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6.15 pm
The problem with new clause 4 is that it applies not only to clause 54 but, rather oddly, to the relatively innocuous clause 51. It extends an extra layer of judicial review to distraint or distress procedures. Clause 51 merely extends to customs dues the existing distress provisions which currently apply to all indirect taxes except customs dues: it does not change the 150-year-old laws in any other way. I accept that the Opposition are acting in the right spirit of trying to get things right, but I hope that I can convince them that in this instance they are not right, for the following reasons.
First, new clause 4 involves a significant administrative burden. If passed, it would be damaging for the recovery of outstanding unpaid taxes and lead to increased revenue loss. I will give an example. Current month-end arrears of VAT and direct taxes--let us not forget that this applies to Inland Revenue direct taxes as well as to Customs and Excise indirect taxes--amount to some £5.8 billion. New clause 4 requires both Customs and Excise and the Inland Revenue to seek prior judicial supervision: a court order would have to be obtained to begin action to recover unpaid debt. It thus seeks to overturn more than 150 years of a tried, tested and effective method of recovering taxes. In my time as Exchequer Secretary, I have not, to the best of my knowledge, received any complaints about the existing system. For 150 years, Customs and Excise and the Inland Revenue have used those debt recovery powers without significant problems. They have those powers because they are involuntary creditors: unlike private individuals and commercial interests, they cannot vet and choose their customers and stop supplies or credit at will.
Any delay in debt recovery will have a marked effect on the flow of funds into the Exchequer. For example, a delay of only seven days in the recovery of tax and VAT arrears would cost £100 million. Court judgment and execution would delay recovery by at least 28 days, resulting in a loss of some £450 million to the Exchequer. I invite the hon. Member for North Warwickshire (Mr. O'Brien), given that he has accepted our tax and spending plans, to say how that hole would be made up.
There is a fundamental misconception that there is no judicial supervision of the procedure. If taxpayers wish to dispute demands for unpaid or undeclared tax liabilities, they have a right to appeal. With regard to Customs and Excise, it can take the dispute to an independent VAT and duties tribunal, and if necessary, it can appeal to a higher court. In such a dispute, all recovery action is suspended in respect of any amount. It is policy that debts are sent for recovery under the distress or distraint procedures only if they are already established and overdue.
To put into context how onerous new clause 4 would be, Customs and Excise and the Inland Revenue have 375,000 distress cases per year. They are all authorised at a responsible level and all subject to having been to a VAT tribunal or the relevant judicial body if they are disputed. If, after those disputes have been settled, or the taxpayer has had the opportunity to settle the dispute at a VAT tribunal or other judicial body, collection also required prior and continuing court supervision, the volume of cases would flood the courts. It would pretty well double the number of cases before the courts and place a prohibitive administrative burden on Revenue Departments and the Lord Chancellor's Department.
In a sense, the new clause would put the Inland Revenue and Customs and Excise at a disadvantage compared with ordinary private or commercial interests trying to collect debts. Customs and Excise may already have gone to a customs tribunal, a VAT tribunal or another judicial body, and would then have to go to court for a second time whereas a private individual or a commercial interest would have to go to a court only once. If they won the case, the court would then supervise the debt collection. The measure would thus be onerous and expensive, and it would increase the cost for each tax defaulter by about £40 per warrant.
The hon. Member for North Warwickshire said that there is supervision in Scotland, although he acknowledged that things are different in Scotland. Indeed they are. We tried to establish in Committee the fact that the sheriff court does not allow for any appeal or appearance by a defaulter. In Committee, the shadow Chief Secretary made a brief appearance and suggested that in Scotland a defaulter might be able to introduce a caveat. As I said after he left the Committee, before the debate had ended, that is not the case when a defaulter comes up against a Government Department such as Customs and Excise or the Inland Revenue. Thus it is not true to say that there is judicial supervision allowing for an appeal in Scotland. What the hon. Gentleman proposes today goes way beyond what happens in the sheriff court, which in any case is very different.
There is another problem with the new clause. I understand that it applies only to England and Wales and not to Northern Ireland. There may be a reason for that, but if the clause is to be consistent it should also apply to Northern Ireland.
The new clause would be very expensive. It would also change distress procedures that have been carried out for 150 years without any great problems. It has nothing to do with attachment, which relates only to clause 54 and which we have already agreed to defer. The new clause would give tax defaulters far greater protection in the rest of the United Kingdom than in Scotland, and would thus increase the imbalance between England, Wales, possibly Northern Ireland, and Scotland. I cannot understand why the Opposition would want that.
For those and other reasons, I strongly urge the House, in the interests of all taxpayers, to resist the new clause.
Mr. Mike O'Brien:
Amid some not very good points the Minister also made some good ones, but before dealing with them I want to answer the hon. Member for Beaconsfield (Mr. Smith). I happen to have with me the text of the Official Report of our Committee proceedings when the Exchequer Secretary was replying to the hon. Gentleman, who had been discussing the differences between clauses 51 and 52. The Minister seemed then to accept that there was a legitimate case for concern, and went on to deal with the business of regulations. The problem in Committee was that we were discussing clauses 54, 51 and 52 all at once--they got jumbled up in one debate.
Our concern, as outlined by the shadow Chief Secretary, was to establish the fact that, whereas rules in Scotland protect citizens there, they do not apply in the same way in England and Wales--or in Northern Ireland.
We were not dealing with the new powers in clause 54 specifically: we were worried in general about the difference between Scotland on the one hand and England and Wales on the other.
Mr. Oppenheim:
I can probably help the hon. Gentleman. The situation is certainly rather confusing, and clauses 51, 52, 53 and 54 are related to one another. The Scottish question arose not primarily because of concern about the standard distress provisions in clauses 51 and 52, but because of how those provisions related to clause 54 in terms of attachment and arrestment--Customs and Inland Revenue being able to go into people's accounts. That power already exists in Scotland, and it was alleged that taxpayers there enjoyed better protection because of the intervention of the sheriff court. That extra power of arrestment in Scotland does not exist in England--hence the confusion. There are certainly links, but because we have dropped clause 54 and its powers of attachment and arrestment for the United Kingdom, the situation does not now arise.
Apart from anything else, the new clause will cause problems because it will introduce a further judicial tier for ordinary distress or distraint cases. That extra provision would be massively expensive and time consuming--although for some reason it would not apply in Northern Ireland--and it would create a major imbalance between Scotland and the rest of the United Kingdom because it would give tax defaulters much more protection in the latter than in the former.
Mr. O'Brien:
The fact remains that in Scotland there is supervision by a sheriff. Just because a power has lasted for 150 years, that does not mean that it is adequate. So why have Governments left matters so as to allow no supervision of distraint by courts in England and Wales but to allow sheriff courts in Scotland to exercise some supervision?
The Minister says that we are introducing a number of terrible measures and creating an extra layer of judicial supervision. It is, however, a very limited layer. No one suggests that the powers of judicial supervision should go much further than those exercised in Scotland where, as the Exchequer Secretary told us in Committee, there is merely a limited power to check that all procedures have been properly complied with and that documents have been properly prepared. That is what we suggest should happen here: we want the same sort of supervision to apply in the same sort of way in England, Wales and Northern Ireland. I do not accept that this will involve any more delay than is experienced in Scotland, where there appears to be little or no delay. If there were delays, I assume that the Government would have ended them by now.
The Government accept the Scottish situation, so I cannot for the life of me see why there should be less protection for citizens in England and Wales. I have listened to the Minister's points, some of which--certainly those in relation to Northern Ireland--were valid. I can also see that the word "supervision" denotes a certain looseness in the drafting which might be tightened up at a later stage. Therefore, if the Minister has nothing to add at this point, I beg to ask leave to withdraw the motion.
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