Finance Bill

[back to previous text]

Rob Marris (Wolverhampton, South-West) (Lab): I put it to the hon. Gentleman that his analogies are misplaced, particularly in terms of Labour party purchasing, VAT and so on. Certain people have ordered their tax affairs in a certain way. It is like betting on a greyhound race: they put their money on Running Whip in a six-dog race, halfway through the race the dog gets disqualified, and with the hon. Gentleman's approach, they want to go back and place a bet on one of the other five dogs.

The hon. Gentleman made his cheap political shots about VAT and the Labour party headquarters, but the distinction is that the greyhound race is over. It is a done deal—it is not somebody trying to change things halfway through. The tax affairs are finished. It is in contradistinction to the situation that he seems to want, in which people order their tax affairs in a certain way hoping that the tax regime will remain unchanged and that—to use my analogy—their dog will come home and win. That is not the case, because the dog was disqualified. People cannot return to the beginning, status quo ante, and put a bet on another dog.

Similarly, when the Government lowered the rate of income tax—both the basic rate and the standard rate—that was a change in the tax regime. People in that situation under those Finance Acts had already earned money in that tax year, and I suspect that the hon. Gentleman did not stand up and say, ''That's a change in the tax regime; those individuals earned money when they thought they were going to pay 23 per cent. standard rate tax, now they are going to pay only 22 per cent. That is retrospective and a breach of their human rights. They should still be paying tax at 23 per cent.'' I did not hear him saying that.

Mr. Flight: Without repeating what I have just said, the hon. Gentleman's analogy is not fair.

Column Number: 358

Mr. Mark Prisk (Hertford and Stortford) (Con): Not a runner.

Mr. Flight: Perhaps so. To be as clear as possible, there is a subtle difference between when things have been viewed as retrospective from a legal perspective and when they are retroactive. Self-evidently there are all sorts of situations where Governments of all persuasions will change income tax rules and that is obviously an essential flexibility.

There are precedents for legal changes to block tax avoidance schemes going forward rather than taking measures that effectively cast back to when whatever was done was perfectly legal. The Government have deliberately—indeed, the Paymaster General has made a virtue of it and boasted about it—found routes, of which clause 84 and schedule 15 are the greatest example, but this is another, to introduce measures that technically look retroactive, not retrospective, but within the established body of legal thinking are deliberately retrospective in their impact by past or established standards. It is not a question of a dog not coming in; the law was as it was for better or worse and the measures change what the law would have been in the past. I concede that this is a grey and difficult area, even within the territory of what is retrospective and what is retroactive.

This is a dangerous path to walk. An eminent past Labour Member of Parliament phoned me this week to complain, and cited a well-known parliamentary proceeding when the previous Conservative Government were attacked by Labour Members for measures that they viewed as retrospective in their impact. There was a great parliamentary debate and changes were made. The Paymaster General is being dangerously glib and self-righteous. It is a territory that needs constitutional analysis, which is why I have referred to the Joint Committee on Human Rights to see what it has to say.

It is right to block up perceived abuses and mischiefs. The Inland Revenue should be on the ball and block them up as soon as possible, but broadly the established practice is to block them up going forward, and especially where the measures can result in bona fides situations being unfairly caught. That is not a fair way of proceeding. The basis of this country's tradition of taxation is about consent. It is bogus for Governments of either party to stand up and say that it is the will of Parliament, so be damned. Ultimately, taxation relies on the consent of those paying it.

Dawn Primarolo: This is an important point about retrospection. The measure applies only to gains arising on or after 10 December 2003. Capital gains tax is an event-based tax. It is normal for capital gains tax changes, whether relieving or charging, to apply to disposals on or after the date when the change in question is announced. Any such changes will naturally affect existing arrangements because those are the ones being used for the avoidance and that would otherwise continue to be used. As the hon. Gentleman rightly identified, Governments of all persuasion seek to block avoidance when they see it.

Column Number: 359

10.15 am

The proposals also have transitional provisions that preserve any entitlement to private residence relief up to the date when the change came into effect. The use of that date featured in the procedure adopted by the previous Governments, and we are using it now. The conditions for entitlement and relief should take effect from 10 December 2003: the date when the change was announced. The relevant legislation and the explanatory notes were published at the same time as the announcement. Given that the hon. Gentleman has accepted that there is a mischief in this case, to allow avoidance to continue would mean an unnecessary loss to the Exchequer. Publishing the legislation and the explanatory notes makes it absolutely clear how the Government intend the legislation to operate from that date onwards.

That is not just a tried and tested route of this Government—I am not making a virtue of it, despite what the hon. Gentleman says—it is how the previous Conservative Government dealt with anti-avoidance measures, and it is perfectly proper to enact the provisions from the point when they are announced. I have said that we are not going back to undo, or returning to claims that are closed. We are simply saying that from 10 December 2003, the rules will operate and everybody has been told about that.

On that basis, I continue to argue that the measure is not retrospective, unless the hon. Gentleman is going to stand up and say that the previous Conservative Government got it all wrong when they introduced such legislation. He may disagree with the measure, but the Government rebut the accusation that it is retrospective. I am sure that it will continue to need proper scrutiny as we proceed, because it is important an important principle in taxation matters.

Mr. Flight: I will not prolong the point more than I have to. We have no objection to the principle that the next Budget and Finance Bill will change the law effective from a specified date, such as last December, and as the Paymaster General rightly comments, previous Conservative Governments did that. That is not the basis of our objection. She said that the net effect was not to go back and undo. I shall oversimplify, because it is complex territory, but the point is that when past Governments took anti-avoidance measures the net effect was on a going forward basis. The scheme or arrangement was dead from the future. It was not always grandfathered in terms of what the situation had been before, but that was the general principle. As the Paymaster General has commented, in a number of ways this Government have introduced punitive measures, as if to say, ''You naughty people, you undertook this avoidance planning in the past. We are introducing proposals that make sure that you get hit because of measures that were perfectly legal at the time you took them.'' That is why we have concerns. The area is sufficiently grey that there are some aspects that, in an historical sense, have precedent, but some that do not.

I will send the Paymaster General a copy of the letter, because I was impressed by the arguments that

Column Number: 360

counsel made about why introducing a new basis of taxing things is, in substance, retrospective, even though in law it may be retroactive.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That this schedule be the Twenty-second schedule to the Bill.

The Chairman: With this it will be convenient to consider new clause 11—Capital gains tax: foster carers and adult placement carers—

    'In the Taxation of Chargeable Gains Act 1992, section 224, after subsection (1) insert—

    ''(1A) Subsection (1) above shall not apply to any part of a dwellinghouse that is used exclusively for the purposes of a trade or business which consists of the provision of:

    (a) foster care within the meaning given by paragraph 4 of Schedule 36 to the Finance Act 2003;

    (b) accommodation and care to people placed through an adult placement scheme operated by a local authority, an HSS trust or an independent body.'.

Mr. Flight: We have had a sort of stand part debate. New clause 11 is related, but in a different territory. It—

The Chairman: Order. The hon. Gentleman is right, and under normal circumstances, I would have deemed that the stand part debate had taken place. However, new clause 11 is very specific and the points that it raises have not been covered.

Mr. Flight: New clause 11 touches on the issue of where private personal capital gains tax relief should apply, part of which schedule 22 is about. Both the Low Incomes Tax Reform Group and various charitable groups have raised that issue. As we understand it, fosterers of a child or of an adult needing care—individuals who look after such people in their homes—are deemed to be operating a business and are therefore denied capital gains tax private residence relief. That seems to us to be wrong and to be a major deterrent to fostering.

The new clause would remove a capital gains tax liability on a principal private residence in such situations. I hope that the Paymaster General will tell me that that is not, for one reason or another, the case anyway, but as I understand it, it is the case. It seems to me to be morally wrong that people are penalised if they are doing good in the community by fostering children or adults.

Previous Contents Continue

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

©Parliamentary copyright 2004
Prepared 25 May 2004