Finance Bill

[back to previous text]

Mr. Flight: Without repeating my arguments, there is an important point of principle that it is perfectly correct and proper to take anti-avoidance measures. Equally, it is quite unreasonable of any Government or the Revenue knowingly to damage business interests where there is no avoidance. Therefore, although I congratulate the Minister on her robust defence, it strikes me that it is not entirely reasonable to have complete disregard for bona fide commercial situations that are unfairly treated as a result of robust anti-avoidance measures.

Amendment No. 38 is most important because the heart of it is that it is unfair for businesses to have to pay double taxation. If there is justification for particularly robust measures that may damage the innocent in order to stop the naughty, at least there should be a mechanism that prevents the innocent from being double-taxed.

The point lying behind the other two amendments is that, as I understand, one or two major groups are locked into minority shareholdings of between 10 and 20 per cent., where another party controls 60 per cent. Their ability to withdraw the money to pay the capital gains tax on which they are assessed is not at all self-evident or automatic. In order to be amicable, I ask the Paymaster General to consider again the three-year rule. I have consulted tax councils and do not believe that changing it would undermine the anti-avoidance measure. That is one area in which the inequity of unintentional double taxation could be prevented.

Dawn Primarolo: Although the clause substantially extends the current period, it remains necessary to retain a reasonable time limit to ensure that relief is not given in cases in which distribution is unrelated to the gain. However, as always, we will continue to examine the issues. We need to know about the specific cases mentioned by the hon. Gentleman, in which people perceive that the rules affect them harshly. I do not expect him to tell us today, but I am sure that he would accept that it is impossible for us to be mind readers, as talented as the Government may be—if I could just get that in.

There may be cases in which representations are not being made and problems have not been identified. People may not like the fact that we have taken steps to close off the avoidance—some do not—but that is not an argument in favour of amendments to undermine the steps that we have taken. If there is no legitimate reason, we will move on and if there is, we should hear about it. We said that we would look at problems, we have contacted and consulted everyone, published the clauses and allowed for companies to comment and we do not have the responses, so I do not see what the hon. Gentleman expects of us. He may say that he expects the Government to take him at his word. As gracious as he is in Committee, I am afraid that that is not enough in this case. Serious amounts of money are at stake with regard to the anti-avoidance provision. I hope that, on reflection, he will feel that he has had an extremely wide-ranging and detailed debate this morning, and that he will not be inclined to press his amendment.

Mr. Jack: I thank the Paymaster General for the way in which she dealt with the debate, which has been helpful in giving us further insight into the risks that the Government see in the context of the anti-avoidance legislation. I am also grateful for her kind words about my efforts—in fairness supported by the then Opposition—to deal with serious tax avoidance.

However, for the record, I should say that it is not the Opposition's motive to undermine legitimate and proper efforts to safeguard the revenue. There are innovative, clever but sometimes misguided people out there who will try to drive a coach and horses through any chink in the tax legislation, and, ultimately, the honest taxpayers will have to pay the difference if substantial revenue disappears. The point that my hon. Friend the Member for Arundel and South Downs and I seek to tease out is that one is looking at where the shoe might pinch a little more tightly. Legitimate companies are clearly being caught by the legislation. I understand why the Paymaster General is unwilling or unhappy to go further, but if I take the tenor of her remarks correctly, perhaps the door is not completely closed on representations. If there is an opportunity to deal with the genuine concerns of those who have not so far benefited from my hon. Friend's amendments, they may have a hearing in the future.

Mr. Flight: I too thank the Paymaster General for her comments. This is not the forum for exploring who is right and who is wrong in terms of adequate consultation. I will ensure that the practical case issues are brought to the attention of the Inland Revenue, especially in relation to amendment No. 38. It may well be the omission of certain parties not to have done so. On the understanding of intelligent perusal of the evidence provided, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Flight: I beg to move amendment No. 39, in page 52, line 3, after `if', insert

    `they are a trustee of a settlement for the benefit of persons named in paragraphs (a) and (b) of section 86 of the Inheritance Tax Act 1984, or'.

The Chairman: With this it will be convenient to take amendment No. 40, in page 52, line 3, after `if', insert

    `they are a trustee of a settlement established for charitable purposes only, or'.

Mr. Flight: These are partly probing amendments, particularly in the light of the Paymaster General's comments. The Government have taken the point on pension schemes and provided an exclusion but not for charities or bona fide employee trusts. Amendment No. 40 provides a definition that comes from section 86 of the Inheritance Tax Act 1984, and is clearly not a tax avoidance device for senior managers but a definition that relates to bona fide employee trusts. The probing aspect is to ask what, if any, were the anti-avoidance reasons for excluding charities and genuine employee trusts. If there were no good reasons, the amendment should be accepted prima facie because it is incorrect and unreasonable to exclude pension funds but not charities and genuine employee trusts.

Dawn Primarolo: I will respond briefly to the amendments and ask the Committee to reject them if the hon. Gentleman wishes to press them to a Division. Both amendments deal specifically with the points that he raised last year on charities and pension funds. I am sure that he will agree that the relaxation that we introduced will go some way to addressing points made, for example by the right hon. Member for Fylde, about backseat partnerships and several other issues. We must examine the range of provisions to see why the amendments will suffer the same fate as previous amendments moved by the hon. Gentleman.

The consultation produced no cases to demonstrate that there were particular problems in the matter. Amendment No. 40 would exempt charities from the capital gains tax anti-avoidance provisions, but a letter from the Institute of Chartered Accountants of Scotland, which was sent to us after we had contacted everyone involved, said that it had trawled its members and discovered no relevant cases. The hon. Member for Arundel and South Downs believes that there might be a problem, but the charities are telling us that there will not.

There is one exception. It has been drawn to my attention that a small charity sent an e-mail last night, which queried an element in the provisions.

Mr. Flight: Not guilty.

Dawn Primarolo: I was going to ask the hon. Gentleman if he was acting under an alias.

Therefore, I cannot say that we have had no representations about the issue and, as such, that the amendments are unnecessary. We must examine the e-mail, but we still firmly believe that the problem raised by the hon. Gentleman does not exist. We are supported by the fact that no one, with the exception of that one late submission, is asking us to change the clause. The Revenue, as a reasonable agency, will consider those points; the charity might only need clarification. Therefore I reject these amendments, too. I now need to know what was the problem raised in the e-mail that we received last night.

To conclude, I assure the hon. Gentleman that it is not our intention to target bona fide charities, so amendments Nos. 39 and 40 are not necessary. I hope that he is satisfied that we have thoroughly considered what he said—even to the point of acknowledging that an e-mail that arrived the previous evening can be considered and responded to.

11.15 am

Mr. Flight: Yet again, I thank the Paymaster General for the thoroughness of her consideration of the matter. I also repeat the comment that I made from a sedentary position—that the charity concerned has nothing to do with me. I know nothing about it.

I want the Paymaster General to clarify a simple point, to which there are two possible responses. One is that there are no known case studies of charities or genuine employee trusts that hold investments that could lead to their being unfairly taxed. The other is that the legislation as drafted at present would prevent them from being unfairly taxed in such circumstances. What is the Paymaster General's opinion?

Dawn Primarolo: Apart from that e-mail, we have not received any indications of difficulties. Why would we want to change the legislation, when we do not have a problem with it? The organisations concerned do not believe that they are being unfairly treated, and the clause as it stands is targeted to meet their requirements.

Mr. Flight: It seems to me that there is still an argument that a charity does not pay capital gains tax, so the legislation would not apply to it. I am unsure whether the Minister is proposing that argument, or simply saying that she does not know of any charities that happen to have invested in closed companies. There is an important difference between those two positions.

With regard to the amendments, the Paymaster General has made the point that before the legislation reaches the statute book the Revenue will now pursue the question of whether there will be problems for charities. On the basis of her comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 78 ordered to stand part of the Bill.

Mr. Allen: We are doing well with regard to the programme motion and we have already covered the business that was designed for our afternoon sitting. I have discussed the matter informally with Committee members from all parties, and I found no go great desire among them to meet this afternoon—[Interruption.] Was there some objection to that? No? I think, therefore, that the appropriate form of words would be that the Committee, at its rising this morning, should adjourn till Tuesday next at 10.30 am.

The Chairman: Will the hon. Gentleman move that formally?

Further consideration adjourned.—[Mr. Allen.]

Bill to be further considered on Tuesday next at half-past Ten o'clock.—[Mr. Allen.]

        Adjourned accordingly at nineteen minutes past Eleven o'clock till Tuesday 8 May at half-past Ten o'clock.

The following Members attended the Committee:
Clark, Dr. Michael (Chairman)
Allen, Mr.
Barnes, Mr.
Bennett, Mr.
Burnett, Mr.
Campbell, Mr. Ronnie
Donohoe, Mr.
Flight, Mr.
Healey, Mr.
Hendrick, Mr.
Jack, Mr.
Johnson, Miss Melanie
Kilfoyle, Mr.
Letwin, Mr.
Luff, Mr.
Michael, Mr.
Ottaway, Mr.
Primarolo, Dawn
Roy, Mr.
St. Aubyn, Mr.
Taylor, Mr. David
Taylor, Mr. Matthew
Timms, Mr.

Previous Contents

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2001
Prepared 3 May 2001