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Mr. David Laws (Yeovil) (LD): I join the hon. Member for Chichester (Mr. Tyrie) in thanking the Paymaster General and the Economic Secretary for the briefing that they gave us a week or so ago. In particular, I thank the Paymaster General for returning to me an item of clothing that I left in her office at the end of our discussion. [Hon. Members: "Oh!"] I should clarify that it was a coat. Her generosity in bringing it back to the House was welcome, especially as it was a cold day.

I also join the hon. Gentleman in broadly welcoming the Bill. We share the view of Martin Taylor who, in the evidence that he gave to Gus O'Donnell's report, which was produced in March, said that the separation of tax-gathering departments is anomalous in a modern economy. That is an accurate assessment of the position and I pay tribute to those bodies, such as the Treasury Committee, whose Chairman and other members have been in their places today, for their work in drawing attention to the potential benefits of merger. I am especially pleased that they have indicated that they will continue to track the progress of this merger over the next few years, because that will be important.

We share many of the detailed concerns that the hon. Gentleman outlined and I shall set out some of those in a minute. I am also pleased that the hon. Member for Bexleyheath and Crayford (Mr. Beard), who is also a member of the Treasury Committee, emphasised in his contribution the importance of addressing the tax gap through the merger of the two departments. The Paymaster General gave a long, detailed and helpful speech, but the one area on which she was a little light was an emphasis on how, over time, the merger will seek to address that important issue. I am glad that the hon. Gentleman put it at the centre of what the Government strategy should be.
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Although I started by saying that we broadly welcome the Bill, we also share the concerns expressed by the hon. Member for Chichester (Mr. Tyrie) and by many of the professional bodies about how the merger will work in practice, and we share Martin Taylor's view—set out in his submission to Gus O'Donnell—that the change will be risky, perhaps very risky. We also share the view of the Law Society that major gains could be made from the merger if it is conducted well. The devil will be in the detail and the delivery of the changes. If the Government and those people responsible for delivering and implementing the merger get the detail and the delivery wrong, what could be a triumph—in the Government's mind—could turn into a disaster. It is the risks on which I shall concentrate, bearing in mind that the Bill is essentially a modest mechanism to get the merger up and running, leaving some of the important decisions about powers for consultation and implementation to a later date.

I shall start by setting out the points of agreement with the Government. The first is that although there are many areas in the Inland Revenue and Customs and Excise with no obvious overlap in responsibilities, we can see the potential for cost savings within the new department and in compliance for businesses. We also believe that there is a potential for improving action against tax evasion and avoidance. In our view, and as the Treasury Committee concluded—the Government appear to agree—those gains are more likely to be secured by a merged department than by keeping the two departments separate and trying to institute measures to ensure co-operation between the departments, including some of the measures that have been in place in recent years.

The second reason we support this change is that although it will lead to considerable overhauling of the two departments and, potentially, some disturbance to their activities in the next few years, I would be very surprised if it did not expose the scope for doing business considerably better and at less cost. When I was in the private sector, one particular company used to refer to Spanish practices that built up over time and institutionalised inefficiencies. I am not sure that it is politically correct to refer to such practices in that way now, but I am sure that the merger will reveal areas where things could be done considerably better.

Thirdly, we welcome the mechanism through which the Government will deliver the merger. The O'Donnell report clearly set out different options for the Government in proceeding with the merger, including legislating rapidly for the new department on issues such as its powers or taking a more leisurely approach and allowing plenty of time for consultation on the powers of the new department. The Government have taken a sensible approach in introducing this modest enabling Bill and leaving time and scope for consultation. We share the welcome voiced by the hon. Member for Chichester for a consultation paper in January that will allow people an early chance to feed their views into the Finance Bill for 2006, regardless of which party will then be in power.

The fourth area of agreement is on the establishment of a new Revenue and Customs Prosecution Office. As my hon. Friend the Member for Torridge and West
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Devon (Mr. Burnett) said earlier, he has argued for such a body for some time, and it was also proposed in the Butterfield report. It is a sensible change.

The fifth and final area is one in which I differ from the hon. Gentleman, although I acknowledge that he has more experience and skills in such matters, so I may be making a mistake. Nevertheless, I welcome the fact that the Government will take back some control over strategic leadership on tax policy from the two departments and put it in the Treasury. That is where it belongs.

Dawn Primarolo indicated assent.

Mr. Laws: The Paymaster General may not nod so enthusiastically at my next point. I believe that considerable weakness and lack of coherence has been evident in tax policy for a long period. There has been a lack of assessment of the costs and benefits of new tax proposals. Tax changes have appeared to follow short-term political imperatives and the initiatives brought forward by the Chancellor, or have followed attempts to plug tax loopholes as they emerge, no doubt on the sensible advice of the two Revenue departments, rather than being part of a coherent, long-term tax strategy.

I pray in aid the O'Donnell report, which said that

in other words, has been—

That refers to the two Revenue departments and the Treasury. On page 99, the report also implies that at present Treasury officials—and the Treasury as a whole—may be more reactive than proactive in relation to tax policy. The report talks of ministerial policy initiatives and the co-ordination and presentation of overall tax policy—an important part of the Government's work on tax—but says little about setting a broad tax strategy. I hope that the new approach to management of such matters will leave much of the expertise in developing tax policy in the new merged department, especially in relation to anti-evasion and avoidance activity. I hope that it will also lead to a more strategic perspective in the Treasury. This is certainly an opportunity for a more strategic approach to tax policy, which many businesses would welcome. It would also bring about an obligation to be more strategic on tax policy and to simplify taxation.

As the Chartered Institute of Taxation said in its paper on the benefits of the merger for business:

not least if the staff in the new merged department are really able to interact with customers, particularly business customers, as part of a one-shop stop. In that regard, Martin Taylor, in his submission to the O'Donnell report, said that

Mr. Tyrie: I agree with much of what the hon. Gentleman has just said, but surely the lack of high-quality cost-benefit analysis for tax changes, the
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increased complexity of the system, the need for more simplicity, the obsession with tax avoidance and many other things are the responsibility of Ministers not of administrators. It is to blame administrators for decisions taken by politicians to suggest that a reorganisation of the structure can solve the problems to which he has alluded.

Mr. Laws: The hon. Gentleman is right: ultimately, Ministers have accountability for determining tax strategy and pursuing it. I am sure he is also right to say that revenue Departments and Treasury officials, if given clear and helpful advice about how Ministers want the tax system to develop, would deliver the necessary policies. However, my sense of the way things have worked in practice over recent years is that that has not actually happened, partly perhaps because much of the tax policy expertise has been in the individual revenue Departments rather than centrally. I may be naive in thinking that this reform will change that aspect of the system, but I live in hope.

As we debate the detail of the Bill, we must remember that many people outside in the real world, especially in the business world, will not be as interested in the small elements and small changes in the Bill as in what it will mean over time for the tax system as a whole. David Frost, the director general of the British Chambers of Commerce, summed up the general view of tax practitioners and business men about the British tax system when he wrote recently:

I hope that setting up the merged department will be the opportunity for a more coherent tax strategy and that it will galvanise the Government into simplifying the tax system, because without simplification the benefits of merger will be much less than they might otherwise be.

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