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Mr. David Heath (Somerton and Frome) (LD): On a point of order, Mr. Speaker. During business questions, the Leader of the House, in responsea very careful responseto the right hon. Member for Rotherham (Mr. MacShane), gave what I think was an inadvertent impression that the sub judice rules apply to cases that may or may not be brought before jurisdictions other than our own. Can you confirm that that is not the case and that we are free to comment on cases that are before foreign courts?
Mr. Speaker: It does apply to the UK jurisdiction. I urge the House to be very careful when any attack is made on an hon. Member. We know the conventions of the House when we are dealing with these matters.
John Bercow (Buckingham) (Con): On a point of order, Mr. Speaker. In the light of the growing scandal of the arbitrary and unsafe removal of failed asylum seekers to Zimbabwe, Somalia and Sudan, to name but three countries where returnees are at risk of imprisonment, torture, death or a grisly combination of all three, have you received any indication from a member of the Government that Ministers intend to make a statement about the systems that they will put in place and the painstaking efforts they will make to ensure that individuals are not returned to countries whose Governments cannot or will not guarantee their safety?
Ms Secretary Hewitt presented a Bill to make provision for the prohibition of smoking in certain premises, places and vehicles; to make provision in relation to the prevention and control of health care associated infections; to make provision in relation to the management and use of controlled drugs; to make provision in relation to the supervision of certain dealings with medicinal products and the running of pharmacy premises, and about orders under the Medicines Act 1968 and orders amending that Act under the Health Act 1999; to make further provision about the National Health Service in England and Wales and about the recovery of National Health Service costs; to make provision for the establishment and functions of the Appointments Commission; to make further provision about the exercise of social care training functions; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed. Explanatory notes to be printed [Bill 69].
At the time of the pre-Budget report on 2 December 2004, I made a statement to the House that outlined how, despite the best efforts of successive Governments since 1994, we continued to be presented with ever more complex and contrived arrangements designed to avoid income tax and national insurance on the rewards from employment. I made it clear that we intended to close down such activity permanently.
In my statement, I recalled that earlier attempts at such avoidance took the form of paying bonuses and salaries in gold bullion, diamonds and fine wine. When those routes were closed, employers started to pay bonuses through ever more sophisticated financial instruments and securities to reduce the amount of national insurance that they had to pay, to avoid their obligation to operate pay-as-you-earn and to reduce employees' tax bills.
The tax avoidance disclosure rules that were introduced in the Finance Act 2004 brought to light manymore than 100examples of such schemes that had been devised or marketed by promoters. That showed that a significant minority of employers and their advisers were continuing to devise, operate and market ever more contrived avoidance schemes to disguise what is, in effect, remuneration. Without prompt and decisive action, there was a genuine possibility of tax and national insurance contributions avoidance schemes continuing, to the detriment of the Exchequer and the many employers and employeesthe majoritywho pay their fair share of tax and national insurance.
I gave notice of our intention to deal with any similar arrangements that emerged in future that were designed to frustrate our intention that employers and employees should pay their fair share of tax and national insurance on the rewards from employment. When we become aware of arrangements that attempt to frustrate that intention, we will introduce legislation to close them down and, when necessary, with effect from 2 December 2004.
Mr. Mark Field (Cities of London and Westminster) (Con):
Does the Paymaster General accept that one of the problems is the complication of the tax system since 1997? It means that it is inevitably in the interests of employers and some employees that income should not be regarded as such but regarded as capital for lower taxation. How many of the 100 schemes that she mentioned are straightforwardly designed to turn what might be described as income, and therefore in a somewhat grey area, into capital that is thus subject to a capital gains tax levy, which is generated at a lower level?
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Dawn Primarolo: The hon. Gentleman may know the answer from discussions during the proceedings on the Finance Act 2005. However, let me provide a short list of the sort of schemes that have been operating in relation to bonuses that are payment for employment. In 1991, such schemes used unit trusts to shield bonuses and the previous Government closed them down. In 1993, gold bullion and tradeable commodities were used and subsequently closed down. However, the schemes returned in 1994, using diamonds and fine wine. They were closed down but another type of scheme returned again in 1995 with grants of options in third-party companies. In 1996, own-company share awards and options were offered.
All those schemes reveal a systematic and continued attempt to use contrived schemes for payment for employment, which should come within the PAYE system. The issue is whether tax and national insurance are paid on the relevant forms of income. The Bill tries to provide for that. I hope that, as I go through the provisions, the hon. Gentleman will be satisfied that the measure is specifically targeted and that it includes the necessary safeguards to ensure that. I hope that he will agree that the Bill is a proportionate and relevant way to tackle the problem.
Mr. Field: The Paymaster General has made a good case for dealing with some contrived schemes that operated for over a decade, but I suspect that the previous Government closed them all down. However, given the complexity of the tax system, which creates an obvious incentive in a grey area to characterise what might have been described as income in the past as capital because of the lower tax rates, how many of the 100 schemes that were being marketed on 2 December 2004 are straightforward rather than the extreme contrivances that we all agree should have been closed down?
Dawn Primarolo: My advice is that they are all contrived schemes of the same convoluted nature as their predecessors. The hon. Gentleman spoke of complexity, and overcoming that has been a frustrating problem for hon. Members, especially those of us who serve on Finance Bill Committees, and for those who have to implement the legislation. To close down a complex and sophisticated scheme, we need a sophisticated and complex measure. Our measures make a clear and unambiguous statement: do not undertake contrived schemes. They will be closed down whenever they are identified. Closure could be backdated to the December 2004 statement.
Rob Marris (Wolverhampton, South-West) (Lab): Am I right that we are not discussing peanuts? Without the Bill, the schemes would cost Her Majesty's Revenue and Customs approximately £240 million. That is not small beer.
Dawn Primarolo: Indeed, it is not an insignificant amount of money and it should have been paid. The vast majority of taxpayers pay, but non-payment has direct effects not only on the tax collected but on the money that goes into the national insurance fund.
In 2004, I gave notice of our intention to deal with any future arrangements that were designed to frustrate our intention that employers and employees should pay
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their fair share of tax and national insurance on their rewards for employment. When we become aware of such arrangements, we will introduce legislation to close them down and, I repeat, when necessary, with effect from 2 December 2004.
If some people think that the Government's resolve has weakened, my statement stands today as strongly as it did on 2 December 2004. We are closely examining what has happened since that date. I want employers and their advisers to be in no doubt. If they continue to avoid their responsibilities, or are thinking of doing so in future, we will not hesitate to introduce further legislation to close down their schemes.
As a first step towards demonstrating our commitment to taking action, schedule 2 to the Finance (No. 2) Act 2005 was introduced to strengthen the income tax rules dealing with employment-related securities back to 2 December 2004. The Government had already published a draft technical note alongside the pre-Budget report last year, explaining our proposals, followed by draft legislation in February 2005. Interested parties have therefore had an extensive period in which to scrutinise and comment on the detail of the provisions, which were then fully debated during the Committee stage of that Act.
The Bill before us is the second legislative step that demonstrates our commitment to taking action against avoidance. It is key to achieving the Government's objectives of fairness and opportunity by ensuring that all pay their fair share of tax and national insurance. It is also an essential element in building a serious and credible deterrent against future avoidance.
As the tax disclosure provisions have demonstrated, and as we and the previous Conservative Government have discovered, it is not always possible to anticipate the range and complexity of those extremely contrived arrangements. The Government intend to close down such avoidance schemes permanently. The Bill will ensure that the Government can deal with any arrangements designed to frustrate their intentions. That will ensure that the tax and national insurance that should rightly be paid on rewards for employment are paid. There is no annual equivalent of the Finance Bill for national insurance, so the Bill provides the necessary powers to apply national insurance to payments from such schemes.
When the Government become aware of arrangements that attempt to avoid national insurance contributions as well as tax, we will introduce regulations to close them down, where necessary from 2 December 2004. This action will not affect the vast majority of employers and employees, who organise their affairs in a straightforward and transparent way. In particular, genuine employee share schemes and share option plans will not be affected.
The Bill provides for a power to make regulations in respect of national insurance that reflect backdated tax changes that take effect on or after 2 December 2004 and which may be outside the scope of existing national insurance legislation. The power will allow for national insurance liability to be charged starting from 2 December 2004, if necessary.
The Bill is needed to extend existing regulation-making powers and to make it possible to impose a national insurance charge on disguised remuneration that is
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capable of taking effect from 2 December 2004, where necessary. Currently, a national insurance liability can usually be charged only from the date on which the national insurance regulations are made, except in limited circumstances in which the regulations can be backdated to the beginning of the tax year in which the regulations are made. This is in contrast to tax, where liability can, if the legislation so provides, be applied retrospectively to the date of an announcement made before the legislation receives Royal Assent.
Provisions in the Bill also allow for consequential changes for the purposes of contributions, contributory benefits and statutory payments where appropriate. For instance, a national insurance charge might be levied back to 2 December 2004 to align with the start date of anti-avoidance tax measures. In such a case, the provisions of the Bill, and the regulations made under the powers in the Bill, would ensure that those contributions would count for the purposes of contributory benefit and statutory payments.
The Bill also provides a power to extend the avoidance arrangement disclosure rules to national insurance that currently apply to income tax. Finally, it provides a power to prevent the use of national insurance contribution elections and agreements over shares and securities that have been targeted by backdated national insurance regulations made under the Bill. This will mean that employers cannot pass on to their employees their own national insurance liabilities that they have tried to avoid.
Significantly, the Government have ensured that the Bill contains important safeguards to ensure that regulations made under it take full account of human rights considerations. This is in addition to the Government's existing duty to make regulations that are compatible with the European convention on human rights. Furthermore, the power to make regulations altering liability is restricted to reflect, so far as is possible, employment remuneration measures in tax legislationnormally Finance Actsand is intended to be used only to reflect tax anti-avoidance measures. So when such regulations are made, the House will already have had the chance to consider any relevant human rights issues on backdated tax legislation during the passage of the relevant Finance Bill or other legislation.
The Bill also includes a specific provision to ensure that when, for instance, as part of a package of anti-avoidance measures there is exceptionally a reduction of national insurance liability for past periods, any existing or future benefit entitlement will not be affected.
We will publish the draft regulations a minimum of 12 weeks before they are made, so that employers and their representatives will have an opportunity to comment on the technical content of any proposed national insurance changes. Once the Bill has received Royal Assent, any national insurance legislation will have to be laid within 12 months of the corresponding retrospective tax legislation. Furthermore, to ensure that there is adequate parliamentary scrutiny when regulations are made, such regulations will be subject to the affirmative resolution procedure.
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The powers in the Bill will be used, in the first instance, to make regulations to reflect the employment-related securities anti-avoidance provisions included in schedule 2 to the Finance (No. 2) Act 2005, which received Royal Assent in July 2005, but which took effect from 2 December 2004.
In conclusion, the Bill is important and necessary to ensure fairness. It will not affect the vast majority of employers, who do not seek to avoid their tax and national insurance liabilities through avoidance schemes. However, I have explained how, unfortunately, a small minority continue to try to avoid their obligations, at substantial cost to all other taxpayers. The Bill is therefore an appropriate, proportionate and effective response to national insurance avoidance, and I commend it to the House.
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