Standing Committee H
Thursday 18 May 2000
[Mr. Frank Cook in the Chair]
(Except clauses 1, 12, 30, 31, 59, 102 and 113)
[Continuation from column 278]
Mr. Ottaway: I beg to move amendment No. 63, in page 161, line 26, after `Treasury', insert—
`after consulting the industries concerned'.
This is a simple, straightforward but important amendment. Paragraph 49 deals with the question of energy-intensive installations. Paragraph 50 states that
The Treasury may make provision by regulations for varying the installations covered by paragraph 49.
That is rather peremptory. Our amendment would oblige the Treasury to consult before making such regulations. I am fairly sure that the Financial Secretary will tell me that it would not dream of doing otherwise, but it seems appropriate that the obligation to consult should be in the Bill.
Mr. Timms: The hon. Gentleman has partly anticipated my response. The intention of the provision to make regulations to vary installations covered by paragraph 49 is that the list should keep in step with the installations in parts Al and A2 of the pollution prevention and control regulations. They give effect to the requirements of the IPPC directive that we talked about before our break. The regulations are currently out for consultation, so it is not possible to given the final list of installations in paragraph 49. Any changes will be made only after the consultation.
If there are any changes to the regulations in future, paragraph 50 will allow the installations covered by paragraph 49 to be varied accordingly. The proposed regulations will be subject to parliamentary approval. The affirmative procedure will apply, so there will be an opportunity for fulfil parliamentary consideration. I hope that the hon. Gentleman finds that reassuring.
Mr. Ottaway: I find that reassuring, and I am grateful to the Financial Secretary for that reply. We wanted to hear that there would be consultation, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 102, in page 165, line 9, at end insert—
`(g) the making of a taxable supply gives rise to a double charge to levy within the meaning of paragraph 19A.'.
No. 103, in page 165, line 13, after `supply' insert—
`(or, in such a case as is mentioned in sub-paragraph (1)(g), one of the supplies)'. [Mr. Timms.]
Mr. Ottaway: I beg to move amendment No. 114, in page 170, line 40, leave out `10' and insert `3'.
The Chairman: With this it will be convenient to take the following amendments: No. 112, in page 171, leave out lines 7 and 8.
No. 113, in page 188, leave out lines 32 and 33.
Mr. Ottaway: The amendment deals with a technical point about the interest on amounts assessed. If a credit has been wrongly claimed because of an innocent mistake, a high rate of interest could be charged. In our judgment, that is disproportionate. If penalty interest is to be charged, the commissioners should have to show fraud or negligence on the part of the levy payer. The Bill adds 10 percentage points to the rate already specified in the Finance Act 1996.
Paragraph 68(8)(c) excludes acting ``in good faith'' from the scope of ``a reasonable excuse''. In our judgment, that will merely make matters worse. Amendments Nos. 113 would delete that provision and give the tribunal much more discretion if a genuine mistake has been made for one reason or another.
The tribunal will have extraordinary discretion. As I am sure the Financial Secretary will point out, under paragraph 68(6) it will be able to reduce the amount payable to nil. However, such wide discretion for the commissioners strikes us as inappropriate. That is why we believe that the additional rate should be three percentage points, rather than 10 as provided for in the Bill.
Mr. Timms: As the hon. Gentleman says, amendment No. 114 would reduce the rate of penalty interest to three percentage points above what might be termed ordinary interest, from 10 percentage points as provided for in paragraph 68(5), but only in circumstances involving an overclaim of credit or interest.
Penalty interest is set at a higher rate to provide both commercial restitution for money outstanding and an element of penalty. The penalty element is payable only when the trader has made an erroneous claim for repayment of levy or interest. In addition to ensuring that the Treasury is not treated as an inexpensive alternative to a bank, the penalty acts as a disincentive to carelessness falling short of dishonesty, and is proportional to the amount involved. However, as with all such matters, a safeguard has been provided in that customs can mitigate the penalty in circumstances of genuine difficulty or, failing that, the trader can appeal to an independent tribunal against the imposition of penalty interest.
In proposing a reduction to three percentage points above the ordinary rate of interest that is applied to levy on returns that are submitted and paid late, the hon. Gentleman is drawing a distinction between penalty interest due under paragraph 68, which he wants to reduce, and penalty interest due under paragraph 84, which would remain at 10 percentage points above the ordinary rate. The same provision can be found in the arrangements for the landfill tax, which the previous Government introduced. A valid distinction cannot be drawn between the two sets of circumstances. I hope that that will provide us with a consensual basis for the provision, and that the amendment will be withdrawn.
Amendments Nos. 112 and 113 would delete the references to one of the cases that is not considered to constitute grounds for reduction of the penalty for a default that gives rise to penalty interest or a civil penalty. The Bill specifies three cases that are not to be taken into account—insufficiency of funds; no loss of levy; and good faith. The amendments would delete the references to the third case—good faith on the part of the person liable to pay the interest or penalty or a person acting on his behalf.
Section 70 of the Value Added Tax Act 1994, which a Conservative Government introduced, albeit a considerable time ago, contains exactly the same provision. If Opposition Members want to argue against the provision, it is incumbent on them to justify doing so on the basis of circumstances that do not also apply to value added tax. I do not believe that the hon. Gentleman has done so.
Mr. Letwin: I hope—[Interruption.]
Mr. Vernon Coaker (Gedling): I hear thunder. It must be a warning.
Mr. Letwin: It is indeed.
The Financial Secretary raised two important points. We were aware of one of them, but not the other. He was right to refer to paragraph 84. We did not table an amendment to that and I accept the Financial Secretary's logic that there is no reason for amending paragraph 68 and not paragraph 84. If the hon. Gentleman is to take the right action, he should amend both. The same logic applies to VAT about which we are well aware although, alas, clearly the Financial Secretary is not. I forgive him for that because is a busy man. We have prepared a policy statement to the effect that significant changes should be made to how VAT is levied. Included in that statement is the idea that it should not be presumed that people are guilty.
I accept the Financial Secretary's point that we are as responsible as the present Government for the problem—more so, genetically. The sorry history of VAT is that it should have been brought within the scope of the Inland Revenue for various reasons, which I shall not trouble the Committee with. It landed up in the hands of HM Customs and Excise because, for other historical reasons, that organisation had always been charged with tasks in which they had generally to find villains, and the presumption was always one of guilt. Unfortunately, that logic has applied to the Bill.
If the private citizen, when claiming back what is probably the most complex and horrible tax since advance corporation tax, is to be charged a 10 per cent. penalty rate—a fine—when he has acted in good faith under the terms of the Bill, surely when Customs and Excise makes error, it should pay a penalty. I accept that customs always acts in good faith in the sense that its officials are not out for themselves and carry out their duties as well as they can. However, its officials make mistakes because, like the rest of us, they are only human. There should be some symmetry. It cannot be right that, when the private citizen acts in the same way as another private citizen who happens to be employed by the state, a penalty rate is payable in one case, but not in the other. That situation is unjust. I admit that such an injustice runs through some other parts of tax legislation. I hope that the Financial Secretary will attend to it and, if he does not accept the amendment, that he will table his own proposal later in our proceedings.
Mr. Timms: The hon. Gentleman often has a nice line in attacking the actions of previous Conservative Governments, and I would not want to deter him from exploring such territory. In defending paragraph 84, I feel that I am on safe ground. It reflects what is in the landfill tax regulations and associated legislation, which was introduced by the right hon. Member for Wells, so I know that he agrees with me at least on the matter under discussion. The rate will not be applied to a private citizen because the levy applies only to business. The arrangement has been set in that context.
Mr. Letwin: I am grateful to the Financial Secretary for saying that. In due course, I shall cut out and frame that part of the excellent Hansard report of our proceedings. It shows the essence of the Government's approach to the measure, which is that they do not regard business as consisting of individuals. It is an extraordinary idea. Business is, is it not, a private activity involving private individuals? We are drawing a contrast between those private activities of private individuals that will be clobbered and the public activities of other individuals that will not be clobbered.
Question put, That the amendment be made:—
The Committee divided: Ayes 7, Noes 18.
Division No. 13]
Dorrell, Mr. Stephen
Faber, Mr. David
Jack, Mr. Michael
Letwin, Mr. Oliver
Ottaway, Mr. Richard
Simpson, Mr. Keith
Stunell, Mr. Andrew
Allen, Mr. Graham
Best, Mr. Harold
Cawsey, Mr. Ian
Clapham, Mr. Michael
Coaker, Mr. Vernon
Colman, Mr. Tony
Gardiner, Mr. Barry
Healey, Mr. John
Johnson, Miss Melanie
Kemp, Mr. Fraser
Lawrence, Mrs. Jackie
Leslie, Mr. Christopher
Pond, Mr. Chris
Rammell, Mr. Bill
Timms, Mr. Stephen
Winterton, Ms Rosie
Question accordingly negatived.