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Mr. Edward Davey: Will the hon. Gentleman confirm that the code on consultation allows the Government to introduce anti-avoidance measures without consulting, but that the Government have explicitly said that these measures are not about anti-avoidance?
Mr. Letwin: The hon. Gentleman, as so often on these matters, is absolutely right. First, this is not an anti-avoidance measure. Secondly, it does not tackle avoidance. Thirdly, the Government have admitted that, and fourthly, as he rightly said, the code specifically exempts anti-avoidance and some other measures from consultation. For example, it exempts measures that would be evaded if consultation about them took place.
However, this clause does not fall into that category. It is a classic case of a highly complex and important tax measure being introduced, about which there should have been consultation, and about which the code says there should have been consultation. There was no consultation, because the consultation took place about something else--the opposite measure.
I have written today to the Cabinet Secretary to ask him what is to be done about a Department that breaks its own code of practice. I have asked him what administrative sanctions apply, what a Department should do when such a contravention comes to light, and how its accounting officer should behave.
I have also asked the most important question. Hundreds of highly paid individuals in British industry--this is not my major point, but it is important--have spent a couple of years thinking about what the Inland Revenue has proposed, and they tried to answer its question. They spent a lot of time with their advisers, and that is expensive time. Perhaps it is some of the most highly paid time in the country, but all that was a total waste of time and money because they answered a question about cornflakes when they were facing electrocution.
I have asked the Cabinet Secretary what administrative redress and what ex gratia payment the Treasury and the Inland Revenue will make to people who have wasted their time because of a consultation exercise about the wrong thing. If the answer to my question is, as it may be, that there is no such redress, my advice to those sections of British industry would be to bring a class action and to test in court whether there can be redress in such a case. There jolly well should be.
I have outlined the history of the consultation exercise. I now come to the brilliant measure itself. How does it achieve its intended result? What is its intended result?
Mr. Stephen Dorrell (Charnwood): What is the purpose of the measure?
Mr. Letwin: That is exactly the right question. What is the measure's intended result? I admit to a profound perplexity on this matter. It is possible, although I hardly dare allege such a thing in such an august assembly as this, that the person or persons who invented the measure--I do not think that they are in the Inland Revenue at all--intended that it should raise a lot of extra money for the Exchequer. I hardly dare allege that,
because Ministers have denied it repeatedly and I know that they are honourable. However, someone somewhere in the Treasury--not a Minister, but certainly not in the Inland Revenue, because it consulted about the opposite change--had the brilliant idea that he could invent the most complicated and stealthiest tax of all time--a tax that he hoped no one at all would understand, which would raise a large sum of money. That is one possibility.The intervention of my right hon. Friend the Member for Charnwood (Mr. Dorrell) is particularly apposite to the other possibility, and my right hon. Friend the Member for Fylde (Mr. Jack) made the point forcefully on Second Reading. It is also possible that this is a simple case of a catastrophic administrative error, and the measure has no aim at all. The Government have not the slightest intention of achieving the results that it will achieve, or any other discernible results. They might simply be engaged on an acte gratuit to prove that one can be an existentialist Treasury. That is a possibility. Surely, we should follow the dictum that, when one has looked in all the possible places and not discovered the true answers--we know that they are not true because Ministers have denied them--we have to look in the impossible places. Therefore, I suggest that it is possible that the measure is an arbitrary action or a knee-jerk reaction. If so, it represents an interesting departure in administration. If tax policy is to be conducted on that basis--without warning and with or without consultation, but perhaps with consultation on the opposite--we may discover that all sorts of taxes are changed in the coming years. I rather look forward to that. It will be fun to stand at the Dispatch Box and watch them go by as one watches the symbols on a one-armed bandit.
The Temporary Chairman (Dr. Michael Clark): We are captivated by the hon. Gentleman's hypotheses, but we would be even more engaged if he discussed the substance of the clause.
Mr. Michael Jack (Fylde) rose--
Mr. Letwin: Before I give way to my right hon. Friend, may I wholly accept your admonition, Dr. Clark? I shall return to discussion of the clause.
Mr. Jack: I am grateful to have the opportunity to enable my hon. Friend to get back on track. He may recall that on Second Reading the Paymaster General gave us a hint of the missing reason for the proposal. In some way, it would have a remarkable effect in lowering high tax rates in other tax jurisdictions. Has my hon. Friend had a chance to consider the validity of that line of argument?
Mr. Letwin: I am now about to come to something really astonishing. This point relates directly to the clause, but my right hon. Friend and I are both suffering from an important form of selective amnesia. I have exactly the same memory as him of what happened in an exchange on Second Reading, so I read the Hansard report of what the Paymaster General said in response to him on Second Reading. Strangely enough, the report appears to be slightly different from my memory. I know that Hansard is always accurate, so my right hon. Friend and I--I assure you that we have not discussed this with each other, Dr. Clark--must have suffered from a collective hallucination. I am glad of that. If the Paymaster General
had said what we mistakenly supposed--contrary to the Hansard record--that she had said on that occasion, she would have said something so manifestly ludicrous that it would have been impossible to imagine that it could have come from a Minister of the Crown.
The Temporary Chairman: Is this hypothesis No. 2?
Mr. Letwin: No, Dr. Clark, because I shall come on to what the Paymaster General said in Hansard, which is one of the arguments now being alleged for the clause.
I hope that I can end this excursion simply by saying that I am unclear about what on earth the Government are trying to achieve by the clause. Therefore it is difficult to tell whether it will achieve its aim. However, it is clear what it will achieve. First, it will clobber British industry for about £4 billion a year--I may be wrong, but I am not wrong by the scale on which the Chancellor was wrong. It might be £3.5 billion--I shall grant the Paymaster General that--or it might even be £3 billion. There is not a serious set of accountants or business men in Britain today who think that the figure is much less than that.
When Pricewaterhouse first referred to that effect of the clause, the Government did something that takes us beneath the level about which we should joke. Instead of answering the point and investigating it seriously--to do them justice, I think that they have begun to do that, and I shall discuss the reasons why shortly--they impugned on the Floor of the House the honour and professionalism of a serious professional who is one of the partners of Pricewaterhouse. I regard that as gross abuse of parliamentary privilege. The Paymaster General should take that back on behalf of the Government or repeat it outside the House of Commons, which would mean that she would be sued for a serious amount of money.
Mr. Beard: Is the hon. Gentleman suggesting that when PricewaterhouseCoopers was asked for instances of companies that would suffer from the proposed legislation, it was not able to quote even one?
8.30 pm
Mr. Letwin: The hon. Gentleman, no doubt honourably and genuinely, is entirely misled about what happened within the Treasury. If necessary, I am prepared to go into the details of what happened, which I happen to know. I will not detain the Committee with that because I now propose to list those who have said exactly what the effects of the proposal will be--
Mr. Letwin: The hon. Gentleman tries my patience. It is true that the responses were subsequent, but 24 hours subsequent to the visit and before the Paymaster General's statement in the House. If we were to get to the seriousness of the matter, things could become very uncomfortable for Ministers.
We now have absolute clarity about what British industry thinks of the proposal. I will start with the
Institute of Directors. I suppose that Labour Members will think that it is prejudiced. However, it is pretty moderate on the subject. It states that it is
- a further blow to UK-based multinationals . . . The Government should withdraw this paragraph from the Finance Bill . . . and have a proper consultation prior to the Finance Bill 2001. The consultation in 1999 bears no relation to the UK system as amended by this paragraph, and is therefore worthless in this context.
- This clause introduces Schedule 30 containing a draft of radical and unheralded changes to the existing law on Double Tax Relief, particularly in relation to restriction of relief involving mixer companies. The biggest problem which business has with the provision is their adverse effect on the international competitiveness of businesses located in the UK.
- Companies of different sizes across the sectoral spectrum, whose business is vital to the success of the UK economy, have raised concerns about the adverse impact of the proposals.
- Specific problems are discussed below but the overall effect of the adverse changes . . . has been to create a situation where a number of commentators, including companies which have contacted the CBI, are saying that the UK will now have one of the worst, if not the worst, double tax regimes amongst the G7 nations.
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