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Mr. George Osborne (Tatton) (Con): I won a bet in the Tea Room this morning when I said that I was to debate the Second Reading of a Bill in Committee and challenged people to name what Bills are debated in that way, but I am delighted to be here. The project is immensely valuable, as the Minister says. It began under the previous Conservative Government, and the Conservative Opposition continue to support it.
At the risk of repeating something like an Oscar award acceptance speech, I, too, should pay tributes. I start by paying tribute to Lord Howe, although I am not sure whether it is in order to refer to the fact that he is in the Room listening to our proceedings and do not know whether that will appear on the record. A huge amount of work has been done under his chairmanship of the steering committee. I pay tribute to him, to my right hon. Friend the Member for Fylde (Mr. Jack), who serves with him, and to all the other
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hon. Members on that committee. I pay tribute to the other former Chancellor, my right hon. and learned Friend the Member for Rushcliffe, who initiated the project and chairs the Joint Committee, which does an important job. After the Bill leaves this Committee, assuming it gets a fair wind, it will go to the Joint Committee, which scrutinises the detail. I shall deal with that later.
The whole tax rewrite project seems to be a retirement home for former Chancellors and Treasury Ministers. So, I look forward, on 6 May 2005, to appointing the Economic Secretary to it. I reiterate my thanks, and those of my party, to the members of the consultative committee and the various representatives of the industry, by which I mean the businesses, accountancy firms and tax lawyers who are at the sharp end of the legislation that we are discussing today and the general legislation that we pass in relation to tax. Anything that we can do to make the impact of tax compliance less burdensome is good work as far as I am concerned.
I notice that the Treasury now regards the whole project not as a rewrite, but as ''modernisation''. A press release from the Inland Revenue talks about modernising UK direct tax law. It is good to know—I think this is always the case in politics—that the Chancellor and the Prime Minister started using language seven or eight years ago that has eventually filtered down to the press offices of the various Departments, long after the Prime Minister and the Chancellor abandoned it; I came across the ''third way'' in a press release a couple of days ago, which is a classic example of that.
Whether the process is modernisation, rewriting or just making tax simpler and easier to understand, it is obviously a good thing and a good investment of our time and resources. We rely on the Joint Committee to do the hard work, which is ensuring that the Bill mainly changes the language of the legislation rather than its substance. Of course, trust in that process is vital, because it should not be used as a mechanism for stealthy or unconscious changes to the substance of tax law.
As the Minister acknowledged, we are talking about small and substantive changes to the tax law. He called them ''minor housekeeping'' and they are helpfully set out in the explanatory notes. I think that there are 159 substantive changes that have an impact on taxpayers. We should not be under the illusion that there is no impact. Indeed, the explanatory notes make that clear and in relation to a number of cases they repeat the mantra:
''This change is adverse to some taxpayers and favourable to others in principle and in practice. But the numbers affected and the amounts involved are likely to be small.''
I suppose that that is somewhat reassuring, unless one is one of the small number of taxpayers who are adversely affected. If one reads through the Bill and the
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notes at random, it is clear, for example, that the changes to the tax deduction that is allowed for patent fees, in clauses 89 and 90, will have an adverse impact on some taxpayers, and change 42, which is brought about by clause 150, alters the tax rules for securities held as circulating capital. Does the Inland Revenue make any assessment of the impact on taxpayers and the impact on revenue? I understand that we are talking about small housekeeping changes, as the Minister said, but will there be any general impact, because I have not come across any in the information provided on the revenue impact of the Bill? According to the Inland Revenue, many of the changes appear to be favourable to taxpayers, so maybe the result will be a diminution of revenue. What will the impact be? Will there be any hard cases? Although we may be talking about a small number of taxpayers, it is important that we, as their representatives, at least make some attempt to assess whether individuals will be particularly adversely affected. I would be grateful if the Minister said something about that.
In addition, I have some general questions. What are the future plans for the tax law rewrite project? The Minister mentioned that at the end of his speech, but he did not say much about it. When it was launched in 1996, it was expected to take five years. Obviously, we are now eight years from that point and, as he says, there is still more to be done on income tax in terms of the tax law rewrite. That is not a criticism, and I am not blaming anyone for the delay. It has obviously been a bigger task than many people imagined at the time, and it will be a good thing if we get it right. Does he have a future timetable for it? Will it end with direct taxation—that is, with just another income tax Bill—or will it move on to capital and corporation taxes? Whose decision will that be? Will it ultimately be one for Ministers and the Government, or will they largely act on the recommendations of Lord Howe's committee?
That brings me to a second and related point, which is the cost of the tax law rewrite project. According to the regulatory impact assessment, the cost of producing the Bill is £8 million, although that is spread over several years and some of it would have been incurred anyway in routine consolidation of tax law. Are there any costs for the overall tax law rewrite project, and what sort of sums are we talking about? I am sure that it is money well spent, but it is right to ask the Minister how much is being invested and how much it is envisaged will be invested in future.
My third point is about how we can ensure that our time is not being completely wasted when we examine the Bill. How can we be sure that the Government will not replace large chunks of it in the next Finance Bill with legislation that is not as simple or clear as that produced by the tax law rewrite committee? That is not an idle point, because that is exactly what happened to the last tax law rewrite Act—the Income Tax (Earnings and Pensions) Act 2003. Only a couple of months after it came into force, a large chunk was replaced by schedule 22 of the Finance Act 2003, which was not written in as simple and clear language.
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That point was brought up by the Inland Revenue in a document called ''Tax Law Rewrite: Plans for 2004/2005''. It appears under the name of someone called Basil Rajamanie. I do not know whether he is in this Room, but he lives in Room 826 of the south-west wing of Bush house on the Strand. The document makes these points:
''Critics argued that the style and format of Schedule 22''—
the bit that replaced a lot of the tax law rewrite legislation from last year—
''compared unfavourably with the quality of legislation produced by the project; and that it was highly unfortunate that a substantial part of the second Tax Law Rewrite Act had to be replaced so quickly by new legislation that was perceived to be of lower quality.
The topic received considerable public airing. It was also discussed on several occasions by the project's Committees . . . It is a difficult but very important issue. On one hand, it may be hard to produce comprehensively well-structured legislation in the context of the Finance Bill, for which in some instances the drafting has to be done under time pressure and with decisions being taken late in the process. On the other hand, it is clearly highly desirable that (so far as possible) new legislation amending a Rewrite Act should emulate and match the quality of the original.''
The Inland Revenue goes on to say that
''this is an issue that will no doubt stay with us—to some degree—and on which we must continue to work. It will be a priority in 2004-05 to keep this issue in front of us and to promote further discussion about how best to tackle it.''
I have done my best to do that, but I will be interested in the Minister's comments. If Finance Bills, because of how they are produced, are inevitably less clear, and if less time is available to make them consistent with the tax law rewrite project, is the Minister conceding that the project will be with us forever, constantly rewriting finance legislation?
I want to make one point in passing, as this is a Second Reading debate. What will the Government do to start making not just the language but the substance of tax law simple and clear? There is an example in the Bill. According to the committee, 5.7 million families who have to deal with the complexities of the tax credit system will be sucked in; I am not sure that the Government anticipated that. There are also the 4 million extra people who have been paying income tax over recent years under this Government and who therefore have to deal with the complexity of the direct tax system.
I understand that this discussion is probably too broad for our debate, but I merely note that Tolley's tax guide, which we all know is the bible of tax accountants, and which, I am sure, sits on the bedside tables of Labour Committee members, has grown by 30 per cent. under this Government and is now published in an extra-small print to take into account all the complexity produced by the Chancellor. Of course, that complexity encourages evasion, increases burdens on businesses and individuals, and distorts people's behaviour.
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In this debate, it is probably too much to ask the Minister—or, indeed, the Chancellor—to give us a simple and clear tax system, so we will have to make do with simple and clear language. I welcome the Bill and wish it well.
9.21 am
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