 pm

I must tell the hon. Member for North Warwickshire that we are planning to go to Southampton this year with a trial of 13,000 real taxpayers. That makes this exercise fundamentally different from other major changes involving new information technology systems. We are trying the system out. We are not dealing with the untried and the unknown. We are making certain that we proceed on the basis of fact. It is a great pity that the hon. Member for North Warwickshire, who has teased out everybody's concern to form a speech in the debate, had not reflected on what we are doing.

The hon. Member for Gordon asked important questions. He posed an interesting point when he asked whether the Opposition had truthfully considered their position on this matter. He was right to ask that, because it strikes me that there are some consequences that they have not considered.

I wondered why, for example, the hon. Member for North Warwickshire did not take us through all the consequences of his amendment. He invites the House to support three amendments--two on delay and one on penalties--but he did not take us through the knock-on consequences. That is just shoddy. The hon. Member for Gordon might like to know that the Opposition did not propose any alternative mechanism for the Inland Revenue to collect taxes and make assessments in 1996-97.

25 Jan 1996 : Column 529

The opposition did not tell us precisely which parts of the self-assessment reform package they propose to defer.I wonder if they have given any thought to what is involved in delay. Cost savings will result, so has the hon. Member for North Warwickshire the express permission of the shadow Chancellor to say that he will underscore the extra cost involved in dishing out a further 4.5 million assessments, which result from delaying the system for another year? The hon. Gentleman seeks to delay the benefit that will accrue to the self-employed and those who are required to fill in a tax assessment.

I could go on, but it is clear that the hon. Gentleman, who gave the impression of having looked meticulously at every detail, has not considered the matter in detail. He is advocating that the House tonight should support a recipe for chaos. If the amendments were agreed to tonight, they would result in a complete muddle. Thehon. Member for Gordon is right. He has teased out an omission in the Opposition's case.

The hon. Member for Gordon also rightly asked about resources. The Inland Revenue is appropriately staffed to meet the requirements. I can assure the hon. Gentleman that the Inland Revenue is adequately resourced. The resulting staff reduction will be achieved by natural wastage. The very fact that we have invited EDS, one of the world leaders, to help to develop the IT system, shows our determination to ensure that the project is properly managed.

This week, I had the pleasure of going to the central point in the Revenue which is monitoring the implementation of the project. I can assure thehon. Gentleman that each and every aspect is being meticulously managed--from the point of view of IT, personnel and training. It is one of the most remarkable project management exercises. When it is done--I believe that it will be done successfully--people will admire the Inland Revenue for its professionalism and thoroughness. However, it is realistic. It knows that there will be problems. It does not shy away from that. But thehon. Gentleman was right to ask about that.

A moment ago, I centred on the facts of the matter. Why are we having self-assessment? I am grateful for the acknowledgement of the hon. Member for North Warwickshire that his party accepts self-assessment in principle. It has supported it in principle for two years. But all of a sudden, we hear various disparaging comments.

What we are seeing is the introduction of the Keith committee's recommendations. That process has been on the go since 1983. The current system of tax assessment is time-consuming, confrontational and, I think all would agree, unsatisfactory.

At present, the Inland Revenue will issue an estimated assessment to a self-employed taxpayer and, perhaps because of a delay in drawing up accounts or filing returns, there may be problems. If the assessment is not agreed, an appeal will have to be lodged and an application made to postpone tax payments. Every year, about 1.5 million such processes have to be considered by the special commissioners. If the taxpayer concerned has a source of income other than that from his business, he must go through the same process all over again.

25 Jan 1996 : Column 530

Under self-assessment, self-employed taxpayers--of whom there are about 4 million, so we have an interest in them, to which the hon. Member for St. Helens, South (Mr. Bermingham) adverted--will find that their self-employment income is taxed on the same basis as other income, as I said a moment ago. They will pay tax only on profits earned--no more, no less. That deals with the Opposition's attempt to run the scare story that there would be some double tax hit.

Let me take the hon. Member for St. Helens, South and his hon. Friends through a little exercise that I undertook. I wanted to be certain that I did not stand at the Dispatch Box and mislead people about the averaging process. My hon. Friend the Member for Beaconsfield put his finger on the important point that that process of averaging and catching up has now begun. If we were to support the Opposition's request for a delay, we would have an even more muddled situation on our hands.

I asked for an example of what would happen to a business earning a constant stream of taxable profit, which would mean that the tax demand would not change. The analysis was that neither would the payments. They would be the same in January and in July, throughout the years of introduction.

---