The Paymaster General (Dawn Primarolo) I beg to move, That the clause be read a Second time.
New clause 3 implements one of the recommendations of the Grabiner report, by making income tax fraud a specific criminal offence. The clause will not make income tax a criminal offence for the first time, as the Inland Revenue has had investigative and prosecuting powers for tax fraud under general criminal law for years. It does not break any new ground in its drafting, as it closely follows legislation enacted in 1998, concerned with fraud relating to national insurance contributions. There are also precedents in indirect tax legislation, such as that concerning value added tax.
The new clause has its roots in the Government's concern about what is called the informal, hidden, shadow or illegitimate economy. In the Chancellor's pre-Budget statement in November, he said:
The Chancellor therefore asked Lord Grabiner QC, a leading commercial barrister, to carry out a review of the informal economy and to examine ways to move the economic activity into legitimate business practice. His report was published in March, and the Chancellor announced in the Budget that he would implement his recommendations.
The report recommended several new incentives for people wanting to leave the informal economy. We believe that some people who run their businesses in that way want to engage in the legitimate economy. The informal economy can prevent the growth of such businesses because they can try to conceal cash flow by not completing their PAYE and VAT returns properly. That causes difficulties. The Government want to consider strategies to give businesses the opportunity to move.
One initiative recommended by the report is the tax and benefit confidential helpline, which was launched this week. It allows people in the informal economy to receive advice on a no-names basis on how to leave it, and describes incentives for them to do so. It explains to them what their tax position would be. Many one-person and other small companies in the informal economy are not properly aware of their rights. Although they may not pay one set of taxes, they might be entitled to other reliefs and proper advice can help them discover a balance.
Lord Grabiner also recommended new measures to take action against those who pass up incentives to move into the formal economy and who persist in concealing transactions. The new measures, including the new clause, will take effect from next year. The new clause creates a specific criminal offence of being
Specifically, that means collusion between an employer and employee to pay the employee cash that is not shown for the purposes of PAYE or national insurance. It also means that the employee has to make benefit claims because he has concealed the cash. A chain of events is created. There were no powers for us to deal with that, and Lord Grabiner considered that we needed to concentrate on such incidents.
The Inland Revenue already prosecutes some of the most serious tax frauds in the Crown court, usually for the common law offence of cheating the public revenue. However, Lord Grabiner considered that the Inland Revenue centred too much on prosecuting the largest frauds, to the exclusion of smaller but no less serious tax frauds committed by participants in the informal economy. As he noted, the difficulty in changing the emphasis is that there is sometimes no appropriate charge that can be used for trials in magistrates courts. Lord Grabiner believed that we needed to concentrate lesser charges in magistrates courts, which is what the power in the new clause enables us to do. The Government accept that magistrates courts should consider lesser charges than those that would be taken to a Crown court. Such offences are none the less serious; because such offences are criminal offences, they will be publicised and there will therefore be a deterrence effect. It is important to encourage people not to go down that route.
In England and Wales, the new offence will be tried in the magistrates court but that does not mean that the Inland Revenue can insist that a case is tried before the magistrates. There remains an option of trial by jury in the Crown court and magistrates may direct, without reference to the Revenue, that a case should be tried in a Crown court, if they take the view that that is warranted by the seriousness of the crime. All defendants have an unconditional right to elect to be tried in the Crown court.
Mr. Edward Davey (Kingston and Surbiton): Is that power of the magistrate to direct a case to the Crown court the reason behind subsection (2)(b), which provides for an offence, on conviction on indictment, that Lord Grabiner did not suggest in his report?
Dawn Primarolo: The hon. Gentleman is right. That provision gives the offence a proper place within the rights for election to the Crown court, although Lord Grabiner's view was that we should make such offences exclusively a matter for trial in magistrates courts. However, magistrates themselves have the power, and there is nothing that we can or should do to take it from them-to say without reference to the prosecuting authorities that a case is too serious to be tried in the magistrates court. The penalties available to the Crown court are different. Although Lord Grabiner focused on having an appropriate charge and a magistrates offence, which is what the new clause provides, we had to fit that within the criminal justice system. I am sure that members of the Committee would not expect otherwise.
The Inland Revenue will deploy an extra 50 members of staff to conduct the criminal investigation of such fraud, who will work as part of a special criminal investigation team in the Inland Revenue special compliance office. As at present, local tax offices will not carry out criminal investigations; that will be done by those who have the authority and sufficient seniority to decide whether a case should proceed to prosecution. Some of the investigations will also be carried out jointly with the Benefits Agency and sometimes with Customs and Excise, as Lord Grabiner recommended. That would lead to joint prosecutions and covers the point that I made earlier, particularly in relation to a company seeking to conceal a large amount of cash within the business; it is likely that in order to do that it would commit a number of offences.
The new clause puts the measure to combat tax evasion on a sounder footing, enabling us to deal appropriately with the offence. Anyone defrauding tax can no longer feel safe in the knowledge that our system of taking cases against them is cumbersome. We now have a direct route to the magistrates courts. It facilitates co-ordinated action across Departments against those who seek to defraud the tax and benefits systems simultaneously. I hope that the Committee will support the new clause.
Mr. Heathcoat-Amory: I should like to make a few observations in the light of the Paymaster General's helpful exposition of the thinking behind the new clause. The Opposition also believe that the informal economy often represents an evasion of tax that represents an unfair burden on the law-abiding public. We, too, look sympathetically on constructive and workable moves to bring more people within the proper tax system and to spread the burden of taxes as widely as possible. However, we are alert to the underlying philosophy of tax, which is that Governments should aim to create taxes that are low, simple and properly enforced. The Government are drifting into a situation in which taxes are rising. That is certainly true of the overall burden. Taxes are also getting more complicated. The Government are therefore ignoring the first two principles and putting increasing emphasis on the third-enforcement. I urge them to bear in mind the need to-to use a popular phrase-tackle the cause of the crime as well as the consequence.
The Paymaster General outlined the reason for giving the power in the first instance to the magistrates courts. We are dealing, almost by definition, with complicated matters. I have listened to the conditions carefully and I note that there will be provisions for transferring a case to the Crown court. I have a modest acquaintance with the magistrates courts-as an observer, I hasten to add-and although justices of the peace are a splendid and irreplaceable part of our court system, there are limits to their expertise and training in dealing with these matters.
How many extra cases does the Paymaster General envisage going before the magistrates courts system? How many extra cases might go to the higher courts? She mentioned the 50 extra staff for the Inland Revenue. That is a considerable extra effort. I was pleased to hear that there would be a separation of the prosecution and investigation functions within the Inland Revenue. That is most important, although she did not say exactly how the structure would give effect to that, whether the two sections would report separately or whether the separation would be more than just informal Chinese walls. However, I accept the hon. Lady's assurance that people investigating tax affairs should not also be involved in prosecution.
The main issue, which other hon. Members will also pursue, is the breadth of the new clause. The offence will be committed by those who are ``knowingly concerned'' in the fraudulent evasion of income tax. Such a case may involve a pensioner who asks the youngster next door to paint her garden fence and gives him a fiver at the end of the day. When challenged, she may say that it is up to him to pay any tax due, but that as he is young, has a personal allowance and a low tax liability, he is probably not liable to pay tax. Surely, it is not her job, as the customer in such a small transaction, to ask questions about whether the person to whom she gives cash has an income tax liability. Is not a £5 note legal tender? What crime is she committing? What is wrong with her settling her debt in cash?
As drafted, and if it is widely interpreted, the proposal would mean that that pensioner would be knowingly concerned. We all know about the cash economy and it is inconceivable to a reasonable person that any percentage of the £5 should end up with the Inland Revenue. Therefore, it could be judged that the pensioner was knowingly concerned. How far we have come from the traditional view that it is up to the taxpayer to settle his or her affairs and that the person settling the debt or paying for the service is not involved in the tax transaction between the taxpayer and the Revenue.
I hope and expect that the Paymaster General will say that the Government have no intention of tracking down trivial sums of money and persecuting the people involved, which would upset the relationship between the tax authorities and the taxpaying public. Nevertheless, there is no de minimis suggestion in the new clause, so we need to know what the Paymaster General understands by the phrase ``knowingly concerned'', which could affect not only people who pay or receive cash but even those who watch the transaction or who know about it.
For example, if I see my wife leaving money on the kitchen table for someone who has painted our garden gate, am I ``knowingly concerned'' in the fraudulent evasion of income tax? The net gets wider; perhaps all three of us will go to prison if some officious local Inland Revenue official happens to be watching a member of the informal economy doing odd-job work in my household. He may suppose that we are involved in some sort of racket, especially if he hears us say, ``That was a wonderful piece of work; I shall suggest that my neighbour also has his gate painted. Why don't you do the whole row and we'll all get together on it?''
The hon. Lady should tell us more about the phrase, which is worryingly imprecise, and which the courts could interpret very widely.
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