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Orders of the Day
Income Tax (Trading and Other Income) Bill
Motion made and question put forthwith, pursuant to Standing Order No. 60(8),
3.31 pm
The Economic Secretary to the Treasury (John Healey): I beg to move, That the Bill be now read the Third time.
I am pleased to open this debate on the Bill, which rewrites our legislation on the taxation of trading, property, and savings and investment income. The Bill has been produced by the Inland Revenue tax law rewrite project, which is a long-term undertaking to rewrite our direct tax legislation so that it is clearer and easier to use. This is the second rewrite Bill to venture into the realms of income tax and it does so in a significant way, by tackling schedules A, D and F in the current legislation. About 20 million people receive income of one variety or another that is taxable under these schedules.
Before I say more about the specifics of the Bill, it might be appropriate to remind the House of the work of the tax law rewrite project. The project was set up in 1996 by the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke). It is a project to rewrite the UK direct tax code, the provisions of which have been enacted over at least the past two centuries. The principal aim of the project is that the rewritten legislation should be accepted by all the main users as clearer and easier to use. While making the legislation more accessible, the project also takes great care to preserve the effect of the present legislation, apart from minor agreed changes, and it proceeds through careful consultation and consensus. It is beyond the remit of the project to make any change in the main tax policies. However, the rewrite can encompass minor changes where they will improve the legislation. Examples of such changes are the inclusion of extra-statutory concessions, the repeal of obsolete material and the correction of small anomalies. The explanatory notes list 159 such changes in the Bill.
In its consideration of the Bill, the Joint Committee focused in particular on the minor changes and satisfied itself, and reported to the House, that they were all within the remit of the project. It also heard that the project had dropped any proposed changes that did not meet the approval of its two external committees. The Joint Committee noted the widespread public scrutiny of the Bill as a whole, and of the minor changes in particular, which were flagged up very clearly at each stage in the consultation process.
In the run-up to the Bill, 18 separate consultation papers were published, and the Bill was published in draft form last March. All were published for public consultation. In addition, a response document summarising the comments made on the draft Bill and setting out how the project has taken account of them was issued last September.
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Of course, consultation does not stop with formal papers. The project continues to consider other ways to involve users of tax legislation and keep them informed so, over the last two years, the project has made much more use of its website to publish work in progress in the form of early drafts or changes to previously published work.
It may be helpful if I say a few words about the content and approach of the Bill, which is the third of the tax law rewrite project. The charge to income tax is broken down into a number of schedules. Over the years, schedules have come and gone, but currently we have schedules A, D, and F. The Bill tackles income tax charged under those schedules. It brings the charging and calculation rules for the different sorts of income together in updated classifications, such as trading income, savings and investment income, and property income. Unlike current legislation, it integrates foreign income in the same parts as equivalent United Kingdom income, confining any special rules that apply to foreign income to a different part.
The Bill applies for income tax only. The project consulted at an early stage on whether to aim for separation of the income tax code from the corporation tax code. Users of the legislation favour making this separation, so where the legislation rewritten in this Bill currently applies to both codes, the current provisions will be repealed for income tax purposes, but will continue to apply for corporation tax.
The Joint Committee heard that this Bill is the first step in the separation of the income and corporation tax codes. The project will consult further on the extent to which corporation tax provisions should be rewritten in full or should cross-refer to income tax Acts.
Various techniques have been used in the Bill to make the legislation clearer and more accessible. The first and most important element is the imposition of a coherent structure. Instead of the haphazard order of provisions in the existing legislation, the Bill presents all the material in a logical way, with linked topics grouped together.
The Bill also contains plenty of aids to the reader, such as introductory scene-setting chapters and signposts to other relevant provisions. These are designed to help readers to find their way through what is, inevitably, a large body of legislation. Other features of the rewrite process include shorter sentences, modern language, more consistent definitions and greater use of other reader aids such as formulae, tables and method statements. All this combines to make a new style of tax law that is more accessible and altogether more user-friendly.
The project continues to enjoy the strong support of users of the legislation and I am also happy to say that it continues to command strong support from both sides of the House. I pay tribute to Members of the House and of the other place who have played a part in the scrutiny of the provisions to date. The comments made by the representative bodies confirm that this latest Bill from the project has indeed been well received. The Institute of Chartered Accountants in England and Wales said that the Bill, as published in draft last spring,
"is well constructed and we commend its drafting. It covers important ground and . . . facilitates taxpayers' easier understanding of legislation which will affect very many of them, it is a useful addition to the rewritten legislation."
The Chartered Institute of Taxation said:
"we recognise and commend the huge amount of detailed work that has gone into the production of this Bill . . . please extend our congratulations to the entire Project for what is on balance a mammoth and an excellent product."
To sum up, this is an immensely worthwhile project that modernises our direct tax legislation, making it clearer and easier to use. This, the second income tax Bill, is another major milestone in the work of the tax law rewrite project. Work remains to be done to complete the rewrite of income tax, but the Bill is a demonstration of significant further progress and it maintains the project's excellent track record on improving current legislation. I commend it to the House.
3.44 pm
Mr. George Osborne (Tatton) (Con): As I said on Second Reading, the Conservative party very much welcomes the latest product of the tax law rewrite project, which, as the Economic Secretary said, was set up by the previous Conservative Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). Anything that reduces the impact of the taxes that we impose on taxpayers, certainly in a regulatory sense, is welcome.
I cannot resist welcoming the Liberal Democrat presence, as it was completely absent from Second Reading, as the Minister might remember, which is strange given that the Liberal Democrats are particularly fond of income tax and want to increase the top rate, introduce a regional income tax, local income tax and so on. Under the Liberal Democrats, we would therefore have a lot more tax and a lot less income. Nevertheless, I welcome the hon. Member for Twickenham (Dr. Cable) to his place for Third Reading.
The Economic Secretary mentioned in his short speech the history of income tax and that it was set up at the end of the 18th century to pay for the war with France. At the time, it provoked an outcry in the House of Commons. Charles James Fox, no doubt speaking from this side of the House at the time, said that income tax
William Pitt had personally designed the new tax system in his combined role of Prime Minister and Chancellor—an arrangement that I am sure that the current Prime Minister would look on with envy—to stabilise the country's finances. I wonder what would happen were Fox and Pitt to glimpse our proceedings today in this near-empty Chamber as we remove from the statute books what remains of the schedule structure of the Income Tax Act of 1803. We are witnessing a little bit of history. As someone who studied history at university, I think it is worth mentioning that.
Of course, the Bill also separates income tax and corporation tax law for the first time since corporation tax was introduced in 1965. That will have a significant impact on 20 million taxpayers, 5.7 million recipients of tax credits and 47,900 tax practitioners, as well as on the
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£22 billion of revenue collected by the taxes represented in this legislation. The fact that we can pass this Bill, with its 886 clauses, with some confidence that it only makes our direct tax law simpler, more consistent and easier to use, and is not being used as a stealthy tax-raising measure, is down entirely to the heroic work of the three committees that oversee the rewrite project mentioned by the Economic Secretary.
The first of those is the Joint Committee of both Houses, which scrutinises the Bill to make sure that the letter but not the spirit of the law is being rewritten. Like the Economic Secretary, I pay tribute to my right hon. and learned Friend the Member for Rushcliffe for chairing that Committee. It is appropriate that he stays involved, as the Chancellor who established the tax law rewrite project nine years ago. When it met last month, the Committee concluded that it was satisfied that
"the only changes that the Bill makes to the existing law are of such minor significance that they need not be referred to the attention of Parliament."
I am grateful for its work. I have read the proceedings and it is clear that it grilled the officials involved. Clearly, while I suspect that the Chancellor of the Exchequer is desperate to increase income tax revenues to fill his black hole, this Bill will not be his way of doing it.
Another important check on the process is the steering committee. I pay tribute to another former Chancellor, who chairs it—Lord Howe of Aberavon, who also sits on the Joint Committee. Lord Howe is a driving force behind the tax law rewrite project, and the Economic Secretary and I can attest to his personal interest in the Committee proceedings, as he sat in the public seats upstairs to listen to us, which is probably the first time that a former Chancellor has done so. His presence was very welcome.
I also thank my right hon. Friend the Member for Fylde (Mr. Jack) for his work on the steering committee. As I said on Second Reading, the whole project seems to be aimed at establishing a retirement home for former Treasury Ministers. I repeat my offer to appoint the Economic Secretary to it on 6 May.
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