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The Economic Secretary to the Treasury (Mr. Ivan Lewis):
To reinforce the point, the House might want to know that my grandmother lives in Bournemouth. I have a serious point, however. How does the hon. Gentleman square the proposal that he has just made on the nature of taxation with the fact that his party has just established a commission, under the chairmanship of Lord Forsyth, with a very clear remit to explore the barmy possibility of a flat tax?
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Mr. Field: The Economic Secretary knows that it is not a specific proposal. I was floating an idea, which is part and parcel of exactly what we are trying to achieve with the flat tax commission: simplifying the whole taxation system, which is a long overdue goal. In many ways, clause 1 seems to be worded with that sort of change in mind. In summing up, I hope that the Economic Secretary can confirm the Treasury's intention and indicate how such a process might be managed.
I want to touch on three other aspects. First, there is the regulatory impact assessment in which the Government attempted to assess the Bill's potential impact. They concluded that the combined impact of the measures
However, it should be remembered that small businesses are most dependent on attracting quality personnel, and therefore need to be able to offer tax-efficient employee incentive schemes. As the Government have already announced, the powers in the new Bill will be used first and foremost to tackle NIC avoidance through employment-related schemes. It is suggested that that will disproportionately affect businesses that the Government originally intended to promote by introducing tax-efficient employee incentive schemes. The position is made worse by the fact that employers cannot share any new unexpected liability to NICs with their employees.
Secondly, there is the issue of disclosure, which the Paymaster General mentioned. Clause 7 suggests that the regime for NICs and income tax will be similar. It would be useful to hear from the Treasury how it will work alongside taxation specialists to ensure a smoothly operating system. Twelve weeks seems a relatively short period, given the importance of the work that must be done, and the differences between this regime and the income tax regime introduced in the Finance (No. 2) Act 2005. Naturally all sides would like as long a lead-in time frame as is practical.
Much hinges in the future implementation of the intentions set out in this enabling legislation on regulation-making powers. The Bill brings NICs into the world of tax avoidance disclosure, and opens the way to retrospection. However, its operation, achieved by specific regulations that are highly technical and complex, will not be subject to full parliamentary scrutiny. Let us be honest: without significant outside expert help, there is little headway that any Opposition spokesman can forge even in Second Reading debates such as this. However, if such technical legislation with its retrospective element is brought in only via regulation, even when it is approved by statutory instrument, we run a real risk of adding to the statute book a series of poorly thought-through laws. My biggest worry is that that will result in employers and employees alike running the risk of being deprived of their property in an arbitrary manner.
I am not sure whether this is an ironic coincidence, but in the early 1990s I worked for a major firm of accountants. One of the directors had a particular claim
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to fame: within two hours of the Budget statement, he had worked out how to get around the proposed anti-avoidance measures. That scenario has continued for at least 15 years.
I realise that the hon. Member for Cities of London and Westminster (Mr. Field) has a particular constituency angle to take, but why should hard-working lower-paid people in my constituency and other constituencies in north Staffordshire have to pay their tax and national insurance while those who can afford extremely competent tax specialists to advise them get around the legislation? Where is the fairness in that?
David Taylor (North-West Leicestershire) (Lab/Co-op): Does my hon. Friend agree that while the Bill is commendable in seeking to reduce avoidance, it is odd that the Government should at the same time be introducing self-invested pension plans that give huge concessions to very rich people, which people in north Staffordshire and north-west Leicestershire can only dream about?
Mr. Flello: That is a good point, but what we are talking about is legislation that some members of the wider community can get around, while others are caught by it. We may be seeking fairness and equity, but where would be the fairness if people working at Michelin in my constituency were offered payment in the form of animal skins? Where is the fairness in the old system of payment in hay for someone working at a pub such as the Potters Bar in my constituency?
Mr. Richard Spring (West Suffolk) (Con): In the last seven or eight years, there has been a huge increase in the number of people at the lower end being sucked into taxation. The way to deal with the problem that the hon. Gentleman describes is to remove them from taxation, and that is exactly what the commission will deal with.
Mr. Flello: In the 1980s, a huge number of my constituents were no longer required to pay tax or national insurance when the mines were closed, Shelton Bar steelworks was closed, and the pottery industry was hammered time and again.
Mr. Flello: I shall stop smiling at that one now. There was a scheme involving fur coats, and another involving oriental carpets. What would the reaction be if one of the Longton fire crews were offered payment in the form of oriental carpets? It is ridiculous. There must have been huge warehouses attached to Schipol airport in Amsterdam, given the amount of goods apparently sitting there waiting for an employee to pop across to collect and bring back to the United Kingdom.
I would be somewhat concerned if one of the highly skilled, innovative and creative people working at Wedgwood in my constituency were offered payment in platinum sponge. Platinum sponge is not some nice little object that might be put on the mantelpiece; it is a highly
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volatile, unstable form of platinum. I would certainly not want to put that on my mantelpiece, and then take it down to the local market and trade it in.
We have heard allusions to creativity and innovation, but what that really means is making sure that certain individuals can get out of paying what most of us have to pay in tax and national insurance. I have encountered arrangements in the past involving a room full of people and a pile of documents, each document carefully numbered and laid out because it is crucial for them all to be signed in the right order if the scheme is to work. Is that what is meant by the certainty to which Opposition Members refer?
There is a fair amount of understanding among Opposition Members, however. I recall that in April 1995 a Conservative MinisterI forget which oneintroduced measures to stop what he described as a national insurance dodge using tradeable assets. The issue has been recognised for a long time. Obviously, paying someone in coffee beans to try to avoid national insurance is an appalling thing to do.
In the past, certainly for the past 15 years or so, we have seen a cat-and-mouse game. A scheme, or anti-avoidance legislation, is introduced; tax advisers sit down and work out a way around it; the next Finance Bill tries to tackle it; someone works out a way around that; another Finance Bill is produced; and then we reach the position we are in now. North Staffordshire chamber of commerce, for example, says it wants much simpler, more straightforward Finance Acts. Time and again, however, recent Finance Acts have tackled avoidance schemes, which is why they have been so lengthy.
This Bill is long overdue and would have been a very welcome legislative addition back in the early 1990s. Some £240 million a year is at stake, and north Staffordshire would certainly welcome the 10,000 new teachers that that money would fund. This money is owed to the Exchequer, and it is simply the use of creative schemes that has led to its not being paid. My constituents, who pay their national insurance and their tax, would welcome that money coming in to the Revenue to provide police officers, teachers and the like in our constituencies.
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