Proceeds of Crime Bill

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Mr. Ainsworth: The hon. Member for Beaconsfield touched on the matter. It relates to a method of hiding ill-gotten gains by sticking them into a trust or an inheritance. My prejudice is that the provision may prove to be a very effective means of recovering proceeds of crime—perhaps more so than taxing income or revenue. It is not merely a small aside: it is central to how those funds are used and can be put beyond the reach of the current legal system.

Providing for joint vesting in relation to the director is immaterial. If, as it seems, that means that the director would have to confer with the board about every step in inheritance tax cases handled by his staff, the agency's role would become impossible. The board does not get involved in the day-to-day handling of all Revenue cases, and it would be just as impossible for it to exercise such oversight in relation to the agency's cases.

The provision for the board not to be divested of its taxation functions, even when the director has served notice, extends beyond inheritance tax into general taxation functions. That is provided for in subsection (7). I think that I have pointed out that clear lines of accountability are necessary. The tying up of the system is provided for in clause 318. The amendment would not add anything to those lines of accountability. It would do the reverse by blurring them and, potentially, taking them away. I ask the hon. Gentleman to withdraw the amendment.

Mr. Grieve: Again, I am grateful to the Minister for enabling us to widen the scope of the discussion further. He has provided me with some reassurance, and in relation to the amendments, which were probing, he has helped to clarify some of the relationships with the director, and the way in which they operate. I accept that the channel of accountability to the Home Secretary would be blurred if the amendments were accepted. However, one issue remains.

One of the purposes of the Board of Inland Revenue relates to its independence from political control. Clearly, it must enforce what Parliament says, but it also has wide discretion, and no one would seek to interfere with the way in which it operates—certainly not Treasury Ministers: if they thought that there was a loophole in the law, they might want to introduce further tax legislation, but the board is respected as an impartial arbiter in respect of taxation matters. The director will implement tax law, but as the Minister rightly said, he will do so for a different purpose: to reduce crime, or the proceeds of crime—I cannot remember the precise words that the Minister used. That may give rise to conflict between what is required for proper taxation, and what is required for the crime reduction fund.

The Minister emphasised several times during this morning's debate that he wishes the public to be reassured that the director, having taken on the mantle of the Inland Revenue, will operate in exactly the same way and under the same rules—except for one or two

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areas that we shall examine—so people need not be worried. It is another area in which matters are blurred. The post of the director exists for a different purpose from that of the Inland Revenue. As long as Parliament and the public are satisfied about that, so be it. However, the issue causes me slight anxiety. I am sure that the amendments would not meet that anxiety satisfactorily, but at least they have enabled a discussion to take place about it.

I hope that the Minister will bear in mind my argument because I cannot help thinking that the matter may be returned to in the other place, given the unusual way in which something of a parallel taxation system is being created. The words of reassurance that we have heard in that such matters can be handled in exactly the way as they are now may be so, but several indicators show that, when the director intervenes, his motivation and purpose will be different from that of the board of the Inland Revenue and we may receive complaints about the different ways in which the tax system is being operated.

Mr. Ainsworth: The director's motivation will not allow him to operate in a different way and outwith the policies laid down by the board. I hope that clause 318 will provide reassurance about how the director will operate within the interpretation that has been developed by the board and is thus at its discretion. His different motivation will dictate his priorities, the cases that he examines and the issues that he pursues. He will not be looking necessarily at maximising return. We had a debate earlier about efficiency and effectiveness. The director will be examining how to reduce criminality and will be using his resources to that end. Does clause 318 give the hon. Gentleman the reassurance that he seeks?

Mr. Grieve: Yes, clause 318 provides much reassurance. If it did not exist, I would be seriously worried about the matter, especially in relation to concessions that are important in an individual's dealings with the Inland Revenue. Such policy must be followed and adhered to. The Minister is right, but I hope that he does not mind my saying that the matter will merit some attention. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 311 ordered to stand part of the Bill.

Clause 312 ordered to stand part of the Bill.

Clause 313

Source of income

Mr. Grieve: I beg to move amendment No. 477, in page 181, line 32, leave out subsection (1).

This is one of the most important issues that we shall discuss this morning. The clause, more than anything else, is the point at which ordinary taxation law and the powers of the director separate. That may be a good thing, but we must consider it carefully. Subsection (1) states:

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    ''For the purpose of the exercise by the Director of any function vested in him by virtue of this Part it is immaterial that he cannot identify a source for any income.''

As I am not as well versed in tax law as I would like to be, it would be helpful if the Minister explained how the system works at present with the Inland Revenue. My understanding is that, before the Inland Revenue levies a tax on income, it must identify a source. The burden to do that is on the Inland Revenue rather than anybody else. That is a complex area and I am not aware of the board's powers and what assumptions, if any, may be made evidentially. We need an explanation.

12.45 pm

The clause would not be in the Bill unless it had a purpose, which as I understand it is that in the future it will be possible to tax income without the identification of its source. Presumably, the burden will be on the individual or company to rebut the assumption that is made by the director and to show that money came from a source that should not be taxed, such as a gift or a win on the pools. However, income would be liable to taxation, so this is an important additional power.

It is all very well to say that the director steps into the Inland Revenue's shoes and is more focused, but we are giving him a power to tax in a way that the board cannot. I want to hear from the Minister how the distinction will work in practice.

The amendment is probing. If I had wanted to carry out a comprehensive amendment of the clause, I would have had to table amendments to other subsections. I deliberately did not set out to do that. Subsection (2) would require amendment. However, the matter is important because we have decided to bend or break tax rules for the purpose of reducing crime. We should know what we are doing before we agree to the clause, because we are trying to reduce crime by the mechanism of taxing people.

Mr. Ainsworth: I hope that the hon. Gentleman was not saying that I deliberately suggested that the power is not the exception but a power that we are giving overtly to the director that is not part of the taxation system as it is operated at present, because it is.

The amendment would require the director always to identify the source of any income when he uses his taxation functions. Therefore, it would limit the director's actions, when using his taxation functions, to cases in which he can identify a source of income.

There will be a number of cases in which the director will be unable to use criminal confiscation or civil recovery to recover the proceeds of crime. However, in those cases, he may suspect that there is income or gain that results from criminal conduct and he may use his taxation functions as a further means to recover the proceeds of crime. The director would not have been able, through his investigations, to gain evidence at the civil standard that assets are the proceeds of crime, because otherwise he would have pursued the matter under part 5 and sought to confiscate the assets in their entirety. However, he may be suspicious that criminal conduct is a feature of the cases.

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It follows that many such cases will be characterised by the lack of a clear audit trail of the source of certain assets and their financing. If the director is bound to identify the source of any income or gain, his efforts will be frustrated in the majority of the cases in which he wishes to use his taxation functions. If he is to make effective use of taxation functions, he should not be required to identify the source of income.

Mr. Stinchcombe: Why do we need both subsections (1) and (2)?

Mr. Ainsworth: Subsection (1) is needed to allow the director to carry out his revenue functions, including that of the making of a no-source assessment, notwithstanding that he has no knowledge of any source for the income or gains. Subsection (2) upholds the validity of the assessment once it is made.

The appeals that are provided for in other taxation regulations offer safeguards, as they will apply to the director.

The Revenue's practice of identifying a source arises as a result of a mixture of legislation in the Taxes Acts and case law. Some judgments in case law have resulted in the Revenue accepting that it must identify a source of income before it makes an assessment, and that has effectively become established in tax law. If we impose that limitation on the director, we will render the powers under part 6 entirely—or almost entirely—inoperable. That is why this single departure from normal taxation law is necessary.

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