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Mr. Gummer: That is not only true but self-evident. I do not wish to go down that line, but I do notice that whenever one talks about the importance of the family, of stability, of passing on what one generation has worked hard for, not a grimace but an expression of laughter appears on the faces of particular Labour Members. They laugh because they do not really understand what it is that has kept the nation stable over the generations, and which also motivates most people.
Anyone of my age who asks their friends why they are still working will discover that they are doing so because they believe that it is contributing to the continuity of their family and to the well-being of the children and grandchildren whom they care about. A state that does not take that into account is very mistaken.
This issue is important in the context of the new clause, and for two fundamental reasons. First, let us consider a situation in which someone has sought properly and in reasonable terms to make their affairs as least taxable as is proper within the regime, but who then finds that although they have done nothing illegalindeed, the courts supported their actionthey are penalised according to the vague view that everybody ought to pay as much tax as they possibly can, rather than as little as they are legally liable to pay. Such a situation undermines people's respect for the tax system. Asking people to find new ways in which to make themselves taxable does not constitute a proper tax system.
A proper tax system recognises that although people have to pay the tax for which they are liablethey might choose to vote for a party that reduces taxthey should have no reason at all to fear that if they arrange their affairs so that, perfectly properly and legally, they pay less tax than if they had arranged them otherwise, they will be penalised, including retrospectively. I do not want to discuss retrospectivity, but I should point out that I realise that the Paymaster General, whose definition of retrospectivity is wrong in both dictionary and moral terms, does not want to turn retrospectivity into a punishment in this regard.
I turn to the second and equally important issue. If people feel that they are no longer being treated fairly by the tax system, those who have always been law abiding will be less so. The fairness of a system is crucial to widespread support for it, and to objections against those who break the law. I offer a direct comparison. It is much easier to get the sympathy of one's neighbours if one drives a motor car at 32 mph in a 30 mph limit in the middle of the night than if one drives over the drink limit. The reason why is that everybody recognisesindeed, there has been a very good bipartisan campaignthat drinking and driving is dangerous and unacceptable socially. Therefore, peer pressure is very strong and properly so, particularly and noticeably among young people. If one breaks the speed limit in the circumstance that I described, people tend to feel, "Well, it was the middle of the night and nobody was around." Such an act is certainly illegal, and of course the law has to be obeyed and applied. But my point is that once there is a feeling of unfairness, the social and peer pressures reduce.
I want a tax system that is so clear, obvious and open that people believe thatwhether or not they like the tax, the Government or the Paymaster Generalthey
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ought to pay it. That seems to me to be right. If they want that system changed, they should find, through the democratic system, somebody who is prepared to change it. The Paymaster General has presided over such a complication of the tax system that ordinary people with limited resources must now take legal and tax advice in a way that they never had to before.
I have said what I am about to say before, and I will go on saying it. I hope that the Paymaster General will accept it, as it is not a personal comment, but she has been in the Treasury team for a long time. Under the tax system that we now have, ordinary people who own a house that has risen in value and who earn income from more that one source need technical advice that their predecessors in history never needed. The right hon. Lady must put that and some other problems right. Above all, she must try to make things simpler. That would be very good for the nation, but very bad for accountants.
One of the lesser purposes of this House is to make life difficult for accountants. If she can do that with this measureand at the same time ensure that lawyers also have less workI should be very pleased.
Dawn Primarolo: In debates such as this, it is important to bear in mind the specifics of the matter in question. That is preferable to taking a trip down the highways and byways of the individual views held by hon. Members. Today, we are discussing the tax system, and I want to respond to the points raised by the hon. Member for Runnymede and Weybridge (Mr. Hammond) in respect of new clause 5.
Before I do so, however, I want to put something on record. I know that the hon. Member for Runnymede and Weybridge knows this, but I want to make sure that other hon. Members are also aware of the situation. New clause 5 refers to a specific action that the Government took to close double trust avoidance arrangements.
Those arrangements are very complicated, and people do not fall into them in error. Double trusts are expensive to set up, and they benefit people who want to remove £500,000 or more from inheritance tax liability, under rules that have been in place for a very long time. The arrangements apply to houses, but also to works of art, furniture and an amazing range of items. In this rather simplified presentation, however, I shall use houses as my example.
Under the double trust arrangement, people would give their house to a trust. The trust then owns the house but the deal is a paper transaction only and so no money changes hands. The trust pays with what is, in effect, an IOU, but that IOU cannot be kept by the house's original owners. Therefore, it is put into another, unconnected, trust. The original owner has neither the property nor the income from it, but is able to continue living in it, even though it has been removed entirely from the inheritance tax regime.
The Government took various steps to change the arrangements. The classic way to deal with an anti-avoidance arrangementto which some Opposition Members objectis to introduce complex legislation targeted specifically on removing the possibility of avoidance. This time, however, the Government decided to take a different route and say that people
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could elect out of existing arrangements. The hon. Member for Runnymede and Weybridge spoke about unwinding, and I shall return to that later, but the Government's approach meant that people did not have to unwind arrangements that they had entered into.
As a result, people could claim, "Fair cop. We shouldn't have tax planned. We didn't mean to do it or for it to carry on into the future. We understand the point that the Government is making." If they did that, people only had to tell the Government that the double trust scheme had been cancelled. By electing out in that way, people could get back to where they should be in the inheritance tax system. That is all that we are discussing.
The hon. Gentleman gave a long explanation of various possibilities. Sometimes such trusts are set up for children, and complications arise about the age of the children and whether they can be beneficiaries. The hon. Gentleman made a point about the sequence of events, but the lesson is that anybody who is foolish enough to go in for complicated tax planning must understand how the rest of the tax system might impinge on that planning.
The hon. Gentleman raised the issue of the IOU in the second trust, depending on who died first and the age of the children, and the possibility that the spouse may be subject to charges if the IHT charge comes in earlier than expected. That point has been raised with us before, and officials at HMRC are currently discussing that point with advisers. My approach to the points that the hon. Gentleman madeand, therefore, the approach that the officials will takeis that I am not prepared to sanction further exemptions from what are very clear rules. The rules contain a clear exitthe electionbut as the hon. Gentleman suggested, we have been prepared to remove double charges. When specific examplesnot individual caseshave been provided that can be encompassed in the regulations and have the benefit of removing unintended consequences, I am prepared to consider them and I have asked my officials to do so.
When we consulted on the proposals, they were not greeted favourably by the tax planning industry, but that is no surprise. It was busy selling schemes that we wanted to prevent it from selling. I did not expect industry representatives to beat a track to my door to say, "Thank you, Minister. We're really pleased you did that." My officials asked the industry whether we needed to consider transitional arrangements while schemes were unwoundto address the points that the hon. Gentleman made about the possibility of an unfair double charge. At that point, the industry claimed that unwinding was impossible, because the schemes were so complicated.
Therefore, we came up with the simple proposition that the taxpayer could elect out of the scheme by a simple declaration to the tax officials that the scheme would no longer operate. The schemes did not have to be unwound and taxpayers did not have to pay for them to be unwound or pay to take advice on their unwinding. The taxpayers could sign a piece of paper, send it to HMRC and it was done. I thought that that was a good, simple way to solve the problem. However, this year, people are coming back to us and saying, "Hmm, we
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think we'd like to unwind. Can you give us general powers to unwind schemes?" My answer is no, for the following reasons.
Call me a cynic, but I have a horrible feeling that the sudden desire to unwind is prompted by the discovery of a way to replan. I also think that election is a good and fair answer for all taxpayers.My understanding of the main thrust of the points made by the hon. Member for Runnymede and Weybridge is that he has been briefed that there could be unintended circumstances where double or unfair taxation may arise, and the desire to avoid that is his only motivation for the new clause. It is not because he wants to return to tax planningto go back to go. However, the regulation-making power, which the House found somewhat controversial, allows the Government to do that. There are some valid cases, one of which the hon. Gentleman put today and which my officials are taking forward. The power to make regulations remains available so that HMRC can consider using it further, if advisers who favour the unwinding route can make a detailed case that it is designed specifically to reach one endfairness to the taxpayerand not to open up other possibilities. That can be achieved through decent dialogue between HMRC and advisers who are concerned about the issue. That is where we are.
The hon. Gentleman does not need his new clause because the regulating powers provided enable the House to respond to detailed cases. As the arbiter on whether the regulations are made, I set a reasonably simple and straightforward test, which is the intent of the House: those who say they need such powers have to make the case for the powers and the regulations, and must demonstrate exactly which unfairness we need to address. If they can do that, and if they are open with HMRC, I shall certainly be prepared to give from the Dispatch Box the undertaking that the hon. Gentleman seeks and bring forward the exact details of precisely what is needed to address the perceived injustice. It will then be considered. But I will not give him an undertaking from the Dispatch Box that a general request for power to unwindwherever that might take taxpayers and tax plannerswould be granted, because it will not.
I hope that the hon. Gentleman will see that powers exist and that opportunities for change are in the hands of taxpayers and their advisers, and the people who are advising him. If those advisers provide the details, they will be considered and if necessary regulations will be changed to ensure that the perceived unfairness does not occur. On that basis, I hope that he will not push the new clause to a vote, but if he decides to do so, regrettably, I shall ask my hon. Friends to oppose it.
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