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Mr. Laws: Can the Paymaster General confirm that, like the House of Lords Economic Affairs Committee report, our proposal distinguishes between artificial marketed schemes, where we agree that the five-day limit is right, and more complex tax advice, where a potential problem exists and a 30-day limit might, as the House of Lords Committee suggested, be more sensible?
Dawn Primarolo: Amendments Nos. 39 and 40 do not provide for that distinction, because they remove the five-day period. The operation of the disclosure rules means that the Government's arrangements are straightforward, and there is no reason why they should not work.
Amendment No. 42 gives the Treasury a new statutory power to impose a de minimis limit. It is difficult to see what it seeks to achieve, because it does not set the de minimis threshold, but merely enables the Treasury and the Inland Revenue to introduce such a limit. We resist the introduction of a de minimis limit for direct tax disclosure rules because it would not work in practice. For example, where such a limit applied to tax saved or to the turnover of a business, a promoter of a scheme might not be in a position to know those facts when they sold the scheme to the client, and would not know whether the de minimis limit applied and whether they should make a declaration. The disclosure rules in the Bill provide for the notification of the Government and the Inland Revenue when promoters and those giving advice believe that schemes fall within the definition of "artificial and contrived", which is vital if we are to defend tax revenues in order to invest in our public services.
Mr. Quentin Davies: The Paymaster General said that my intervention, which she was kind enough to take, was too long, so I rise to take her up on one or two points. This afternoon's debate has become quite amusing, because she used an argument that she herself dismissed earlier in the debate to reject new clause 7. She says that one cannot make a viable distinction between a marketed scheme and a non-marketed scheme, because one cannot define what is marketed, so, in her words, "a grey area" exists between marketed and non-marketed schemes. Conservative Members have put that argument to her on the definition of "artificial and contrived", and a considerable grey area clearly exists.
The Paymaster General says that everyone knows what is "artificial and contrived", but I shall give her an example and take an intervention, if she wants to make one. What about transferring capital allowances from profit-earning firms to non-profit-earning firms through finance leases? That mechanism is classic, but surely it is "artificial and contrived." It must be contrived—presumably some clever tax accountant or lawyer thought it up 20 years ago when finance leases started—and it became a classic method of financing. It enabled companies whose profitability was not sufficient to do so to get full benefit from capital allowances by investing in
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plant and equipment, which is a socially and economically desirable objective that both Conservative and Labour Governments have sought to secure.
The Paymaster General has not intervened yet, but does she regard that example as "artificial and contrived"? The practice certainly did not flow directly from the original purpose of the capital allowances, which were effectively used by firms that were not making the corresponding profits, so one could describe that as both artificial and contrived. The right hon. Lady clearly does not know the answer.
Earlier this afternoon, the Government moved new clauses 9 and 10, which we did not oppose and which are designed to prevent from coming into effect artificial and contrived tax avoidance schemes that, we were told, have been marketed over the past few weeks. But she did not rely on her "artificial and contrived" definition to try to dispose of those particular schemes: she used the different mechanism of an anti-avoidance rule. Why does she not stick with that? Why does she not simply say that schemes will be disregarded by the Revenue if their main purpose is to avoid tax, as under new clause 10? That is a much more objective definition than "artificial and contrived".
The right hon. Lady cannot pray in aid new clause 10 because she adopted an entirely different approach to solving the problem of that set of schemes. She certainly cannot reject the argument that it is undesirable to have areas of doubt and uncertainty—grey areas—in tax legislation when they are put to her in one context, then five minutes later reject an Opposition amendment on precisely the same ground. There is a certain amount of irony, to put it kindly, in the position that the Government have taken up this afternoon.
Dawn Primarolo: The only irony is that the hon. Gentleman has not read the proceedings of the Standing Committee, during which I specifically gave the answer with regard to leasing and the disclosure rule.
Mr. Davies: The right hon. Lady did not then, or on any other occasion, define "artificial and contrived". I cited the lease as an example where doubt would exist ex ante as to whether it was artificial and contrived. She may well be able subsequently to say that she chooses not to regard it as artificial and contrived, yet it could have been considered to be so.
I am afraid that the right hon. Lady has not answered the question at all. We need a definition ex ante; otherwise, the only way in which we will get a definition is ex post, after a great deal of complicated and expensive litigation before the commissioners or the courts. What is more, as my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, it is inevitable that tax advisers will play safe. The e-mails and pieces of paper that travel between tax advisers and Revenue offices will increase greatly as everybody tries to cover themselves in knowledge of the penalties that will apply if it is subsequently, and retrospectively, deemed that a certain piece of tax advice was involved in an artificial or contrived arrangement.
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The right hon. Lady may live to regret this. I am afraid that by not giving us any guidance on what is artificial contrivance, and accepting a grey area in these matters that she rejects elsewhere, she has laid the basis for the problem that I fear will ensue.
Mr. Flight: All hon. Members will understand what the Paymaster General is trying to achieve and why. Our concerns, as echoed by my hon. Friend the Member for Grantham and Stamford (Mr. Davies), centre on why the arrangements as they stand can achieve it without leaving too great a grey territory in the middle. We have a lot to learn from the US experience in this area, and I trust that the right hon. Lady will continue to monitor that.
Morally, everyone knows when they are crossing the line between acceptable tax planning and artificial contrivance, but legally defining that is extremely difficult. For good reason, the Minister does not want a definition of artificial and contrived schemes in law. Only a few years ago, inspectors of taxes were telling people that trust arrangements were not caught by the gifts with reservation rules and were perfectly okay and acceptable, whereas now they are seen as artificial contrivances. Judgments as to where the line is drawn change over time.
We believe that the most important place to start in this regard must be with practical measures that will have some effect. That is why it is important to draw the line in relation to any form of promotion and selling; that is where we shall stop most of the problems, because that is where most of the abuse has taken place. We understand the Minister's point that a clever company could come up with its own fancy internal scheme. We do not deny that that could be a problem, and we understand why the Government are trying to catch that kind of problem. However, our concern is that the price of doing that will be a degree of mayhem in terms of how the financial industry and accountants operate, and in terms of what the Revenue gets landed with.
I am afraid that, although the Minister has convinced us of the worthiness of her intentions, she has not convinced us that she has addressed the problem of the grey territory in the middle. If that is not addressed, the arrangements will be damaging to the economy. For that reason of principle, we would like to register our point by pressing the matter to a vote.
Question put, That the clause be read a Second time:—
The House divided: Ayes 128, Noes 268.
AYES
Allan, Richard
Arbuthnot, rh James
Atkinson, David (Bour'mth E)
Atkinson, Peter (Hexham)
Bacon, Richard
Baker, Norman
Baldry, Tony
Barrett, John
Beggs, Roy (E Antrim)
Beith, rh A. J.
Bellingham, Henry
Bercow, John
Beresford, Sir Paul
Bottomley, Peter (Worthing W)
Bottomley, rh Virginia (SW Surrey)
Brady, Graham
Brake, Tom (Carshalton)
Brooke, Mrs Annette L.
Browning, Mrs Angela
Bruce, Malcolm
Burnside, David
Burt, Alistair
Cable, Dr. Vincent
Campbell, rh Sir Menzies (NE Fife)
Carmichael, Alistair
Cash, William
Chapman, Sir Sydney (Chipping Barnet)
Chidgey, David
Clappison, James
Collins, Tim
Cotter, Brian
Davies, Quentin (Grantham & Stamford)
Davis, rh David (Haltemprice & Howden)
Djanogly, Jonathan
Dorrell, rh Stephen
Doughty, Sue
Duncan, Alan (Rutland)
Duncan, Peter (Galloway)
Duncan Smith, rh Iain
Evans, Nigel
Fabricant, Michael
Fallon, Michael
Flight, Howard
Forth, rh Eric
Foster, Don (Bath)
Fox, Dr. Liam
George, Andrew (St. Ives)
Gidley, Sandra
Gillan, Mrs Cheryl
Grayling, Chris
Green, Damian (Ashford)
Greenway, John
Grieve, Dominic
Gummer, rh John
Harvey, Nick
Heald, Oliver
Heathcoat-Amory, rh David
Hendry, Charles
Hermon, Lady
Hogg, rh Douglas
Holmes, Paul
Horam, John (Orpington)
Howard, rh Michael
Jackson, Robert (Wantage)
Keetch, Paul
Kennedy, rh Charles (Ross Skye & Inverness)
Key, Robert (Salisbury)
Kirkbride, Miss Julie
Knight, rh Greg (E Yorkshire)
Lait, Mrs Jacqui
Lansley, Andrew
Laws, David (Yeovil)
Leigh, Edward
Letwin, rh Oliver
Lewis, Dr. Julian (New Forest E)
Liddell-Grainger, Ian
Lidington, David
Lilley, rh Peter
Loughton, Tim
McIntosh, Miss Anne
McLoughlin, Patrick
Maples, John
Mates, Michael
Maude, rh Francis
Mawhinney, rh Sir Brian
Mitchell, Andrew (Sutton Coldfield)
Norman, Archie
Öpik, Lembit
Osborne, George (Tatton)
Ottaway, Richard
Page, Richard
Prisk, Mark (Hertford)
Pugh, Dr. John
Redwood, rh John
Reid, Alan (Argyll & Bute)
Robertson, Hugh (Faversham & M-Kent)
Robertson, Laurence (Tewk'b'ry)
Roe, Dame Marion
Russell, Bob (Colchester)
Sanders, Adrian
Sayeed, Jonathan
Shepherd, Richard
Smith, Sir Robert (W Ab'd'ns & Kincardine)
Spicer, Sir Michael
Spink, Bob (Castle Point)
Spring, Richard
Steen, Anthony
Stunell, Andrew
Swayne, Desmond
Syms, Robert
Taylor, Ian (Esher)
Taylor, Matthew (Truro)
Taylor, Sir Teddy
Teather, Sarah
Tonge, Dr. Jenny
Turner, Andrew (Isle of Wight)
Tyler, Paul (N Cornwall)
Tyrie, Andrew
Walter, Robert
Waterson, Nigel
Watkinson, Angela
Whittingdale, John
Wiggin, Bill
Wilkinson, John
Willetts, David
Williams, Roger (Brecon)
Wilshire, David
Young, rh Sir George
Tellers for the Ayes:
Mr. Mark Francois and
Mr. Hugo Swire
NOES
Adams, Irene (Paisley N)
Ainger, Nick
Ainsworth, Bob (Cov'try NE)
Anderson, rh Donald (Swansea E)
Anderson, Janet (Rossendale & Darwen)
Armstrong, rh Ms Hilary
Atherton, Ms Candy
Austin, John
Bailey, Adrian
Banks, Tony
Barnes, Harry
Battle, John
Begg, Miss Anne
Bennett, Andrew
Benton, Joe (Bootle)
Berry, Roger
Betts, Clive
Blizzard, Bob
Borrow, David
Bradley, rh Keith (Withington)
Bradley, Peter (The Wrekin)
Bradshaw, Ben
Brennan, Kevin
Brown, rh Nicholas (Newcastle E Wallsend)
Browne, Desmond
Bryant, Chris
Burgon, Colin
Byers, rh Stephen
Cairns, David
Campbell, Mrs Anne (C'bridge)
Campbell, Ronnie (Blyth V)
Cawsey, Ian (Brigg)
Challen, Colin
Chapman, Ben (Wirral S)
Chaytor, David
Clapham, Michael
Clark, Mrs Helen (Peterborough)
Clark, Dr. Lynda (Edinburgh Pentlands)
Clark, Paul (Gillingham)
Clarke, rh Tom (Coatbridge & Chryston)
Clarke, Tony (Northampton S)
Clelland, David
Clwyd, Ann (Cynon V)
Coaker, Vernon
Coffey, Ms Ann
Cohen, Harry
Corbyn, Jeremy
Corston, Jean
Cranston, Ross
Cryer, Ann (Keighley)
Cummings, John
Cunningham, Jim (Coventry S)
Cunningham, Tony (Workington)
Davey, Valerie (Bristol W)
Davies, rh Denzil (Llanelli)
Davies, Geraint (Croydon C)
Dawson, Hilton
Dean, Mrs Janet
Denham, rh John
Dhanda, Parmjit
Dismore, Andrew
Dobbin, Jim (Heywood)
Dobson, rh Frank
Doran, Frank
Dowd, Jim (Lewisham W)
Drew, David (Stroud)
Dunwoody, Mrs Gwyneth
Eagle, Maria (L'pool Garston)
Edwards, Huw
Efford, Clive
Ellman, Mrs Louise
Ennis, Jeff (Barnsley E)
Etherington, Bill
Ewing, Annabelle
Farrelly, Paul
Field, rh Frank (Birkenhead)
Fisher, Mark
Fitzpatrick, Jim
Fitzsimons, Mrs Lorna
Flint, Caroline
Flynn, Paul (Newport W)
Follett, Barbara
Foster, rh Derek
Foster, Michael Jabez (Hastings & Rye)
Foulkes, rh George
Francis, Dr. Hywel
Gerrard, Neil
Gibson, Dr. Ian
Godsiff, Roger
Goggins, Paul
Griffiths, Jane (Reading E)
Griffiths, Nigel (Edinburgh S)
Griffiths, Win (Bridgend)
Grogan, John
Hall, Mike (Weaver Vale)
Hall, Patrick (Bedford)
Hamilton, David (Midlothian)
Hanson, David
Harman, rh Ms Harriet
Havard, Dai (Merthyr Tydfil & Rhymney)
Healey, John
Henderson, Doug (Newcastle N)
Hendrick, Mark
Heppell, John
Heyes, David
Hinchliffe, David
Hodge, Margaret
Hoey, Kate (Vauxhall)
Hope, Phil (Corby)
Hopkins, Kelvin
Howarth, rh Alan (Newport E)
Howarth, George (Knowsley N & Sefton E)
Howells, Dr. Kim
Hoyle, Lindsay
Hughes, Beverley (Stretford & Urmston)
Hughes, Kevin (Doncaster N)
Humble, Mrs Joan
Hurst, Alan (Braintree)
Hutton, rh John
Iddon, Dr. Brian
Illsley, Eric
Irranca-Davies, Huw
Jackson, Helen (Hillsborough)
Jamieson, David
Johnson, Miss Melanie (Welwyn Hatfield)
Jones, Helen (Warrington N)
Jones, Jon Owen (Cardiff C)
Jones, Kevan (N Durham)
Jones, Lynne (Selly Oak)
Jones, Martyn (Clwyd S)
Jowell, rh Tessa
Keeble, Ms Sally
Kelly, Ruth (Bolton W)
Kennedy, Jane (Wavertree)
Khabra, Piara S.
Kidney, David
Kilfoyle, Peter
King, Andy (Rugby)
King, Ms Oona (Bethnal Green & Bow)
Knight, Jim (S Dorset)
Ladyman, Dr. Stephen
Lawrence, Mrs Jackie
Leslie, Christopher
Levitt, Tom (High Peak)
Lewis, Terry (Worsley)
Liddell, rh Mrs Helen
Linton, Martin
Lloyd, Tony (Manchester C)
Llwyd, Elfyn
Love, Andrew
Lucas, Ian (Wrexham)
Luke, Iain (Dundee E)
Lyons, John (Strathkelvin)
McCafferty, Chris
McDonnell, John
McFall, rh John
McGuire, Mrs Anne
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
McNamara, Kevin
McNulty, Tony
MacShane, Denis
Mandelson, rh Peter
Marris, Rob (Wolverh'ton SW)
Marsden, Gordon (Blackpool S)
Martlew, Eric
Meacher, rh Michael
Meale, Alan (Mansfield)
Michael, rh Alun
Milburn, rh Alan
Miller, Andrew
Mitchell, Austin (Gt Grimsby)
Moffatt, Laura
Mole, Chris
Morgan, Julie
Mountford, Kali
Munn, Ms Meg
Murphy, Denis (Wansbeck)
Norris, Dan (Wansdyke)
O'Brien, Bill (Normanton)
O'Brien, Mike (N Warks)
O'Hara, Edward
Olner, Bill
O'Neill, Martin
Osborne, Sandra (Ayr)
Owen, Albert
Pearson, Ian
Perham, Linda
Picking, Anne
Pickthall, Colin
Pike, Peter (Burnley)
Plaskitt, James
Pollard, Kerry
Pond, Chris (Gravesham)
Pope, Greg (Hyndburn)
Pound, Stephen
Prentice, Ms Bridget (Lewisham E)
Prentice, Gordon (Pendle)
Price, Adam (E Carmarthen & Dinefwr)
Primarolo, rh Dawn
Prosser, Gwyn
Purchase, Ken
Purnell, James
Quin, rh Joyce
Quinn, Lawrie
Rapson, Syd (Portsmouth N)
Reed, Andy (Loughborough)
Robertson, John (Glasgow Anniesland)
Roy, Frank (Motherwell)
Ruane, Chris
Russell, Ms Christine (City of Chester)
Salmond, Alex
Savidge, Malcolm
Sawford, Phil
Sedgemore, Brian
Sheerman, Barry
Sheridan, Jim
Shipley, Ms Debra
Short, rh Clare
Skinner, Dennis
Smith, rh Chris (Islington S & Finsbury)
Smith, Geraldine (Morecambe & Lunesdale)
Smith, Jacqui (Redditch)
Smith, Llew (Blaenau Gwent)
Soley, Clive
Southworth, Helen
Starkey, Dr. Phyllis
Stevenson, George
Stewart, David (Inverness E & Lochaber)
Stinchcombe, Paul
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Stringer, Graham
Stuart, Ms Gisela
Taylor, rh Ann (Dewsbury)
Taylor, Dari (Stockton S)
Thomas, Gareth (Clwyd W)
Thomas, Simon (Ceredigion)
Timms, Stephen
Todd, Mark (S Derbyshire)
Touhig, Don (Islwyn)
Trickett, Jon
Truswell, Paul
Turner, Dennis (Wolverh'ton SE)
Turner, Dr. Desmond (Brighton Kemptown)
Turner, Neil (Wigan)
Twigg, Derek (Halton)
Tynan, Bill (Hamilton S)
Walley, Ms Joan
Ward, Claire
Wareing, Robert N.
Watts, David
Weir, Michael
White, Brian
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, rh Alan (Swansea W)
Williams, Betty (Conwy)
Wills, Michael
Wilson, Brian
Winnick, David
Winterton, Ms Rosie (Doncaster C)
Wishart, Pete
Worthington, Tony
Wright, Anthony D. (Gt Yarmouth)
Wright, David (Telford)
Wright, Tony (Cannock)
Tellers for the Noes:
Charlotte Atkins and
Joan Ryan
Question accordingly negatived.
6 Jul 2004 : Column 790
Clause 4
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