|Previous Section||Index||Home Page|
In an age in which consecutive Finance Acts create and then abolish new-fangled tax instruments, national insurance contributions have proved remarkably resilient. We are now in the 58th year since their coming into force as part of the welfare state establishment that followed world war two. Back in 1948, all those at work except married women paid the princely weekly sum of 4s 11dthat is 24.5p for all those Members of the House younger than mein a flat-rate compulsory contribution. How times have changed! The only thing that is flat about national insurance today is the spin in which the Government find themselves when trying to raise as much money as possible in their frantic attempt to balance their books. I said in Committee in June during the passage of the Finance Bill in June that,
"for our part, it is difficult to avoid the conclusion that many of the anti-avoidance proposals are driven by an increasingly desperate Treasury desire to fill its revenue black hole without regard to the damaging effect that it will have on the development of start-up ventures, and, indeed, some bona fide remuneration schemes."[Official Report, Standing Committee B, 21 June 2005; c. 43.]
The Finance (No. 2) Act 2005 made a number of amendments to the Income Tax (Earnings and Pensions) Act 2003, with the aim of closing down schemes to avoid income tax using employment-related securities. Those amendments have retrospective effect, as the Paymaster General rightly pointed out, going back to 2 December 2004. It is not currently possible to extend retrospective income tax provisions to national insurance contributions, because liability for NICs can be charged, as the Paymaster General mentioned, only from the date on which NICs regulations are made, except in limited circumstances in which the regulations can be backdated to the beginning of the tax year.
The Bill's stated purpose is to align national insurance legislation with income tax legislation, which will allow tax liability to be applied back to the date of the announcement. As the Paymaster General pointed out, the Bill also contains provisions to restrict employers' ability to pass on any secondary NICs liability to employees and extends the existing tax disclosure rules to NICs. I shall come to aspects of that in a moment, if I may.
27 Oct 2005 : Column 476
There is, however, a good reason for existing NICs legislation not allowing regulations to take such retrospective effect. In my view, only in the rarest of circumstances should the Government contemplate either retroactive or retrospective legislation. I fear that the Bill's effect will be to institutionalise retrospection. We shall certainly need to explore that in far greater detail in Committee.
The substantive clauses will put in place the intention of the Paymaster General's statement of 2 December 2004. Recognising the difficulty of anticipating the ingenuity and inventiveness of the avoidance industry, she gave notice of the Government's intention to deal with any arrangements that emerge that are
As we gathered from the previous exchanges, it is clear that there may be 100 such contrivance schemes. We need to understand whether some of those are in many ways bone fide remuneration schemes, and indeed whether their closure might be detrimental to the very start-up operations that I think all of us in the House agree are the lifeblood of the economy.
The key issue, however, is whether the importance of protecting tax revenues outweighs the need for certainty in commercial forward planning, because the threat of retrospection came as a great surprise to many tax professionals, as it falls foul of one of the great canons of taxationthat of certainty.
Arguably, retrospection is also unconstitutional, and if not it should be regarded as acceptable only when couched in unambiguous terms. The Government's admirably comprehensive explanatory notes make much of what they regard as the position under the Human Rights Act 1998. In spite of the characteristically robust protestations of human rights compatibility from the Chancellor of the Exchequer, his is a position of an interested party, for the reasons I have set out. These measures will obviously bring in more moneyperhaps as much as £240 million during this year and years to come.
The Chancellor and the Treasury need that money to keep flowing in, and it strikes me that several experts in this novel but complex field of human rights take a different view on compatibility. No one disputes that it is the Government's duty and responsibility to devise policy, but equally Parliament must retain effective control over how that policy is implemented by legislation.
In spite of the Paymaster General's suggestion that this power is relatively limitedthe words of comfort about the affirmative procedure were positiveParliament will undertake only cursory scrutiny, because the Bill is designed to enable Her Majesty's Revenue and Customs to backdate to December 2004 all those NICs to which the Finance (No. 2) Act 2005 changes apply.
We must consider some of the practical effectmy hon. Friend the Member for West Suffolk (Mr. Spring), the shadow Paymaster General, will mention some such examples laterand remember that NICs come from
27 Oct 2005 : Column 477
both the employer and employee. Are the Government seriously suggesting that erstwhile employers of someone who has died after December 2004, or perhaps of a former employee who has been fired in acrimonious circumstances, should have disputed NICs clawed back? This has all the makings of another farce on the linesalthough, I accept, not to the same degreeof the tax credits fiasco. How much contingency has the Paymaster General made for writing off sums that can neither be claimed nor easily traced?
It gets worse, because by the time the Bill has made it through Parliament, no doubt the new year2006will be upon us. Unravelling NICs arrangements, which by then would already be over a year old, will also most likely have knock-on implications for the disclosed employer company profits in previous tax years. That may have a crucial impact, especially if the tax avoidance in question is considered widespread within a particular industry sector.
Dawn Primarolo: First, does the hon. Gentleman agree that if the legislation's effect is to deter people from even bothering to devise schemes that seek not to pay the tax and national insurance that should have been paidI sincerely hope it isit will have done precisely what it aims to do, and all the things he is talking about, which no doubt we will explore in Committee, will not happen?
Secondly, does the hon. Gentleman think that the general taxpayer, and the Government representing the general taxpayer, are also entitled to certainty about revenues? This is employment pay, so it should be subject to pay-as-you-earn and national insurance.
Mr. Field: Let me answer the second point first, if I may. On the certainty issue, in any one year we do not know how many people will be in the employment market, as we have gathered from the constantly changing growth figures that have been published since the autumn review last year. For that reason, there will never be complete certainty for any Government at any time. What we are looking for here is commercial certainty. Surely it is the entitlement of individuals and companies to have that level of certainty. After all, tax is not a voluntary regime; it is imposed by a Government on their people. Such an imposition gives any Government of any day great power. The certainty that is therefore required is commercial certainty for those who could suffer from a tax.
On the Paymaster General's first point, our concern is the law of unintended consequences. We never quite know how things will unravel. I am not looking necessarily to stand up for those tax advisers and employee benefits remuneration people whose ingenuity allows new schemes to be developed at any one time; but equally, it is not the duty either of an employee or an employer, or of a company, to maximise the tax paid. They are quite entitled, where they can, to find what might be regarded as loopholes. It is obviously the Treasury's job, where there are unintended loopholes, to close those for the future.
I am grateful to the hon. Gentleman for giving way again. To pick him up on maximising the
27 Oct 2005 : Column 478
tax paid, it is the job of the House and the Government to ensure that legislation that the House has passed on tax and national insurance being paid on certain types of income at a certain rate actually happens. That is the issue here, not whether people are entitled to plan for tax. How does the House ensure that the legislation already passed is honoured? That is a fair point.
|Next Section||Index||Home Page|