Commissioners for Revenue and Customs Bill

---

Standing Committee E

Tuesday 11 January 2005

(Afternoon)

[Mr. Alan Hurst in the Chair]

Commissioners for Revenue and Customs Bill

Clause 10

Treasury directions

2.30 pm

Mr. Andrew Tyrie (Chichester) (Con): I beg to move amendment No. 79, in clause 10, page 5, line 20, at end add

'except insofar as such directions conflict with the duty to act on behalf of the Crown as laid down by section 1(4)'.

We had a go at considering this issue via a couple of other amendments this morning and I shall now have another go at persuading the Minister that, as it stands, the Bill is not right. After what was said this morning, I am more worried than I was before. I was expecting some clarification that would assuage my concerns and go some way to address my future concerns, but I have not received it.

There are two basic issues in clause 10. With your permission, Mr. Hurst, rather than asking for a debate on clause stand part, I will cover all the points that I want to make about the clause in relation to the amendment. The first issue is: who controls Her Majesty's Revenue and Customs? The second is: who formulates tax policy?

The amendment addresses the question whether HMRC really is a non-ministerial department. It is worth exploring some basic principles about what we want the relationship between the two departments to be. We want the department to retain its independence and we want the tax collection process to be entirely disengaged from politicisation or putative politicisation. As I understand it, clause 1(4) is designed to do exactly that. It says that HMRC is a non-ministerial department and that it is technically responsible to the Crown.

However, clause 10 gives the Treasury a large slice of influence. Is it right that clause 10 should give the Treasury that amount of influence? On the basis of what the Minister said, I do not know what

''directions of a general nature''

are and how they contrast with directions of a specific nature, which are, by implication, ruled out. If ruling specific directions out was the intention, the clause could have said ''the commissioners need not follow directions of a specific nature given to them by the Treasury'' and added, ''in this clause, specific nature means'' and then had a definition. However, we do not have such a definition. We have a clause in which I fear that the Minister has muddied the waters.

I say in parentheses that I do not think that the Paymaster General or other Treasury Ministers have, in recent years, been engaged in nefarious activities or have tried to put pressure on the Inland Revenue to do
 
Column Number: 38
 
specific things. At any rate, I have no evidence to that effect; nobody has come to me to say that that is the case. What we are doing is putting in place legislation that may have an effect on some future Minister who may not act properly.

When thinking about the issue, I decided that the best way to illustrate my point was to take an example. Let us take corporation tax. A Minister decides to introduce a corporation tax and feels the need to direct the commissioners to introduce it. That seems to me to be clearly a direction of a general nature. The Minister then decides that they want collection of that tax to be a priority. More resources are to be put into the collection of that tax than into the collection of other taxes. That is still probably a direction of a general nature. However, I am already in an area about which, on the basis of what the Minister said, I am not sure. What if the Minister tells HMRC to collect every last penny due under the corporation tax, even if that means the non-settlement of cases and a huge increase in the number of disputes taking place about that tax—cases going to court and so on? Would that be an instruction of a general or a specific nature? We can use common sense but we have no way of knowing on the basis of what we have been provided with so far. I think that it would be a specific instruction with very far-reaching implications for the way in which tax is collected, and not what was intended and what I think any reasonable person would want to find capable of being directed under the clause. We have no way of knowing whether the clause would exclude such a direction on the basis of what the Minister said to me in Committee this morning.

I worry very much that there is a risk about powers. I think that the Paymaster General's words this morning, which I wrote down, were that ''they'' would need powers over the way in which the HMRC exercised its functions. I think that that is a very dangerous phrase and we need to know what it really means. What are the limits to those powers that the Treasury is taking on? So, I am not clear, after considering the clause, on the first question of who is really controlling HMRC.

Now I want to tackle something trickier. Under the clause, who will run tax policy? It is clear that the Treasury wants more of the cake. It has wanted more influence on tax policy on every occasion that I have been aware of, or have been involved in any way with, the Treasury. This is not quite the same thing and I acknowledge that, but page 10 of the excellent O'Donnell report by the Treasury states that

''the Treasury's capacity to advise on tax policy should be enhanced.''

There is a clear indication. However, I think that the Paymaster General said this morning that it was not the Government's intention to change the existing arrangements in any way. Whatever her intention might be, I am not too sure whether we will end up with exactly the same thing that we have had before.

I think that there are real dangers in this area and I am not alone in that. It is worth considering what the Institute of Chartered Accountants in England and Wales said about the new arrangements for policy
 
Column Number: 39
 
making, which was quoted in the Treasury Committee report. It said,

''there is a danger that this will widen the gulf which undoubtedly already exists between policy and operational issues.''

PricewaterhouseCoopers said:

''There is a risk that the policymaking of the combined body becomes more detached from the implementation and operation, and indeed from practical experience.''

Therefore, we are not talking about the Minister trying to do things that a reluctant commissioner or group of commissioners might not want to do. We are talking about whether the integration of tax policy with the operational side of tax collection is adequate and satisfactory in the light of the clause.

Let us consider other institutions that have been created, such as the Financial Services Authority. It is a body with a fine group of people at the top who, right from the start, have been thinking through very intelligent theoretical approaches to financial regulation. However, a great gulf has opened up between that and what is really occurring on the ground and what people have experienced as a consequence of regulation. What such voices—PWC and others—have been complaining about is that we might bring about a repetition of exactly that situation.

No doubt the Paymaster General will tell me—I think that she has already implied this—that she has not ever issued any of these directions. Of course, the relationship between a Minister and a Department is all about timing. Ministers do not turn up in the office and say, ''I want the following five things done and I want them by 3 o'clock; this is a direction under subsection (3) with something or other.'' Quite clearly, people ask for something to be done and nine times out of 10 it is done.

Occasionally, there is a row and when that happens the Chancellor will get involved and try to clear it up with a quiet word with the chairman of the Board of Inland Revenue, and when that fails there is a review meeting. Nearly 15 or 20 years ago I sat in on some of the meetings at which such interesting discussions took place. Such matters are resolved amicably—at least that was so in every case that I came across. This piece of legislation, however, might be entrenching the power to override the iterative process that I have just described. The Paymaster General will tell me that the process is exactly the same as we have had in the past and there is really no change at all, but we are not satisfied.

The danger is that this dispute will mean that the O'Donnell report turns out to provide a much weaker distinction than Gus O'Donnell alleged. In his own evidence, he made a distinction between strategy and policy development and policy maintenance and delivery. There is a problem of creating a Division 1 and Division 2 Inland Revenue, with one group of people who feel that they are top dogs, because they are involved in rarefied, terrifically exciting policy work and another group made up of the poor souls who are given instructions from the top table and told to run off and find a way to collect the money without
 
Column Number: 40
 
their views being taken fully into account as part of the policy-making process.

I am not happy with the clause. I would like a clear explanation of what ''a general nature'' means. I should also like clarification of the department's independence, which the Government say that they will retain. Perhaps the existing rules were always wrong—that is often so—but they were protected by precedent and how people did things. Perhaps the two changes—the creation of a new department plus the fact that there are existing policy-making arrangements whereby a group of people from the Inland Revenue are now sitting cheek by jowl with Treasury officials in the Treasury building—will create conditions in which understanding will be strained for the first time. That is one of the issues that has been perturbing me.

Mr. John Burnett (Torridge and West Devon) (LD): I am very grateful to the hon. Gentleman for giving way. I was not here this morning, for which I apologise, Mr. Hurst.

Do I understand the hon. Gentleman correctly? Does he believe that there are compelling reasons for greater co-ordination of tax policy and might that be done better by the Treasury? Nevertheless, there should be greater safeguards.

---

Prepared 11 January 2005