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Madam Deputy Speaker: Order. I hope that the hon. Gentleman will relate his remarks to the new clause under discussion.
Mr. Mitchell: I certainly will, Madam Deputy Speaker, but I just wanted to place the new clause in the context of the dire complacency that the Government have shown in all areas of saving.
When the Government came to power, TESSAs were a very important savings instrument. Through PEPs, one could save £12,000 per annum but, as the Financial Secretary said, this Government have reduced the savings level to £7,000 per annum. Now, it is being reduced to £5,000 per annum. What sort of signal does that send? As the Financial Secretary will doubtless appreciate, over recent years and in a falling stock market environment, the nature of ISAs has saved the Government tax, because capital gains losses have not been reclaimable from the Inland Revenue.
I remind the Financial Secretary of what the polls and industry have themselves said about the measures that she proposes to introduce. Research conducted by YouGov reveals that once the tax credit on dividends paid out by shares held in an equity ISA is withdrawn, almost half of all equity ISA investors will be less likely to invest in them. One in eight ISA investors say that they will probably not invest any more. Tony Vine-Lott, director general of the PEP and ISA Managers Association, said:
"ISAs have proved the most popular savings vehicle this Government has introduced, and now form a key part of day-to-day retirement savings for millions of people. To ensure the continued success of the ISA scheme, we urge the Chancellor to drop his plans to abolish the ISA dividend tax credit and the reduction in ISA subscription limits."
Furthermore, the Skipton building society said that 80 per cent. of savers questioned think it wrong to cut the tax-free savings limits for cash mini-ISAs from April 2006. Some 45 per cent. said that that would put people off saving. Meanwhile, the Government want to
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promote stakeholder products and the child trust fund. TESSA customers said that the tax-free element of that account had been a big draw.
5.15 pm
Figures based on data retrieved from the Inland Revenue website covering the financial years from 1999–2000 to 2002–03 show that subscriptions to maxi-ISAs have declined by 40 per cent. Moreover, the average subscription has declined from £4,620 to £3,890—a fall of almost 16 per cent. Average subscriptions in mini-ISAs of stocks and shares—often used by the lower-income families about whom the Chancellor is so concerned—have fallen from £1,240 in 1999 to £1,070 in 2002.
Those figures should greatly distress the Government, given that, during the financial year 2000–01, 52 per cent. of mini-ISAs in stocks and shares were subscribed to by individuals with an income of £10,000 or less.
I urge the Financial Secretary to repent of this great mistake in the signals that she sends to people about the importance of saving. I urge her to say clearly what she hinted at, in a slightly backhanded way, in response to my hon. Friend the Member for Hertford and Stortford, and to make it clear that the Government have every intention of regularly increasing the level—rather than reducing it from £7,000—to send the clear signal that we need to increase the amount that we save throughout society.
If the Financial Secretary does not do that, when the Government's epitaph is finally written, the fact that they were asleep when this country faced a massive savings crisis will be towards the top of their charge sheet. She must think again and send a clear signal that far from reducing the levels of saving one can make through this device, she will increase them significantly.
Mr. Prisk: We have had a useful debate and my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) has demonstrated his expertise on the subject.
The Minister's response, sadly, offered no hope to the ordinary saver. I note her remarks on Ofex and I hope that she will reflect on the points that have been raised. Many hon. Members will be disappointed by the Government's failure to realise that the halving of the savings ratio is storing up real problems for the future.
On tax limits, the measure may well have been temporary when it was introduced, but any self-respecting Government would have responded more effectively to the situation before them and not to their own bank balance. As for the abolition of tax credits, is it not peculiar, Madam Deputy Speaker, that a Labour Minister should proudly promote a policy that discriminates against basic rate taxpayers, and does so—not as I meekly suggested—for a £200 million benefit to the Treasury, but for £250 million? I hope that ordinary basic rate savers will know where their money has gone.
I said earlier that these were probing new clauses and I hope that where the Government and the Opposition stand has now been put on the record, so I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
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New Clause 7
'Sections 298 to 301 above shall apply to situations where a promoter sells or markets a scheme; and in this section, "Scheme" means a notifiable proposal or notifiable arrangements.'.—[Mr. Flight.]
Brought up, and read the First time.
Mr. Flight: I beg to move, That the clause be read a Second time.
Madam Deputy Speaker : With this it will be convenient to discuss the following amendments:
No. 39, in page 255, line 22 [Clause 300], leave out 'the prescribed period' and insert 'thirty days'.
No. 40, in page 255, line 31, leave out 'the prescribed period' and insert 'thirty days'.
No. 42, in page 259, line 12 [Clause 309], at end insert—
'(2A) Regulations made by the Treasury or the Board under this Part may provide for a threshold below which arrangements shall not be notifiable arrangements under section 298(1).'.
Government amendment No. 222.
Mr. Flight: There has been a great deal of discussion in the media and important lawyers have written to the Treasury and the Inland Revenue about the new regime for the reporting of tax avoidance schemes. The Paymaster General has responded to a significant number of the issues raised and Conservative Members are pleased that she has done so in the interests of the British economy.
There remains, however, a central unresolved issue, which we call the dividing line. There is pretty much unanimous agreement that a regime requiring the disclosure of tax avoidance schemes that are being marketed is a sensible measure both as a deterrent and in order to make the Inland Revenue more actively aware of what is going on. Without a dividing line, though, and as a result of the drafting of the provisions, it is unfortunately probable that in order to protect themselves, large numbers of company accountants will feel obliged to report normal tax planning circumstances. The money that the Government are budgeting for the task and the numbers of extra staff employed at the Revenue will be wholly inadequate to cope with the level of reporting. Indeed, the Revenue will be snowed under and yet another burden will have been placed on British business.
The Government generally and the Paymaster General in Committee specifically referred to schemes, and the understanding of the population at large is that the target of the new disclosure regime is widely marketed tax avoidance schemes. However, the current drafting is such that the schemes will operate much more widely than should be intended, and uncertainty and additional compliance burdens will be created.
New clause 7 is designed to clarify and confirm the focus of the new rules on the marketing of avoidance schemes—hence the crucial dividing line between reportable schemes and non-reportable everyday bespoke tax advice. In Committee debates, I said that I hoped that the arrangements were intended to apply to
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promoters of schemes and not, for example, to tax advice in the normal course of business or to takeover activities, which always require tax advice.
The direct tax disclosure proposals as they stand have been changed marginally as a result of the Government's amendments, and the regulations to implement the rules framework will be amended further in the light of the Paymaster General's recent press release. However, what remain are legislation and a set of rules that still have an uncertain reach—and uncertainty is not what a tax system should be based on. Accountants want to comply with the rules but, as currently drafted, the rules are bound to lead to excessive disclosure, which would be counter-productive for the Inland Revenue as well as for commerce.
The new clause is thus designed to ensure greater certainty in the application of the rules to everyday client-adviser situations and to bespoke advice coming from continuing and continuous business arrangements. As I have already explained, when it comes to takeovers, it is inevitable that commercial arrangements will change rapidly and frequently as the deal is worked on. A tax input is necessary and a tax can be either a cost or a benefit of the deal, which is factored into the price. The advice will be normal everyday tax planning advice designed to ensure that those involved understand the tax consequences of what they have in mind and that they take advantage of the basic rights of taxpayers to minimise their tax liabilities within the law. It is crucial to get rid of uncertainty; otherwise, advisers, their clients and the Inland Revenue will waste a lot of time over disclosures that surely are not required. That will help no one, least of all the Revenue.
It is notable that the House of Lords Select Committee on Economic Affairs made exactly those points about the Government's proposals. It stated that it was
"not convinced that the legislation as it stands has been sufficiently thought through or exposed for serious consultation with those who will have to deal with its consequences . . . We have seen the good results which such consultation has produced in the case of the Government's measures to simplify the taxation of pensions. We would like to have seen something along the same lines for some at least of the revenue protection measures."
In its conclusions, the Committee stated that
"there is a need to avoid the risk of over-reporting to ensure that taxpayers and their advisers do not report ordinary tax planning arrangements . . . We have sympathy with the view expressed to us that the primary legislation and the regulations ought to be worded sufficiently tightly to put matters beyond doubt and that the function of departmental guidance is to elucidate rather than to make"
I hope that the Paymaster General will tell the House that it is her intent that the winnowing process of the regulations and, ultimately, the Revenue guidance will mean that marketed tax avoidance schemes are reported. However, tax law should not be run by Revenue fiat: it is wrong in principle that a law, as drafted, should not be clear.
The five-day time limit has been debated previously. It is obvious that there is no problem in reporting within five days avoidance schemes that are being marketed, and it is equally obvious that it is entirely impractical for the general run of tax advice to be reported in the same period. Moreover, the latter is a continuing process.
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In addition, will the Paymaster General give an assurance that the voluntary sector will be excluded from the scope of the regulations? A growing number of charities and similar organisations offer advice on tax or tax credits to people on low incomes, on a pro-bono basis. The advice given by such bodies is not generally of the sort that would constitute avoidance schemes, but it is a way to help people to make the best of their opportunities. It often consists of simple advice to help a couple to structure their tax position to their best advantage.
The draft regulations focus on avoidance schemes rather than ordinary tax planning, and the draft guidance notes give some comfort. However, the difference at issue is the same as that between the business and marketing of tax avoidance schemes and the general giving of taxation advice in the normal run of tax planning.
We must have a clear dividing line in these matters. It is one of the major outstanding issues for the legal and accounting professions, and for much of business. If we do not get a clear dividing line, there will be huge problems for the Inland Revenue, and business will be faced with quite unnecessary compliance burdens.
I hope that the Paymaster General will be able to assure us that she has eventually made up her mind about the dividing line. If she has not, we will press the amendment on this major issue to a vote.
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