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Mr. Deputy Speaker: Order. It may help if I remind the House that the Bill, as its long title says, is a measure
- To restate, with minor changes, certain enactments relating to capital allowances.
9.15 pm
Mr. John Burnett (Torridge and West Devon): Before coming to the Chamber to debate the Bill, I had a very quick look again at the Capital Allowances Act 1990. I do not pretend to find the Bill a particularly relaxing or amusing read, but it is certainly far better than the obscure and arcane provisions that it will replace. I also wish to pay tribute to Lord Howe of Aberavon, his steering committee, the consultative committee and all the individuals who have contributed to bringing the Bill forward, now or in the past.
The Bill's layout makes the difficult subject of capital allowances more easy to follow. The contents section is useful and intelligible and acts almost as an index to the Bill.
The initial clauses provide a useful introduction to what the Bill proposes to cover and include helpful and general points leading into the specific allowances for specific items of expenditure. The headings on each page are also helpful. The accompanying notes are detailed and intelligible and provide a good guide to the Bill's provisions.
Before I raise some policy issues in relation to capital allowances, I shall make a general point about the drafting of the Bill. I am sure that members of the steering and consultative committees would agree that deeming provisions should be avoided at all costs. However, these provisions continue to creep into the Bill. I refer the Paymaster General to clause 297(2), for example, which relates to industrial buildings allowances. The subsection begins:
- This Part has effect in relation to the person to whom the relevant interest is sold as if . . .
In response to an intervention by the hon. Member for Christchurch (Mr. Chope), the Paymaster General said that she would write listing the omitted extra-statutory concessions--in other words, the concessions that will remain that will not be incorporated into the Bill. I hope that she will send me a copy of that letter.
Dawn Primarolo: My explanation was correct in that if the extra-statutory concession could go into the Bill to
improve the legislation and was clear, it went in. I can give the hon. Gentleman the lists: on clause 23, extra-statutory concession B50; on clause 29, extra- statutory concession B16; also roads on industrial estates, extra-statutory concession B3. Those were incorporated. There are remaining extra-statutory concessions: these are B1, part of extra-statutory concession B16, and extra-statutory concession B49. Those were not incorporated either because they would have made the legislation more complex, would have removed flexibility or because we felt that other changes would be more appropriate. I have placed my understanding on the record. I am grateful to the hon. Gentleman for allowing me to do so.
Mr. Burnett: I am grateful to the Paymaster General for responding in her usual courteous and prompt manner. However, we believe that it would be beneficial to deal with tax legislation in primary or sometimes, necessarily, in secondary legislation.
As the hon. Lady knows, the concessions to which she refers and which are not included and also statements of practice impact upon capital allowances. Concessions that are not included and statements of practice do not have legislative force, but they are frequently relied on by taxpayers and their advisers. It is time that we as the legislature ensured that those important concessions--that is, those that have been omitted--and statements of practice were debated and given the force of law. At least that would provide certainty for taxpayers.
Although the Bill will be given detailed scrutiny in Committee, I shall raise two matters of principle in relation to the capital allowances legislation, and I ask the Paymaster General to consider them between now and the Committee stage. My first and main point relates to balancing charges, particularly as they impact on the small business sector.
As the House knows, for plant and machinery generally, if the asset is a short-life asset, the allowance will be 25 per cent. on a reducing balance basis. At present there is a first-year allowance of 40 per cent. Long-life assets have a 6 per cent. per annum capital allowance, again on a reducing balance basis.
I hope that we shall get some certainty about the rates of capital allowances and the law. Since they were elected, the Government have chopped and changed on those allowances, which causes confusion for the business sector and taxpayers generally, and makes business planning and development difficult.
The Bill defines small companies and small businesses. I refer the House to clauses 47 and 48. The problem for the small business sector is that the balancing charge comes in one hit. All the disposal proceeds from the sale of the relevant asset are brought into account in the year of receipt. I hoped that the Government would consider for small businesses and small companies the introduction of a balancing charge on a reducing balance basis. In other words--
Mr. Deputy Speaker: Order. I am sorry to interrupt the hon. Gentleman. He may not have appreciated the full import of the ruling that I gave earlier--that it is not permissible in this debate, on this Bill, to move into areas of policy or to put forward suggestions about changes of policy in respect of capital allowances.
Mr. Burnett: I am grateful to you, Mr. Deputy Speaker, and I take your point. I wanted to give the
Paymaster General an indication of some of the topics that might be mentioned in Committee. I hope that in due course we will have a more benign system in relation to balancing charges for small businesses and small companies.The second point, which I have previously raised on the Floor of the House and which I will not labour further, is the matter of capital allowances for sea-going vessels that are not ships--that is, floating production and storage offshore vessels and drill ships. They should be brought into the short-life asset regime, as are ships, to assist our British shipyards.
Mr. Deputy Speaker: Order. The hon. Gentleman is not paying attention to what I said. He cannot speak about policy matters.
Mr. Burnett: Thank you, Mr. Deputy Speaker.
I seek a further assurance from the Paymaster General. Capital allowances legislation will probably change with every Finance Bill. It has done so in the past 10 years, and I dare say that it will continue to do so. Will the hon. Lady assure us that in any future changes, drafting techniques similar to those in the Bill will be used, and any changes to capital allowances legislation will be incorporated into the Bill? We do not want to go back to the position of taxpayers and practitioners having to hunt around numerous Finance Acts to get to the law on capital allowances. Simplification should continue.
The Bill is welcome. Nevertheless, the policy remains complex, so the Bill remains complex. It is up to the Government to simplify, not complicate, tax policy. For many, tax simplification is a contradiction in terms, but the Bill simplifies the law on capital allowances, includes some welcome policy simplification, and is far more comprehensible than the existing law.
I congratulate Lord Howe, the steering committee, the consultative committee and all those who contributed to the Bill. We shall support it.
9.25 pm
Mr. Michael Jack (Fylde): I welcome the introduction of the Bill as one of the first fruits of the labours of those who established the tax law rewrite process and the process of simplification. I declare various interests in the Bill. All Members of Parliament have an interest because the Bill contains provisions dealing with capital allowances and MPs' accommodation. I have declared business interests, and those businesses would also be of interest under the Bill.
I congratulate the Paymaster General and my hon. Friend the Member for Croydon, South (Mr. Ottaway) on the way in which they eventually introduced the debate on this measure. Tonight is an unusual event in the consideration of any legislation on taxation and finance by the House. We are discussing the whole of the tax legislation on capital allowances at the same time, whereas Finance Bill debates usually consider only small parts of it. It is an education in itself to be able to see the tax code in its entirety, and to appreciate the interaction of one part with another. When Finance Bills are drawn up and enacted, we are usually concerned only with the part of the Bill that affects the law on capital allowances.
Part of the problem that the rewrite exercise has had to cope with and which the Bill seeks to address is the almost Topsy-like way in which our law is modified over time, but we are never able to stand back and see the total effect.In her opening remarks, the Paymaster General said that this exercise was not simply about rewriting a plain English version of the tax on capital allowances. I have always likened it to the equivalent of the plain English version of the Bible, because the drafters of that had the same problem of making the message more accessible and understandable without changing the fundamentals. In drafting the new English version of the Bible, they referred to many original texts as well as to the King James version, and in even more difficult circumstances they faced the problem of ensuring that the basic message was not altered. It is right to pay tribute to the rewrite exercise, because it has not fundamentally changed the law on capital allowances.
Much has already been said about the complexity of our tax law, and that is replicated and underscored by the provisions of the Bill. As tax practitioners know, we live in a complicated world, and tax has had to adapt to that. That is why such complexities are incorporated, albeit in clearer terms, in this new legislation.
My hon. Friend the Member for Croydon, South said that this Chancellor enjoyed fiddling with the tax system, sometimes with the aim of achieving questionable results. Even in its redrafted form, the capital allowances legislation replicates some of the inevitable fiddling that has taken place over time. Again, it is worth considering the consequences of that approach in a little more detail.
One aspect emerges with remarkable clarity in the new Bill. I refer to the number of clauses dealing with anti-avoidance legislation. Much of the difficulty of any part of our tax code reflects the fact that, over time--and again in a piecemeal fashion--the legislation that the Bill seeks to replace has had to cope with people's efforts not to pay their taxes, or, in this instance, to adapt an allowance for greater advantage. Any such activity is usually detrimental to the generality of taxpayers, in that costs rise and, somewhere in the tax firmament, someone must pay.
Let me make a general observation. If we are to proceed with the exercise of clarification, the accounting profession, the business profession and indeed the Inland Revenue will have to revisit the difficult territory of tax avoidance. I know that the Government have already shied away from general avoidance legislation, and I think they were wise to do so at this juncture, because it is difficult territory; but much of the complexity of this Bill and others reflects the problem of protecting revenue, and preventing abuse in the tax system.
I want to concentrate on three subjects: the tax law rewrite exercise itself, the contents of the Bill and the implications of the first two issues for the future of tax law reform. Any analysis of the Bill raises interesting questions about what could happen, and what would be the next stages. There may be opportunities for Ministers to consider changing or enlarging the remit of the rewrite exercise to incorporate what--as I have seen, as a member of the steering committee--is already emerging as a series of good ideas, in the first instance to make the existing tax code better. A second agenda addresses the more complex, and perhaps sexier, more exciting areas of tax
debate, relating to how we should simplify our tax system. But if, as I said at the beginning, the world is complicated and tax law affects that, the holy grail of real simplification--which means, perhaps, less tax law--is still some way off. I think that the Bill underscores the difficulty in that respect.I too pay tribute to my noble Friend Lord Howe for the tenacious and assiduous way in which--ever since his involvement with the Institute for Fiscal Studies' work in this area--he has pursued the starting and continuity of this rewrite exercise. As we know, he is a man of dogged determination, and at times has wrought remarkable changes with his words. I consider this exercise to be one of the lasting testaments to his determination in terms of the parliamentary process.
I agree with what my hon. Friend the Member for Croydon, South said about my former parliamentary colleague Tim Smith. I had to deal with him during discussion of various Finance Bills, and I know how tenacious he too was in ensuring that the exercise not only went beyond what was in the Finance Bill 1995, but saw the light of day in the report on tax simplification that was produced during my time at the Treasury.
I shall never forget the then vice-chairman of the Inland Revenue, Mr. Steve Mattison, coming into my office at the Treasury with the tax code as it had been in 1950--half a dozen thin volumes. He contrasted that with the 6,000 pages of legislation of which this Bill still forms a part. He made the point about the way in which our tax system has developed over time. Anyone looking through the Bill will see how measure upon measure has been added, not just in the capital allowances sector but across the piece, to reflect the growing complexities of the world in which we live and some of the challenges to the tax system itself.
I was glad when the Budget of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) enabled the exercise to go forward, although, like others who have spoken, I concur with him that his thoughts about how long the exercise would take were heroic. Instead of five years, we could be looking at anywhere between 10 and 15 fully to rewrite all parts of the tax code. As the Paymaster General indicated, with experience the process may speed up, but the first process has been wise to take a measured approach to the system of exposure drafts, consultation and final review to ensure that a quality item has resulted.
The new Bill is without doubt a good example of how to reorder tax legislation with advantage. Lord Howe reflected on the matter at the press conference effectively to launch the process. He commented on the state of tax law now:
- The endless elaboration of existing rules to deal with changes in the outside world has fed upon itself. Even a simple change may interact with a mass of existing provisions. So getting that change to fit in properly will extend the jungle, and make it even more impenetrable.
It is perhaps worth reflecting briefly on those who need access to the understanding of tax law, even in the context of self-assessment. Only about a third of taxpayers fill in the form. For two thirds, the tax system is on auto-pilot. For them, many of the complexities, at the moment at least, do not entertain their thoughts.
I am delighted that the exercise has done as well as it has. I pay particular tribute to one or two people whom the Paymaster General, for understandable reasons, might not have been able to pick out. I am glad that the documents that accompany the Bill list the people who gave their time, particularly on the consultative committee. Those people are tax practitioners. As my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) pointed out, they make an hourly charge in the commercial context. They have given their time to the exercise free of charge. By and large, they have been the ones who have ensured a good quality of drafting in the exposure drafts. They deserve parliamentarians' undying thanks for the assiduous way in which they have conducted their exercise.
Less onerous, but nevertheless burdensome has been the work of the steering committee, of which I have been a member. I pay tribute to my predecessors, my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) and the hon. Member for Wrexham (Dr. Marek), who have stuck to the task in making certain that Parliament was represented on the steering committee. I also pay tribute to Neil Munro of the Inland Revenue, who has given dynamic leadership to the tax law rewrite exercise. Without that, there would not have been the progress to date.
Mention has also been made of parliamentary counsel, who are often the unseen and unsung heroes of our proceedings. It is right, particularly in relation to this Bill--if it is not invidious to do so--to highlight the work of Heather Cauldwell. She has worked 70, 80 and sometimes even 90 hours a week to ensure that the law is properly drafted. That is no mean feat, and she and the other parliamentary counsel who have been working on the Bill should be thanked for all their efforts. Although those on the Treasury Bench have occasionally been a little naughty by hijacking parliamentary counsel for pressing work on the Finance Bill itself, I think that the message of permanency has been made clear in the Bill's drafting.
As I said, one of the results of the exercise is the identification of the need to go further. In his 1998 stocktake report, my right hon. and noble Friend Lord Howe, commenting to the Chancellor, said:
- Many people would like the project to go further towards simplification of the underlying tax policy. The process of rewriting the legislation is highlighting many archaic or cumbersome aspects of the tax code which they believe could be improved.
The exercise has also been very educational even for people in the Revenue. As I said, it is not often that they have the opportunity of such an overview of legislation and to consider the interactions that that legislation involves. I very much hope that the good ideas resulting from the exercise will find their way into legislation.
In fairness, the Paymaster General may not have had time to mention that the previous Finance Bill made it possible to incorporate into this Bill a change in the law to revise the legislation on car-pooling arrangements. I congratulate the Treasury on using the Finance Bill in that way. I encourage the Treasury, when there are good ideas, to work with the rewrite committee in using future Finance Bills--perhaps creatively--to enhance further the operation of our tax law. Whatever our views on the freestanding tonnage tax--which is not dealt with in this Bill--it demonstrates that lessons learned in drafting can be applied to forthcoming legislation. Clearly, the Inland Revenue and the Treasury are learning a great deal from the exercise.
I draw the House's attention to some very interesting and sage words in the minute of the 25th steering committee of the tax law rewrite exercise. Although the comment was on an employment income exposure draft, it very clearly demonstrates the challenge that the exercise has had to face and will have to face. The minute states:
- The team had found the legislation particularly difficult to rewrite because of its complexity. There were many issues to unravel, many connections between provisions to untangle and a number of fictions and hypotheses to sort out. A good example was section 198, which seems relatively uncomplicated in itself but is used by other provisions in a variety of ways. Sections 156(8), 193(3), 193(7) and 200A all latch on to the rules in section 198 in different ways.
- What works well in one respect does not work well in another. But the current arrangement is seen as the best compromise.
Much mention has been made of the explanatory notes. I congratulate those who wrote them. Even though the new legislation is drafted in plain English, it is useful to have such an overview, which might be called the Ordnance Survey equivalent of tax law. However, I ask hon. Members to scan page 7 of the notes and to consider the variety of matters with which capital allowances must deal: plant and machinery, industrial buildings, agricultural buildings, mineral extraction, research and development, know-how, patents, dredging, assured tenancy and contributions. There are also supplementary provisions. At some stage, it must have been argued that the inclusion of each of those items in capital allowances legislation is vital, even though each is highly complex.
One of my wishes on the explanatory notes would be to include in the Bill the excellent summary diagram on pools on page 18, which provides for the first time a visual means of exploring the meaning of a Bill. I think that Revenue officials must have remembered from my time in the Treasury my Roland Emmett-type diagrams, which tried to follow the flow of money as it was influenced and affected by different elements of legislation. The table on page 18 of the explanatory notes, which is delineated as figure 1, has remarkable clarity and much greater understanding. It is an excellent means of providing an overview of how something works. One of the great advantages of the Bill as redrafted is the elegant explanations at the start of clauses, which say in plain terms to whom they apply. If illustrations such as the diagram on page 18 could also be included in legislation, we would go a long way towards further improving clarity and understanding in these matters.
As my hon. Friend the Member for Croydon, South said, the list of chapters almost resembles an index to the Bill. I refer anybody who wants to understand the Bill's full import to the arrangement of chapter headings in the Capital Allowances Act 1990, which it replaces. Part I of the Bill has an introduction and a logical exposition of its contents that leaves one in no doubt of what is involved. However, the existing legislation is arranged in a topsy-turvy way, with no logic whatever. That element of clarity in the Bill is much to be commended.
I undertook to compare and contrast the new with the old. [Interruption.] The Paymaster General laughs, probably because she has tried the same exercise.
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