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Mr. Philip Hammond:
I am disappointed that the Paymaster General has chosen to paint as bad people those who use trusts that were perfectly legal tax-planning devices when they were set up. As I said earlier, those people have come out with their hands up; they have accepted that the trusts did not work and they now want to exit from the system.
6 Jul 2005 : Column 355
The Paymaster General's remarks did not address the fact that the Government have already acted to offer relief to many of those people. We cannot have a situation where some of the people who set up trusts are bad people and do not deserve relief, while others are good people who can elect to escape from at least the economic effects of the arrangements that have been put in place.
The Paymaster General reiterated my words in using the phrase "unintended consequences". I have not clearly understood from her remarks that those in this group of approximately 30,000 people, for whom it is not appropriate to use the route of an election, are the products—[Interruption.] The Paymaster General asks why it is not appropriate. I have given the two most important reasons: first, the possible impact on beneficiaries of children's trust if they die within seven years; and, secondly, the advancing to the time of the first death of the charge to inheritance tax when the taxpayers involved are a couple who make an election for a property that they hold jointly. That would have the disastrous consequence of causing inheritance tax to become payable by the widow or widower of the deceased at the time of the first death—a huge cash-flow problem that would almost certainly involve the forced sale of the house. That is why I am advised that the election process is simply not appropriate for certain groups of people.
As the Paymaster General has spotted, I did not invent the new clause and the arguments that support it. We have been advised by the Chartered Institute of Taxation and the Society of Trust and Estate Practitioners, as the Paymaster General has. The arguments that I have used have already been made in detail both to the Paymaster General—
Dawn Primarolo indicated dissent.
Mr. Hammond: Well, those arguments have been made both to the Paymaster General and to senior Revenue officials. If she is not able to say something more specific about the relief that we seek for that group of people, I have to believe that the relief that she is thinking of may be very much narrower that the one that I have been seeking.
I am pleased to hear that HMRC is discussing these matters with advisers—I assume that that means with practitioners and those in the wider world outside—but the Paymaster General's commitment to addressing the full extent of the problem that I have outlined seems to be a bit less than 100 per cent. Indeed, if I have not misinterpreted her too much, she has tried to blame the whole thing on the tax advisers by suggesting that they did not identify the problems that would arise in unravelling such arrangements, so that the measures that the Government have put in place for elections have not addressed the situation in which all those people find themselves.
Although I understand very well the Paymaster General's view on tax planning—I have had four weeks in which to study her view on people who engage in tax
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planning—I do not think it helpful to adopt the tone that she adopted about the tax advisory industry and people who engage in what is, when they engage in it, perfectly legal tax planning, thereby taking advantage of the taxpayer's age-old right to arrange his affairs within the law to minimise his tax until such time as the Government change the law. That is the game of cat and mouse in which Paymasters General since time immemorial have been engaged.
I do not believe from the information that I have received that it is at all fair to characterise the approach that is being made—principally by lawyers, who are being consulted on ways to unwind such arrangements and get people out of the mess that they are in—as stimulated by having spotted an opportunity to undertake some alternative planning. If I may say so, perhaps seven years in post has made the Paymaster General a tad too cynical about those in the world outside.
Mr. Clifton-Brown: The Paymaster General may have misunderstood the import of what she is doing in such elections. I understand that some form of court order will be required to break such trusts. That is the only way a trust can be broken. Therefore while she may have mitigated the tax problems, she has not dealt with the future problem of double taxation—the fine—if a second death occurs after the trust is in place.
Mr. Hammond: I am sure that my hon. Friend is right to suggest that a court order might be required to break a trust, but I cannot comment on that. My understanding is that the new clause would provide an effective route which, in substance, would reverse the transactions and create precisely the situation that would have existed had the arrangement not been entered into in the first place. That is to say, the settlor would be liable for inheritance tax on the value of the house, but there would be no tax liability on the now cancelled debt. I should say that things would not be quite as they would have been before, because the settlor would still be disadvantaged in the ways that I outlined earlier. There would be an element of penalty that perhaps would satisfy the Paymaster General's general view that people should be deterred from engaging in tax planning by finding it expensive to exit from retrospective taxation arrangements once they are imposed.
The Paymaster General did not give a time scale for the relief that she will possibly be able to introduce, and the time scale is extremely important. We are talking in many cases not about very wealthy people, but about people living on quite limited incomes who will now be required to meet an income tax charge until they have unwound these schemes.
The Paymaster General did not attack the new clause itself, and it was drafted by a senior legal professional. Although I accept her intention to look at the matter further, I shall ask my hon. Friends to vote to indicate the strength of feeling that exists in the House and outside and to help to stiffen the Government's resolve as they take the matter forward.
Question put, That the clause be read a Second time:—
The House divided: Ayes 153, Noes 340.
6 Jul 2005 : Column 357
AYES
Ainsworth, Mr. Peter
Amess, Mr. David
Ancram, rh Mr. Michael
Bacon, Mr. Richard
Baldry, Tony
Baron, Mr. John
Bercow, John
Beresford, Sir Paul
Blunt, Mr. Crispin
Bone, Mr. Peter
Boswell, Mr. Tim
Bottomley, Peter
Brady, Mr. Graham
Brazier, Mr. Julian
Brokenshire, James
Browning, Angela
Burns, Mr. Simon
Burrowes, Mr. David
Burt, Alistair
Butterfill, Sir John
Cameron, Mr. David
Carswell, Mr. Douglas
Cash, Mr. William
Chope, Mr. Christopher
Clark, Greg
Conway, Derek
Crabb, Mr. Stephen
Davies, David T.C. (Monmouth)
Davies, Philip
Davies, Mr. Quentin
Davis, rh David (Haltemprice and Howden)
Dodds, Mr. Nigel
Donaldson, Mr. Jeffrey M.
Dorries, Mrs. Nadine
Duddridge, James
Duncan, Mr. Alan
Duncan Smith, rh Mr. Iain
Dunne, Mr. Philip
Ellwood, Mr. Tobias
Evans, Mr. Nigel
Evennett, Mr. David
Fallon, Mr. Michael
Field, Mr. Mark
Forth, rh Mr. Eric
Fox, Dr. Liam
Francois, Mr. Mark
Fraser, Mr. Christopher
Gale, Mr. Roger
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Goodman, Mr. Paul
Goodwill, Mr. Robert
Gove, Michael
Grayling, Chris
Green, Damian
Greening, Justine
Greenway, Mr. John
Gummer, rh Mr. John
Hague, rh Mr. William
Hammond, Mr. Philip
Hammond, Stephen
Hands, Mr. Greg
Harper, Mr. Mark
Hayes, Mr. John
Herbert, Mr. Nick
Hermon, Lady
Hoban, Mr. Mark
Hollobone, Mr. Philip
Horam, Mr. John
Hunt, Mr. Jeremy
Hurd, Mr. Nick
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Jenkin, Mr. Bernard
Jones, Mr. David
Kawczynski, Daniel
Kirkbride, Miss Julie
Laing, Mrs. Eleanor
Lait, Mrs. Jacqui
Lancaster, Mr. Mark
Leigh, Mr. Edward
Letwin, rh Mr. Oliver
Liddell-Grainger, Mr. Ian
Lidington, Mr. David
Lilley, rh Mr. Peter
Loughton, Tim
Luff, Peter
Mackay, rh Mr. Andrew
Main, Anne
Malins, Mr. Humfrey
Mates, rh Mr. Michael
May, rh Mrs. Theresa
McCrea, Dr. William
McIntosh, Miss Anne
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Miller, Mrs. Maria
Milton, Anne
Mitchell, Mr. Andrew
Mundell, David
Murrison, Dr. Andrew
Newmark, Mr. Brooks
O'Brien, Mr. Stephen
Ottaway, Richard
Paice, Mr. James
Paisley, Rev. Ian
Paterson, Mr. Owen
Pelling, Mr. Andrew
Penning, Mike
Price, Adam
Prisk, Mr. Mark
Pritchard, Mark
Randall, Mr. John
Robathan, Mr. Andrew
Robertson, Mr. Laurence
Rosindell, Andrew
Scott, Mr. Lee
Selous, Andrew
Shapps, Grant
Shepherd, Mr. Richard
Simmonds, Mark
Simpson, David
Soames, Mr. Nicholas
Spelman, Mrs. Caroline
Spicer, Sir Michael
Spink, Bob
Spring, Mr. Richard
Stanley, rh Sir John
Steen, Mr. Anthony
Streeter, Mr. Gary
Swayne, Mr. Desmond
Syms, Mr. Robert
Tapsell, Sir Peter
Turner, Mr. Andrew
Tyrie, Mr. Andrew
Vara, Mr. Shailesh
Viggers, Peter
Villiers, Mrs. Theresa
Walker, Mr. Charles
Wallace, Mr. Ben
Walter, Mr. Robert
Waterson, Mr. Nigel
Watkinson, Angela
Whittingdale, Mr. John
Wiggin, Bill
Willetts, Mr. David
Wilshire, Mr. David
Wilson, Mr. Rob
Wilson, Sammy
Winterton, Ann
Yeo, Mr. Tim
Young, rh Sir George
Tellers for the Ayes:
Michael Fabricant and
Mr. Geoffrey Clifton-Brown
NOES
Ainger, Nick
Ainsworth, rh Mr. Bob
Alexander, Danny
Allen, Mr. Graham
Anderson, Mr. David
Anderson, Janet
Armstrong, rh Hilary
Austin, Mr. Ian
Austin, John
Bailey, Mr. Adrian
Baird, Vera
Baker, Norman
Balls, Ed
Barlow, Ms Celia
Barrett, John
Barron, rh Mr. Kevin
Begg, Miss Anne
Bell, Sir Stuart
Benton, Mr. Joe
Berry, Roger
Betts, Mr. Clive
Blackman, Liz
Blackman-Woods, Dr. Roberta
Blears, rh Hazel
Blizzard, Mr. Bob
Borrow, Mr. David S.
Bradshaw, Mr. Ben
Brake, Tom
Breed, Mr. Colin
Brooke, Annette
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Bruce, Malcolm
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burnham, Andy
Burstow, Mr. Paul
Burt, Lorely
Butler, Ms Dawn
Byers, rh Mr. Stephen
Cable, Dr. Vincent
Cairns, David
Campbell, Mr. Alan
Campbell, rh Sir Menzies
Campbell, Mr. Ronnie
Carmichael, Mr. Alistair
Caton, Mr. Martin
Challen, Colin
Chapman, Ben
Clapham, Mr. Michael
Clark, Ms Katy
Clarke, rh Mr. Tom
Clelland, Mr. David
Clwyd, rh Ann
Coaker, Mr. Vernon
Cohen, Harry
Connarty, Michael
Cook, rh Mr. Robin
Cooper, Rosie
Cooper, Yvette
Corbyn, Jeremy
Cousins, Jim
Crausby, Mr. David
Creagh, Mary
Cruddas, Jon
Cryer, Mrs. Ann
Cummings, John
Cunningham, Mr. Jim
Cunningham, Tony
Curtis-Thomas, Mrs. Claire
Davey, Mr. Edward
David, Mr. Wayne
Davidson, Mr. Ian
Dean, Mrs. Janet
Denham, rh Mr. John
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Dobson, rh Frank
Donohoe, Mr. Brian H.
Doran, Mr. Frank
Dowd, Jim
Drew, Mr. David
Dunwoody, Mrs. Gwyneth
Eagle, Angela
Eagle, Maria
Ellman, Mrs. Louise
Ennis, Jeff
Etherington, Bill
Farron, Tim
Featherstone, Lynne
Field, rh Mr. Frank
Fisher, Mark
Flello, Mr. Robert
Flint, Caroline
Flynn, Paul
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Gardiner, Barry
Gerrard, Mr. Neil
Gibson, Dr. Ian
Godsiff, Mr. Roger
Goggins, Paul
Goldsworthy, Julia
Goodman, Helen
Griffith, Nia
Griffiths, Nigel
Grogan, Mr. John
Gwynne, Andrew
Hain, rh Mr. Peter
Hall, Mr. Mike
Hamilton, Mr. David
Hamilton, Mr. Fabian
Hancock, Mr. Mike
Hanson, Mr. David
Harman, rh Ms Harriet
Harris, Dr. Evan
Harris, Mr. Tom
Harvey, Nick
Havard, Mr. Dai
Healey, John
Heath, Mr. David
Hemming, John
Henderson, Mr. Doug
Hendrick, Mr. Mark
Hepburn, Mr. Stephen
Heppell, Mr. John
Hesford, Stephen
Hewitt, rh Ms Patricia
Heyes, David
Hill, rh Keith
Hillier, Meg
Hodgson, Mrs. Sharon
Hoey, Kate
Holmes, Paul
Hood, Mr. Jimmy
Hoon, rh Mr. Geoffrey
Hope, Phil
Hopkins, Kelvin
Horwood, Mr. Martin
Hosie, Stewart
Howarth, Mr. George
Hoyle, Mr. Lindsay
Huhne, Chris
Humble, Mrs. Joan
Hutton, rh Mr. John
Iddon, Dr. Brian
Illsley, Mr. Eric
Ingram, rh Mr. Adam
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, Ms Diana R.
Jones, Helen
Jones, Mr. Kevan
Jones, Lynne
Jones, Mr. Martyn
Joyce, Mr. Eric
Kaufman, rh Sir Gerald
Keeley, Ms Barbara
Keen, Alan
Keen, Ann
Keetch, Mr. Paul
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Khabra, Mr. Piara S.
Khan, Mr. Sadiq
Kidney, Mr. David
Kilfoyle, Mr. Peter
Knight, Jim
Kramer, Susan
Ladyman, Dr. Stephen
Lamb, Norman
Laws, Mr. David
Laxton, Mr. Bob
Lazarowicz, Mark
Lepper, David
Levitt, Tom
Lewis, Mr. Ivan
Linton, Martin
Lloyd, Tony
Llwyd, Mr. Elfyn
Love, Mr. Andrew
Lucas, Ian
MacDougall, Mr. John
Mackinlay, Andrew
MacNeil, Mr. Angus
Mactaggart, Fiona
Mahmood, Mr. Khalid
Malik, Mr. Shahid
Mallaber, Judy
Mann, John
Marris, Rob
Marsden, Mr. Gordon
Marshall, Mr. David
Marshall-Andrews, Mr. Robert
Martlew, Mr. Eric
McAvoy, rh Mr. Thomas
McCafferty, Chris
McCarthy, Kerry
McCarthy-Fry, Sarah
McCartney, rh Mr. Ian
McDonagh, Siobhain
McDonnell, Dr. Alasdair
McDonnell, John
McFadden, Mr. Pat
McFall, rh Mr. John
McGovern, Mr. Jim
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
McNulty, Mr. Tony
Meacher, rh Mr. Michael
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Miliband, rh Mr. David
Miliband, Edward
Miller, Andrew
Moffat, Anne
Moffatt, Laura
Mole, Chris
Moon, Mrs. Madeleine
Moore, Mr. Michael
Moran, Margaret
Morden, Jessica
Morgan, Julie
Mountford, Kali
Mulholland, Greg
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Denis
Murphy, Mr. Jim
Murphy, rh Mr. Paul
Naysmith, Dr. Doug
Norris, Dan
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Olner, Mr. Bill
Öpik, Lembit
Osborne, Sandra
Owen, Albert
Palmer, Dr. Nick
Plaskitt, Mr. James
Pope, Mr. Greg
Pound, Stephen
Prentice, Bridget
Prentice, Mr. Gordon
Prescott, rh Mr. John
Primarolo, rh Dawn
Prosser, Gwyn
Pugh, Dr. John
Purchase, Mr. Ken
Purnell, James
Raynsford, rh Mr. Nick
Reed, Mr. Andy
Reed, Mr. Jamie
Reid, Mr. Alan
Reid, rh John
Riordan, Mrs. Linda
Robertson, Angus
Robertson, John
Robinson, Mr. Geoffrey
Rogerson, Mr. Dan
Rooney, Mr. Terry
Roy, Mr. Frank
Ruane, Chris
Ruddock, Joan
Russell, Bob
Russell, Christine
Ryan, Joan
Salmond, Mr. Alex
Salter, Martin
Sanders, Mr. Adrian
Shaw, Jonathan
Short, rh Clare
Simon, Mr. Siôn
Singh, Mr. Marsha
Skinner, Mr. Dennis
Smith, Ms Angela C. (Sheffield, Hillsborough)
Smith, Geraldine
Smith, rh Jacqui
Smith, John
Smith, Sir Robert
Snelgrove, Anne
Soulsby, Sir Peter
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Stewart, Ian
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Stringer, Graham
Stuart, Ms Gisela
Stunell, Andrew
Sutcliffe, Mr. Gerry
Tami, Mark
Taylor, Ms Dari
Taylor, David
Thornberry, Ms Emily
Timms, Mr. Stephen
Tipping, Paddy
Todd, Mr. Mark
Touhig, Mr. Don
Trickett, Jon
Truswell, Mr. Paul
Turner, Dr. Desmond
Turner, Mr. Neil
Vis, Dr. Rudi
Walley, Joan
Waltho, Lynda
Ward, Claire
Wareing, Mr. Robert N.
Watson, Mr. Tom
Watts, Mr. Dave
Weir, Mr. Mike
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, rh Mr. Alan
Williams, Mrs. Betty
Williams, Hywel
Williams, Mark
Williams, Mr. Roger
Williams, Stephen
Willis, Mr. Phil
Willott, Jenny
Wills, Mr. Michael
Winnick, Mr. David
Winterton, Ms Rosie
Woodward, Mr. Shaun
Wright, Mr. Anthony
Wright, David
Wright, Mr. Iain
Wright, Dr. Tony
Wyatt, Derek
Younger-Ross, Richard
Tellers for the Noes:
Mr. Ian Cawsey and
Kevin Brennan
Question accordingly negatived.
6 Jul 2005 : Column 360
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