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I would like to take this opportunity to thank all the right hon. and hon. Members who participated in the Committee of the whole House and the Standing Committee. The quality of the contributions produced good, productive debate, animated exchanges and some improvement in the substance of the Bill.
As my right hon. Friend the Chancellor outlined in his Budget back in March, the Government's economic objective is to build a strong economy and a fair society, in which there is opportunity and security for all. The long-term decisions that the Government have takengiving independence to the Bank of England, new fiscal rules and a reduction in debthave helped to shape economic stability, which in turn has created the platform for building prosperity, achieving social justice with security and opportunity for all, and maintaining investment in public services. This Bill contains measures to strengthen further stability while sustaining enterprise and ensuring fairness.
I have made this point to the House before and I will do so again because I believe it goes to the heart of this Bill: a fair tax system is one in which everyone pays their fair share. The protection of tax revenues is imperative both in providing improvements in efficiency and enabling increased investment in public services. Tax avoidance undermines the ability of the Government to deliver their objectives and imposes increased burdens on those who pay their fair share of taxes.
Tackling avoidance is not incompatible with maintaining UK competitiveness. In fact, avoidance undermines fair competition. Turning a blind eye while some companies obtain an unfair advantage by exploiting avoidance schemes is not the same thing as supporting and maintaining UK competitiveness.
As I said to the hon. Member for Runnymede and Weybridge (Mr. Hammond) in Committee, competitiveness is based on the question of whether the tax system is modern and fair and whether it has appropriate rules that respond to the challenges that it faces, so that it discharges its responsibility to all taxpayers by ensuring that there is fairness in the system. As we have seen, the Bill's provisions will do just that. They reflect the Government's resolve to ensure that our tax system is both fair and competitive.
In the Budget 2004, the Government introduced disclosure rules to tackle tax avoidance. Those rules have revealed that several areas of the tax system are at risk from high levels of tax avoidance. The Bill will close several schemes of which we have been made aware, including schemes involving the exploitation of arbitrage, employee securities, VAT avoidance and
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financial avoidance. The measures that achieve that make up much of the substance of the Bill and have been subject to much scrutiny in Committee.
On arbitrage, increasing globalisation presents new opportunities for the few who attempt to evade their UK obligations. Clauses 24 to 31 and schedule 3 introduce legislation to target avoidance involving tax arbitrage. The measures catch contrived avoidance structures that seek to achieve a UK tax advantage and will apply only when a company is involved in a scheme that increases UK tax deductions because of the exploitation of arbitrage.
Alongside the 2004 pre-Budget report, I made a statement to the House stressing how successive Governments have been perpetually presented with ever more intricate arrangements designed to avoid income tax and national insurance on the rewards from employment. Clause 12 and schedule 2 are a carefully focused response to such avoidance schemes. The measures will effectively target arrangements that are used to disguise cash bonuses and thus avoid tax and national insurance. It is important to remember that without prompt and decisive action, around £500 million in tax and national insurance would be at risk every year. The Government estimate that around £2 billion of payments were going through such schemes in 200405.
I should also remind the House that in my statement alongside the pre-Budget report I made it clear that the Government's objective was to close down such activities permanently, initially by closing down schemes that had been identified by Her Majesty's Revenue and Customs. Furthermore, I made it clear that should further attempts be made to frustrate that intention, legislation would be introduced to combat the problem, where necessary, with effect from 2 December 2004. The response is thus fair and proportionate, given the substantial amount of revenue at risk and the history of the previous attempts made by some taxpayers and their advisers to get around legislation that was aimed at stopping their avoidance schemes. I must stress that only those who, despite these warnings, choose to avoid their responsibilities and pass a heavier burden on to other taxpayers will be affected.
Furthermore, the disclosure rules are an integral part of the Government's strategy to ensure that there is fairness. They target the information deficit on which tax avoidance is based. They enable Her Majesty's Revenue and Customs to act faster and with a more targeted response to abuse of the tax system, thus providing an early warning about new avoidance schemes. Clause 6 and schedule 1 will improve the effectiveness of the rules by drawing on the experience of disclosures up to this juncture, extending the definition of tax advantage and simplifying the requirements on business to disclose schemes so that if a new listed scheme is designated, the tax authorities will be able to act swiftly.
The Bill introduces important measures to promote fairness and confront tax avoidance while maintaining our competitiveness and providing certainty to businesses, allowing them to keep pace with the opportunities presented by the fast-evolving global economy. It will help to develop the macro-economic stability that is essential to our future productivity,
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growth and stability. It will support business while ensuring fairness, and will enable the country to sustain and build on a competitive enterprise-based economy, allowing for security and opportunity so that everyone benefits from growing prosperity.
Mr. Philip Hammond: We reach Third Reading with some of our concerns unresolved, although it would be untrue to say that no progress has been made. Certainly, the Bill is a big improvement on the one published in March. I would like to say that that is due to parliamentary scrutiny and debate, but, perhaps inevitably in the case of the complex matters that form Finance Bills, and this one in particular, which deals with anti-avoidance, the reality is that it is due to the enhanced scrutiny and discussion outside this place, between business and the Revenue. That is purely a happy side effect of the extra time made available by the general election.
Several of the original Bill's provisions have been shown to be unworkable or too wide reaching and have been substantially amended. Unfortunately, even with the enforced break in an election year, the Revenue still appears obsessed with the need to introduce anti-avoidance legislation without notice, and hence without prior discussion. All the evidence points to the fact that pre-legislative consultation leads to better legislation, and the Bill as it now stands and the disclosure rules in the Finance Act 2004 are the most obvious and recent examples. We have seen no evidence of loss of tax through prior notice.
The Revenue now has the disclosure rules in the 2004 Act, so it is pretty clear what is likely to be targeted. It has the press notice system, whereby it effectively gives taxpayers notice that a scheme will be closed down before the details are published. It has the tools to enable proper pre-legislative consultation of anti-avoidance measures, which it has engaged in this year to an extent. In a genuinely constructive spirit, I suggest that the Paymaster General might consider an exercise to analyse whether engaging in that way resulted in a significant loss of tax. I think the Revenue would accept that it resulted in a number of improvements to the legislation and perhaps the avoidance of embarrassing unintended consequences later.
In addition, we received reassurances from Ministers during the course of the Bill's progress on the intended effect of the measures and commitments to keep various things under review, although I regret to say that we failed to persuade them to amend the legislation, with one small exception, to ensure that the reassurances on scope appear in the Bill.
The reassurances that we receivedwe are grateful for theminclude the active monitoring of the effect on compliant taxpayers of the VAT warehousing scheme; the development of a workable relieving measure to cover the insurance tax rules that levy a charge when a subsidiary transfers its insurance business to its parent; the operation of the insurance tax rules as they apply to subsidiaries of life assurance companies; commitments
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to consultation on e-conveyancing, ensuring that new stamp duty land tax rules do not apply so that there is a multiple clawback; reviewing the scope for abolishing the Treasury consent rules; monitoring operating problems that arise on e-conveyancing, e-filing and land transaction returns; and the Government's welcome pledge to amend the draft guidelines on the gift aid scheme.
I reiterate that we accept the need to monitor and react to tax avoidance schemes. We have two overriding concerns. First, the Bill's provisions may apply more widely than Ministers say is the case. The Government have not narrowed the scope of those provisions and have responded to criticism by adopting the maxim, "Draft widely; apply narrowly." We are constantly reassured by Ministers that the examples that we have suggested are within the scope of the provisions will not, in fact, be subject to the regime in question. That is particularly true of the arbitrage provisions, which are an especially complex part of the Bill. The legislation's application to individual cases in that area will be left to Revenue officials via the issue of a notice, effectively making them the arbiters of scope.
Secondly, even if those measures are applied narrowly, as Ministers have suggested is their intention, their refusal to change the legislation to give it a narrow focus creates a climate of business uncertainty, which undermines confidence and impacts on investment decisions, especially by overseas investors in the UK. Two aspects of a tax regime determine its relative attractiveness to business: the effective level of business taxes, and the certainty and transparency of the system. Britain's effective business taxation level is increasing at a time when many competitors are consciously moving in the opposite direction. The Bill reduces the level of certainty, transparency and accountability in the system, which represents a serious threat to investment in UK jobs and prosperity. While we acknowledge the need to address tax avoidance, the Opposition fear that the balance in the Bill is not right, and that long-term benefit has been sacrificed for a short-term tax haul.
Corporate tax planning is a complex area, but the Paymaster General likes to paint it as a black and white issue. It is not that simplethe boundary between acceptable tax planning and unacceptable tax avoidance is not fixed. The Opposition want tax laws that enable business, and thus underpin continued economic growth in the UK, which is why we have sought to introduce changes to the Bill, all of which the Government have blocked. Those changes included a binding statutory clearance system to remove the uncertainty that the Government have introduced with the tax arbitrage regime; the early introduction of real estate investment trusts; amendments to the stamp duty land tax rules to avoid impediments to commercial intra-group re-organisation; and changes to schedule 7 to protect compliant taxpayers from the downside risk of being caught by the wide-ranging changes; and proposals to set in train a far-reaching review of tax law to simplify and clarify it. The Government rejected all those proposals.
We remain concerned that the Bill's scope is too wide and its operation too uncertain to be conducive to a favourable investment climate for international business. We are grateful for the reassurances that we have received during the passage of the Bill, although we
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are naturally disappointed that they have not been incorporated in it. We await with interest the plethora of regulations that will emerge from clauses 6, 13, 17, 45, 47, 48, 50, 66 and 67, and from schedules 6, 7 and 9. As the Paymaster General would expect, we shall monitor carefully with people outside the House the practical implementation of the Government's assurances and the Bill's impact on the United Kingdom's business and investment climate. We owe nothing less to the people of this country, who depend on a competitive investment climate for the jobs and prosperity that underpin their future and, indeed, for the stream of revenues to the Exchequer that will ensure that our public services can be maintained to the standard that we expect and demand in the 21st century. Only through economic growth can we achieve that, and only through continued investment in the United Kingdom can we deliver that economic growth.
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