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Mr. Stephen O'Brien (Eddisbury): I have been following my right hon. Friend's argument with interest. I have, perhaps more recently, been involved in such a position in corporate life. When the crystal mark was introduced to simplify the language of many corporate documents, I found it notable that although the mark was intended to simplify, the company also had to pay further fees to have the documents properly interpreted because they used different words that could have been taken to have different meanings. Is not the best way of simplifying any law to have less law?
Mr. Redwood: My hon. Friend is absolutely right. As the former company secretary of an important British multinational group, he speaks from considerable experience. Voluminous legislation such as this, however well intentioned, will always impose new costs and duties on well run businesses. They must keep up with the change of words, determine whether the change of meaning will have any impact, and ensure that there is nothing untoward in the way in which they are handling their affairs once the law has, effectively, changed.
Mr. Hogg: I often agree with my right hon. Friend. However, he seems to be advancing an argument against any attempt to rewrite or simplify statutory language. I find that a difficult conclusion to accept.
Mr. Redwood: My right hon. and learned Friend makes an extremely powerful point. Perish the thought that I should advance such an argument. However, as I said earlier, I would like the Government to achieve their aim by simplifying the thinking behind the legislation that they have introduced or inherited. I would then like them to introduce more radical proposals--which would cut down the number of pages dramatically--and deliberately change the law to make it easier and cheaper in its incidence by being more in favour of the taxpayer than the minor, but sometimes important, changes that we are considering tonight.
We have also heard from some hon. Members, particularly from the Liberal Bench, that they are full of admiration for the much simpler, clearer language, and the shorter sentences. I referred to the hypothetical company test on pages 25 to 26 of the Bill. That is by no means the most confused or difficult part of the Bill; I have not selected the worst example, by any means. I would like the House to get the feel of this proposal, because I am not sure that all hon. Members are as fully acquainted with it as might be useful for the purposes of these debates. Clause 48(5) states:
- "To apply the hypothetical company test, assume that--
(a) the qualifying activity is carried on by a company ("the hypothetical company"),
(b) every trade, business, profession or vocation carried on by the business is carried on by the business as part of that activity,
(c) the financial years of the hypothetical company would coincide with the chargeable periods of the business, and
(d) accounts of the hypothetical company for any relevant chargeable period have been duly drawn up as if that period were a financial year of the company."
-
That is the end of the first sentence. To make matters crystal clear, clause 48(6) states:
"The business passes the hypothetical company test as a small or medium-sized company in relation to the expenditure in question if, on the assumptions in subsection (5), the company would qualify (or be treated as qualifying) as small or medium-sized under the relevant companies legislation in relation to the financial year in which the expenditure is assumed to be incurred.
A good, trained accountant who was well versed in company law would probably be able to work that proposal out, but I do not think that one immediately gets the gist of the test from reading the Bill. Clause 48(5) is certainly not a short sentence, and it is a very complicated one. The underlying thought is even more complicated because it deals with hypothetical companies in the test, not with actual companies.
Mr. Bercow: Why is it necessary and desirable--I do not say that it is not; I merely ask the question--to distinguish between qualifying and being treated as qualifying?
Mr. Redwood: That is an extremely good question. I am sure that the Minister will be desperate to respond to that and many other vital points, but I do not think that it is for me to reply to my hon. Friend. I am attacking the formula: I would not have phrased it in the same way, and I do not regard myself as being responsible for it in any sense.
There are many other examples, although I shall not bore the House by citing others or, indeed, by identifying the worst.
Mr. Keith Darvill (Upminster) rose--
Mr. Redwood: I detect some interest in what I am saying. I give way.
Mr. Darvill: Indeed, I have listened closely to what the right hon. Gentleman has been saying. Did he choose to make the same observations here when his right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) proposed the project in 1996?
Mr. Redwood: I did not catch the Speaker's eye at the time, but under my right hon. and learned Friend I had greater hopes of the project than would be justified under the present Government. I am sure that, were he still Chancellor, my right hon. and learned Friend would be going in for rather more of the kind of tax simplification in which I believe, and in which I think my hon. Friends believe. It involves simplifying the underlying thoughts and, above all, reducing the incidence of taxation. The simplification that people want involves a cut in their tax bills, and fewer difficult taxes to compute in the first place.
If we examine the Bill's structure, we see why it has ended up so confusing and long-winded. Over the years, our capital allowances system has grown like Topsy, having been changed year after year. No doubt that was done for good reasons, but as a result it is now very confusing and complicated. As the rather good explanatory notes make clear, there is no simple investment allowance: we have to distinguish between different types of allowance.
Part II deals with plant and machinery allowances. Part III deals with industrial buildings allowances. Part IV deals with agricultural buildings allowances, which are treated differently from industrial buildings allowances and involve different language. In many cases, it is becoming difficult to distinguish an industrial building from an agricultural building. More and more farmers who are being bankrupted by the common agricultural policy, and by the Government's policies generally, are having to turn to quasi-industrial processes to try to add value to the commodities that they are producing.
There is a mineral extraction allowance, which is different again. It relates to industries such as mining and oil. Careful distinctions must be made between that allowance and the general plant and machinery allowance--which is not always easy, as anyone with any acquaintance with the oil industry will understand.
There are research and development allowances. They are different from know-how allowances, which have yet another definition. There are patent allowances, which are different from know-how allowances and, indeed, from the research and development allowances that may have helped to generate the patent in the first place. There are dredging allowances, which my right hon. and learned Friend the Member for Rushcliffe was keen should be debated properly this evening. I live in hope, and I note that other Conservative Members feel the same about these important matters. There are assured tenancy allowances, and there is the question of contributions--another aspect of tackling the difficult problem of capital allowances.
Given provision for nine types of allowance, and consequential provision for contributions and other matters, it is no wonder that the Bill has ended up with 333 pages. When the Minister and her boss the Chancellor were considering the project, why did they not ask themselves whether they should be a little bolder? I wonder why it did not occur to them--rather than asking people to devote a large part of their lives to turning extremely lugubrious prose into prose that some consider a little less lugubrious and others deem just as lugubrious in a different way--to ask, "Do we really need these nine different types of allowance? Could there not be just one or two types treated in a similar way, to avoid all the definitional difficulties and niceties involved in trying to split hairs over whether an allowance is a know-how or an R and D allowance--or, if the oil industry is involved, whether an investment is a mineral extraction or a plant and machinery investment, dealt with by a different part of the legislation?"
I should like to know why the Minister and her colleagues did not consider trying to be bolder and perhaps change the structure on which we base capital allowances. If they had done so, we could have cut through an awful lot of the complexity in the legislation.
It is important also, in what time is allowed us in these important debates, to make a stab at considering the issues on which the Committee had to deliberate by sampling and taking evidence--namely, on whether the 66 changes made in the Bill are within the spirit of the outlined process and procedure. We know that the idea behind the process was that the changes should be only minor. We have also heard the very interesting elucidation that the
Committee decided--therefore, the Government must have decided before the Committee--that when changes were being made, they should move in the direction of the taxpayer.Of course I welcome that. As I said, I would far rather that the Government introduced bold legislation that moved much further, and in all types of ways and in all types of cases, in the direction of the taxpayer. However, one or more of the 66 changes could also disadvantage particular taxpayers. It could be that a company has just spent a lot of money on organising its affairs in a certain manner on the basis of the law before it was changed, only to discover that it had got it wrong and that it would have been better off organising its affairs in a different manner to take advantage of one of the 66 changes. One would therefore not want the process to be used for making changes, as it is not being publicly announced and advertised as Budget changes are advertised.
Our Budget process has a lot of showmanship and many critics, but its one good advantage is that it receives enormous publicity when the tax changes are being made, so that everyone, in business and elsewhere, is alerted to them. People's attention is drawn to the Budget, and they know that there is a Finance Bill and that they have to make proper inquiries and ensure that they have kept up with the changes.
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