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Dawn Primarolo: This has been a short but none the less important introductory debate to clause 139 and the associated schedule, which we will consider in the Standing Committee. In responding to the amendment and explaining the clause, I will address the issues raised, notwithstanding the fact that, clearly, there will be an interesting and detailed debate when the Bill moves upstairs to a Standing Committee.

For the sake of absolute clarity, I urge the Committee to resist the amendment, and I commend clause 139, which introduces the reforms to the taxation of share-based remuneration. As the debate proceeded on clause 138, I stressed, and the Committee accepted, that the majority of employers and employees undertake their responsibilities in this area diligently. Unfortunately, however, a small though significant group persists in seeking out ways of avoiding those responsibilities. We have evidence that, in the most recent year for which data are available, at least £1.4 billion has been put through avoidance schemes using shares and securities to take advantage of the fact that the existing rules do not operate consistently and coherently in every situation.

The anti-avoidance measures relating to employee benefit trusts announced in the Chancellor's pre-Budget report address much of that, but they cannot tackle every scheme: for instance, schemes in which the tax and national insurance saving is worth more than the associated corporation tax deduction for the employer.

Mr. Burnett: Will the Paymaster General give way?

Dawn Primarolo: If the hon. Gentleman would let me make my opening remarks and respond to the questions

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that have already been put to me, I will be happy to take an intervention. This is a complex set of issues, on which I must concentrate as I respond to the Committee.

4.15 pm

The scale of the avoidance that uses share schemes in one form or another, which the measures in schedules 21 and 22 tackle, costs the Government—the taxpayer—in excess of £110 million a year. That is not insignificant. Although I recognise what hon. Members say about the representations that they have received from various bodies, I counter that—perhaps this demonstrates the complexity and importance of the subject—by referring them to the article, which I quoted earlier, in this week's "Tax Journal" by David Cohen of Norton Rose who is an expert in such matters. He details each substantive change that we are making and explains why they are better in some instances and clearer in others.

Obviously the Government do not want to send out the message to the majority of employees and employers who are paying their fair share of tax that we are allowing highly paid executives to avoid their tax liability with complete disdain, which would be the result of the amendment. I make no apologies—I am sure hon. Members would not expect me to—for focusing on the changes that the clause introduces to tackle avoidance and to close loopholes; nor do I apologise for the comprehensive redesign of the rules, which will produce a system that is consistent, coherent and fair. A system that meets those criteria will be less open to abuse by a minority of predominantly highly paid employees who are intent on paying less than their fair share of tax and national insurance.

The main focus of clause 139 is on tackling avoidance. As hon. Members know, that means that consultation is not appropriate. That is the practice not just of this Government but of the previous Government when trying to deal with such issues. However, in redesigning the rules we have drawn heavily on the feedback from consultation processes that have accompanied a number of discussions with the industry. We have also taken into account the industry's concerns, expressed to us over a long period of time, about the inequities in the current system and its proposals for making the rules fairer so that we design a new system that taxes to income only the value received from the employment at the time when that value becomes accessible and not the capital growth in the value of the share following acquisition, which is the current arrangement.

I assure hon. Members that those anti-avoidance provisions are targeted at non-commercial transactions that place such benefits in the hands of employees without them paying their fair share of tax and national insurance on the value. They will not adversely affect those who offer their employees genuine share schemes that provide a real stake in the businesses for which they work. However, I accept that hon. Members will want to explore that in more detail upstairs in the Standing Committee.

If we delay implementing the clause we will not only give a green light to such people to continue to exploit the loopholes in the legislation, but provide a sign-posted road map for everyone else as well. It would be an utter disaster. Hon. Members should be in no doubt that a large coach and horses would be driven along the

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roads identified in the attempts to change and stop the anti-avoidance, to the detriment of the Exchequer—the taxpayer—for the benefit of a few.

Our concerns are real. In the space of just last week, Inland Revenue officials received interesting telephone calls from accountants. It seems that the saying for accountants is similar to that for lawyers: the number of opinions required dictates how many different accountants one needs to speak to. One accountant admitted that the existing avoidance schemes would be stopped by the proposals. Another admitted that a new scheme under development would be similarly frustrated, and yet another admitted that if only he had known about the loopholes, he would have had a field day making sure that his clients had access to tax and national insurance relief. To demonstrate our determination not to disadvantage people operating genuine share schemes, I have listened to representations on schedule 22, and I intend to introduce amendments in Standing Committee to correct an error in proposed section 446F(2)(b) of the Income Tax (Earnings and Pensions) Act 2003 and replace "16 April 2002" with "16 April 2003". That is a simple printing error which uncorrected would have resulted in unintended retrospection. In that respect, I agree with the hon. Member for Arundel and South Downs (Mr. Flight). Unfortunately, typographical errors sometimes occur.

We wish to correct two drafting errors and ensure that appropriate relief is given when arriving at the taxable amount in relation to restricted securities, a point made by the hon. Member for Huntingdon (Mr. Djanogly). We also wish to extend the facility to allow people all the tax upfront on restricted securities awarded in the period between 16 April 2003 and an appointed date. I give hon. Members warning that I shall also table amendments to close the remaining avoidance opportunities that have been drawn to our attention. We will tighten the definition of convertible securities following representations that certain avoidance opportunities may remain if that is not done, putting beyond doubt the fact that PAYE must be operated on all charges to tax arising from the operation of these new provisions.

At a time when we are asking everyone to make a greater contribution to the UK's need for investment in the public service through national insurance contributions it is important that everyone, including businesses, should pay their fair share of tax and national insurance. As I have already said, people operating genuine share schemes have nothing to fear from the changes.

I shall now respond to points that I have not covered in my explanation of the amendments that I shall table in Committee. I believe that the question from the hon. Member for Arundel and South Downs about retrospection referred specifically to 16 April 2002, so I hope that he accepts that the correction to 2003 deals with that. Several hon. Members suggested that the provision was a sledgehammer to crack a nut, but I have demonstrated to the Committee that a large amount of money is being taken by a small number of people.

Mr. Burnett rose—

Dawn Primarolo: Perhaps I should explain why the provision is not a sledgehammer to crack a nut before the hon. Gentleman intervenes.

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Share-based remuneration takes many forms, and is used in many different ways. That reflects commercial reality, and the tax rules try to reflect that. However, the cost of avoidance is substantial. A significant sum is involved, and we have no reason to believe that it would reduce over time. The avoidance rules are carefully targeted on those carrying out non-commercial transactions designed to manipulate the value of shares with a view to avoiding tax and national insurance. Companies across a wide spectrum of business are using those schemes—the larger ones to shelter annual cash bonuses, the smaller ones to shelter the owner-director's remuneration. The chairman of the share scheme lawyers group, writing in The Tax Journal on Monday, had no difficulty grasping and explaining succinctly in just two pages what we were attempting to do. As always, I have listened carefully to the points that Members have made in debate, and shall reflect on them, but I must remind them that we will not be deflected from dealing with anti-avoidance.

Mr. Burnett: I think the Paymaster General told the Committee that about £1.4 billion was the tax lost.

Dawn Primarolo: No—the value through the scheme.

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