Income Tax (Trading and Other Income) Bill

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Second Reading Committee

Tuesday 14 December 2004

[Mr. Joe Benton in the Chair]

Income Tax (Trading and Other Income) Bill

8.55 am

The Economic Secretary to the Treasury (John Healey): I beg to move,

That the Chairman do now report to the House that the Committee recommends that the Income Tax (Trading and Other Income) Bill ought to be read a Second time.

May I say, Mr. Benton, how pleased I am to find you in the Chair this morning, overseeing this Second Reading debate, which is being conducted in Committee?

I am pleased to open this debate on the Bill, which rewrites our current legislation on the taxation of trading, property and savings and investment income. The Bill was produced by the Inland Revenue tax law rewrite project, which is a long term undertaking to modernise 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 of previous tax legislation. About 20 million people receive income of one variety or another that is taxable under those three schedules. Before I say more about the specifics of the Bill, the Committee may find it useful if I put it into context by explaining a little of the work of the tax law rewrite project.

The project was set up in 1996 by the right hon. and learned Member for Rushcliffe (Mr. Clarke). The hon. Member for Bury St. Edmunds (Mr. Ruffley) was his right-hand man at the time and had no small part to play in that. It is a project to rewrite the UK direct tax code, the provisions of which were enacted more than two centuries ago. The principal aim is that the rewritten legislation should be accepted by all main users as being clearer and easier to apply and as preserving the effect of the present law, apart from minor agreed changes.

This is the third Bill produced by the project. The first became the Capital Allowances Act 2001 and the second the Income Tax (Earnings and Pensions) Act 2003. The project has also rewritten the pay-as-you-earn regulations, in direct response to requests from users and representative bodies. The rewritten regulations took effect in April. The team on the rewrite project does an excellent job, and the rewritten Acts and regulations have been warmly welcomed by tax professionals and other users. The Chartered Institute of Taxation commented on the draft of the Bill, and it can be taken to be representative of users of the legislation, saying:

''We support the overall aim to rewrite the United Kingdom's primary direct tax legislation with a view to making it clearer and easier to use.''

 
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The Institute of Chartered Accountants in England and Wales, another representative body, said that

''the draft Bill was well constructed and we commend its drafting. It covers important ground and, as it facilitates taxpayers' easier understanding of legislation which will affect very many of them, it is a useful addition to the rewritten legislation''.

I acknowledge in return that the Bill simply could not have been rewritten without the substantial investment made by those and other organisations in commenting on the draft legislation and on particular issues raised during the project. The project does its work in a methodical, deliberative and consultative way, still guided by the principles set out when it started in 1996.

Sir Teddy Taylor (Rochford and Southend, East) (Con): Is not the Minister being a little unfair—I know that he is a very fair person—in not giving credit to the previous Government for the planning of this difficult measure, which was introduced in the 1996 Budget by a very controversial Conservative Chancellor?

John Healey: I am sorry if the hon. Gentleman missed it, but I paid due and full tribute to the previous Chancellor, the right hon. and learned Member for Rushcliffe, for introducing the project, and to the hon. Member for Bury St. Edmunds, now one of the hon. Gentleman's colleagues, who was with the then Chancellor as a special adviser in the Treasury. In a moment, I shall pay tribute to the substantial role played by Lord Howe of Aberavon in chairing the steering group. One characteristic of the project, and one of the strengths of the legislation, is that it has strong all-party support as well as professional support from outside the House.

The project aims to restructure existing legislation into a more logical order for its present purpose. However, it recognises, as will hon. Members, because they have all studied sufficient statutes in their time, that even if the legislation is rearranged into a coherent structure, readers may still need help to find their way through it. The project therefore includes, as standard, many navigational aids to the reader, such as introductory scene-setting chapters and signposts to other relevant provisions, and formulae, tables and method statements that help to illuminate the principles and practice of the legislation. Other features are shorter sentences, modern language and more consistent definitions. All those features should combine to make a new style of tax law that is more accessible, easier on the eye and more user friendly.

It must be made clear that one thing that is beyond the remit of the tax rewrite project is making any change to main tax policies. Its work can, none the less, encompass minor changes, if they will improve legislation. Examples of such changes would be new provisions to fill gaps in existing legislation—perhaps in place of existing extra-statutory concessions—the repeal of obsolete material, the correction of minor anomalies, or other minor changes of that nature.
 
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Major changes will always be matters for a Finance Bill, but there is general consensus that minor housekeeping matters can be proposed for rewrite Bills, providing that they are flagged up clearly in the consultation process so that they can be properly considered. Moreover, such matters must always be subject to the Joint Committee's acceptance, which is part of the process of passing the legislation through both Houses.

The consultation process is extremely rigorous. The first two rewrite Bills—on capital allowances and earnings and pensions—confirmed the importance of full consultation throughout the process of developing the Bill, and even after publication of the draft Bill, with the people who use the legislation daily. The project team therefore adopted that approach from the outset, and consulted the UK tax community and other interested parties.

The work of the project is overseen by a high-level steering committee appointed by my right hon. Friend the Chancellor of the Exchequer. The committee is chaired by Lord Howe of Aberavon, whose interest in, commitment to and enthusiasm for the project is unflagging. I pay tribute to his substantial contribution to its successful work. Other members of the steering committee are drawn from both Houses of Parliament, the judiciary, the legal and accountancy professions, and business and consumer interests. There is also a consultative committee, the members of which are drawn from the main representative bodies in the tax world and the world of business and consumer affairs.

For wider consultation, the project publishes papers containing blocks of rewritten legislation with commentaries. Moreover, the consultative process does not stop with formal papers. The project is making more use of its website. Over the past two years it has published work in progress in the form of early drafts or changes to previously published work.

I stress the way in which the project and the consultation are managed to underline the degree of scrutiny and consensus behind the Bill by the time it reaches us. It is right to pay tribute to all the users who have played an important part in ensuring that the tax rewrite project lives up to its original aims. All those involved in the consultation have made and continue to make an invaluable contribution to the project's success. The Paymaster General and I value their commitment to the project team in helping to ensure that its work is as accurate and of as high a quality as possible.

It may be helpful to say a few general words about the legislation, although detailed scrutiny will take place in the Joint Committee to which I hope this Committee will pass the Bill. The charge to income tax is currently broken down in schedules A, D and F, which apply to income tax and corporation tax. Before
 
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the Income Tax (Earnings and Pensions) Act 2003, schedule E dealt with income from employment, pensions and taxable social security benefits. The Bill tackles the income charged under schedules A, D and F and brings the charging and calculation rules for the different sorts of income together in updated classifications, such as trading, savings and investment income.

Unlike the current legislation, the Bill integrates foreign income into the same parts as equivalent UK income, confining any special rules that apply to foreign income to a different part of the statute. The Bill applies only to income tax. The project consulted at an early stage on whether to aim for a greater separation of the income tax code from corporation tax. Users of the legislation are in favour of making that fit, as they made clear from the outset. Where the legislation rewritten in the Bill applies to both codes, the current provisions will be repealed for income tax purposes only and will continue to apply to corporation tax.

I have already mentioned in general terms the extensive consultation that is the hallmark of the tax rewrite project's work. Eighteen consultation papers were issued on this piece of legislation between May 1997 and the publication of the draft Bill this March. A formal response document summarising the comments made on the draft Bill and setting out how the project has taken account of them was issued in September.

This is an immensely worthwhile project that modernises our current direct tax legislation, making it clearer and easier to use. The Bill is a major milestone in the work of the project, but still more remains to be done to complete the rewrite on income tax. The Bill is a demonstration of significant progress and maintains the project's excellent track record on improving the existing legislation. I commend it to the Committee.

9.8 am

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Prepared 14 December 2004